Finger pointing seems to be the favorite but fatalistic past time for self-righteous mainstream experts and their gullible followers.
Not content with assigning blame on the marketplace for last year's crisis, a further step is to engage and rebuke foreign central planners on their elected policies.
For instance, the mainstream tends to focus on global imbalances as a source of the present tensions, where savers mainly from China have been blamed for the troubles in the US, primarily by manipulating the former's currency.
Hence, the prescription from the mercantilist camp is simplistically to demand China to conform to the interests of Americans by revaluing its currency, in order to rebalance the world by regenerating the lost "aggregate demand".
And on the other end, for the Americans to devalue their currency.
In short, a waving of the magical wand in view of currency adjustments will automatically resolve today's problems in the eyes of the politically correct mainstream.
Mainstream seem to see the problem like a shower faucet that can simply be turned hot or cold. It's that simple.
Never mind, if a "manipulated" Chinese currency translates to overall cheaper goods for US and global consumers.
Yet, if we go by the words of Adam Smith consumers and not producers should be the chief concern, ``Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident that it would be absurd to attempt to prove it. But in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce."
The mercantilist policy of forcing currencies to adjust benefits a politically privileged select "producers" more than the consumers or society in general.
Never mind too, that even when some currencies had been repriced, evidence doesn't automatically extrapolate to support expected benefits.
For instance the Japanese yen, which firmed from 350 (in the 70s) to about 100 (today) remains as one of the world's major exporters, and is ranked 8th among the world's most competitive nations in 2009 according to the World Economic Forum is said to be still deficient in domestic demand after all these years of currency strength.
On the other hand, following the recent hyperinflation episode, Zimbabwe has yet to transform into a major exporting powerhouse, while the Philippines, following over 4 decade of devaluation from Php 2 to Php 55 to a US dollar, remains an underdog in terms of goods and services exports.
And if one were to argue in the context of low net wages then the Philippines, India and Indonesia should be powering ahead based on a study by UBS.
As previously argued, currencies aren't everything. Capital and economic structures, political framework and its underlying institutions aside from cultural influences essentially varies from country to country.
Besides mainstream's dogmatism on the currency panacea presumes that all products have similar price sensitivity and is sold to one class of consumers, which isn't anywhere true.
Never mind too that when the mainstream argue about oversimplified nostrums, which is for China to revalue and for the US to devalue, exports as % of the GDP for the US translates to only 11%.
This means that devaluation isn't truly directed at boosting exports at the expense of the society, but instead tacitly aimed at reducing outstanding liabilities (about 350% of the GDP) to the benefit of select industries as the banking system and Wall Street.
Never mind too that the world operates on the US dollar standard system where according to the Triffin Dilemma, expanding global trade requires US dollar financing via expanded deficits. It would appear that the mainstream sees no distinction in the economic and trade categorization of China and the US.
Never mind too that the Chinese didn't force Americans to engage in a euphoric mania to buy houses, or for US institutions to engage in excessive risk taking or for the lapses of American regulators who had been caught asleep at the wheel.
Never mind too that Americans had responded to an ad hoc cocktail mix of domestic policies that promoted a bubble:
An extended ultra low interest rate regime, administrative housing policies that encouraged speculation and subsidized mortgage indebtedness, tax policies that tilted the public's incentives towards assuming debt than equity and capital regulations that prompted for regulatory arbitrage via financial innovation.
Yet the mainstreamism parses their perception of 'macro' problems on their perceived one dimensional framework than considering the mutual or bilateral aspects.
NYU's Professior Mario Rizzo asserts that the conflicting interests of international policymakers operating on the Keynesian framework leads to a negation of their system.
From Professor Rizzo,(emphasis added)
``But, as some economists freely admit, the problem is that this pits one country’s interest against another. Either China could gain or the US could gain by manipulating exchange rates.
``Yet I cannot help imagining that a Beneficent World Planner with Keynesian views might think it equitable to permit unemployment to stay high in the US but not in China. Not only is the US safety net better, many of our poor or lower middle class are better off than Chinese workers.
``However, the ideal Keynesian solution, we are told, is to have an internationally coordinated policy of low interest rates. Of course, China has been following a low interest-rate monetary policy; credit is abundantly available. But Chinese bankers and economists have become increasingly worried about bubbles. Should they not be?
``The Keynesian world-view is skeptical of the classical liberal idea of the international harmony of interests under free trade, when the economy is operating at less than full-employment. In this world, there are definite conflicts of interest among nations. A Chinese Keynesian would not have the same views as Krugman. This is not because they differ about theory but because the theory sets up conflict. Such conflict is naturally settled by the partiality of their perspectives.
``If the Keynesians are right, this is another example of traditional microeconomic theories being annulled in their system. I suggest that the formal limitation to conditions of less than full employment is not as stringent as it sounds. Much, perhaps most, of the time the economy will arguably be in either a state of less than full employment or be threatened with some change in the news that will knock it out of full-employment equilibrium."
I would add to Prof Rizzo's position that not only would the result be a nullification but 'settled by the partiality of their perspective' via a non-zero sum game theory called the Prisoner's dilemma or a game theory which "demonstrates why two people might not cooperate even if it is in both their best interests to do so".(wikipedia.org)
This involves policymakers to either cooperate or adversely outdo or undertake policies that clashes with each other, even to the extent that they could be mutually destructive, possibly in the form of protectionism.
And indications of the partiality of political policies in the direction of an internecine trade war between two camps of opposing Keynesian practitioners seems to have emerged.
As observed by John Stossel,
Not content with assigning blame on the marketplace for last year's crisis, a further step is to engage and rebuke foreign central planners on their elected policies.
For instance, the mainstream tends to focus on global imbalances as a source of the present tensions, where savers mainly from China have been blamed for the troubles in the US, primarily by manipulating the former's currency.
Hence, the prescription from the mercantilist camp is simplistically to demand China to conform to the interests of Americans by revaluing its currency, in order to rebalance the world by regenerating the lost "aggregate demand".
And on the other end, for the Americans to devalue their currency.
In short, a waving of the magical wand in view of currency adjustments will automatically resolve today's problems in the eyes of the politically correct mainstream.
Mainstream seem to see the problem like a shower faucet that can simply be turned hot or cold. It's that simple.
Never mind, if a "manipulated" Chinese currency translates to overall cheaper goods for US and global consumers.
Yet, if we go by the words of Adam Smith consumers and not producers should be the chief concern, ``Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident that it would be absurd to attempt to prove it. But in the mercantile system the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce."
The mercantilist policy of forcing currencies to adjust benefits a politically privileged select "producers" more than the consumers or society in general.
Never mind too, that even when some currencies had been repriced, evidence doesn't automatically extrapolate to support expected benefits.
For instance the Japanese yen, which firmed from 350 (in the 70s) to about 100 (today) remains as one of the world's major exporters, and is ranked 8th among the world's most competitive nations in 2009 according to the World Economic Forum is said to be still deficient in domestic demand after all these years of currency strength.
On the other hand, following the recent hyperinflation episode, Zimbabwe has yet to transform into a major exporting powerhouse, while the Philippines, following over 4 decade of devaluation from Php 2 to Php 55 to a US dollar, remains an underdog in terms of goods and services exports.
And if one were to argue in the context of low net wages then the Philippines, India and Indonesia should be powering ahead based on a study by UBS.
As previously argued, currencies aren't everything. Capital and economic structures, political framework and its underlying institutions aside from cultural influences essentially varies from country to country.
Besides mainstream's dogmatism on the currency panacea presumes that all products have similar price sensitivity and is sold to one class of consumers, which isn't anywhere true.
Never mind too that when the mainstream argue about oversimplified nostrums, which is for China to revalue and for the US to devalue, exports as % of the GDP for the US translates to only 11%.This means that devaluation isn't truly directed at boosting exports at the expense of the society, but instead tacitly aimed at reducing outstanding liabilities (about 350% of the GDP) to the benefit of select industries as the banking system and Wall Street.
Never mind too that the world operates on the US dollar standard system where according to the Triffin Dilemma, expanding global trade requires US dollar financing via expanded deficits. It would appear that the mainstream sees no distinction in the economic and trade categorization of China and the US.
Never mind too that the Chinese didn't force Americans to engage in a euphoric mania to buy houses, or for US institutions to engage in excessive risk taking or for the lapses of American regulators who had been caught asleep at the wheel.
Never mind too that Americans had responded to an ad hoc cocktail mix of domestic policies that promoted a bubble:
An extended ultra low interest rate regime, administrative housing policies that encouraged speculation and subsidized mortgage indebtedness, tax policies that tilted the public's incentives towards assuming debt than equity and capital regulations that prompted for regulatory arbitrage via financial innovation.
Yet the mainstreamism parses their perception of 'macro' problems on their perceived one dimensional framework than considering the mutual or bilateral aspects.
NYU's Professior Mario Rizzo asserts that the conflicting interests of international policymakers operating on the Keynesian framework leads to a negation of their system.
From Professor Rizzo,(emphasis added)
``But, as some economists freely admit, the problem is that this pits one country’s interest against another. Either China could gain or the US could gain by manipulating exchange rates.
``Yet I cannot help imagining that a Beneficent World Planner with Keynesian views might think it equitable to permit unemployment to stay high in the US but not in China. Not only is the US safety net better, many of our poor or lower middle class are better off than Chinese workers.
``However, the ideal Keynesian solution, we are told, is to have an internationally coordinated policy of low interest rates. Of course, China has been following a low interest-rate monetary policy; credit is abundantly available. But Chinese bankers and economists have become increasingly worried about bubbles. Should they not be?
``The Keynesian world-view is skeptical of the classical liberal idea of the international harmony of interests under free trade, when the economy is operating at less than full-employment. In this world, there are definite conflicts of interest among nations. A Chinese Keynesian would not have the same views as Krugman. This is not because they differ about theory but because the theory sets up conflict. Such conflict is naturally settled by the partiality of their perspectives.
``If the Keynesians are right, this is another example of traditional microeconomic theories being annulled in their system. I suggest that the formal limitation to conditions of less than full employment is not as stringent as it sounds. Much, perhaps most, of the time the economy will arguably be in either a state of less than full employment or be threatened with some change in the news that will knock it out of full-employment equilibrium."
I would add to Prof Rizzo's position that not only would the result be a nullification but 'settled by the partiality of their perspective' via a non-zero sum game theory called the Prisoner's dilemma or a game theory which "demonstrates why two people might not cooperate even if it is in both their best interests to do so".(wikipedia.org)
This involves policymakers to either cooperate or adversely outdo or undertake policies that clashes with each other, even to the extent that they could be mutually destructive, possibly in the form of protectionism.
And indications of the partiality of political policies in the direction of an internecine trade war between two camps of opposing Keynesian practitioners seems to have emerged.
As observed by John Stossel,
``The administration continues their relentless march towards a Trade War with China:
``Trade disputes between Beijing and Washington over exports of tires, chickens, steel, nylon, autos, paper and salt are multiplying and further damaging the already tense relationship between the two economic powers.
``The Obama administration says it only aims to protect the country's rights, but the Chinese counter that the United States started the whole thing by launching an unprovoked attack".
So while China has been opening up to its neighbors, a gamut of "beggar thy neighbor" or tit-for-tat policies appears to be engaged by Keynesian adherents of both US and China at risks of another world recession or even depression.
Again John Stossel, (bold highlights mine)
``This is madness. Even if China is subsidizing their exports, the US consumer benefits at China's expense. A Trade War will simply make everyone worse off (except maybe unions), leaving consumers with fewer choices and higher prices. The Administration needs to swallow its pride and drop the tarriffs, because if the US doesn't lead on free trade, no one will. A recent study by Global Trade Alert, a trade policy think tank based in Europe, shows that global protectionism is on the rise, with the wealthiest nations imposing more than 180 protectionist measures in the last year. Congress, meanwhile, won't even bring the Colombia Free Trade Agreement to a vote".
In the past free market devotees had been deceptively labeled as ruthless 'liquidationists'. We turn the tables and ask, what should we call policymakers and their adherents who espouse on belligerent or hostile short term oriented policies predicated on ideological zealotry that places society at extreme risks?
Again John Stossel, (bold highlights mine)
``This is madness. Even if China is subsidizing their exports, the US consumer benefits at China's expense. A Trade War will simply make everyone worse off (except maybe unions), leaving consumers with fewer choices and higher prices. The Administration needs to swallow its pride and drop the tarriffs, because if the US doesn't lead on free trade, no one will. A recent study by Global Trade Alert, a trade policy think tank based in Europe, shows that global protectionism is on the rise, with the wealthiest nations imposing more than 180 protectionist measures in the last year. Congress, meanwhile, won't even bring the Colombia Free Trade Agreement to a vote".
In the past free market devotees had been deceptively labeled as ruthless 'liquidationists'. We turn the tables and ask, what should we call policymakers and their adherents who espouse on belligerent or hostile short term oriented policies predicated on ideological zealotry that places society at extreme risks?
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