One of goal is to expose on false doctrines peddled by mainstream media.
Here is another example of the fixation of the currency "magic wand" solution to global ills.
In a recent article by the Economist, the woes of Japan's diminishing share of world trade has unfairly been pinned to its firming currency.
From the Economist, ``Its 10% slice this year will equal that achieved by Japan at its peak in 1986, but Japan’s share has since fallen back to less than 5%. Its exporters were badly hurt by the sharp rise in the yen—by more than 100% against the dollar between 1985 and 1988—and many moved their factories abroad, some of them to China. The combined export-market share of the four Asian tigers (Hong Kong, Singapore, South Korea and Taiwan) also peaked at 10% before slipping back."
While it may be true that Japan's share of world exports have fallen, blaming the strong yen is far from accurate. There may have been some companies or industries that may be affected, but this can't be applied in the general or macro sense.
What this implies is that the article has engaged in selective perception of its presentation of facts or has engaged in fact twisting in of support of a preconceived bias, i.e. inflationism via anti-market bias currency interventions.
As you will note from the chart above by Google's public data, exports as % of GDP has been rising for the world.
This means that for most of the world's major economies, exports have been improving. This includes the BRIC's or particularly China or even the 'burdened' strong yen of Japan.
Yet, to give a better perspective, the world's GDP has been in an uptrend going into the 2008 crisis, with most of the world's economies reflecting such improvement.
In other words, the impression that China has been stealing export market share, by manipulating her currency, at the expense of Japan who 'suffers' from a strong currency is far from the reality.
Instead, what has been happening is that as globalization gets entrenched, the pie of world output has been increasing with an increasing share of contributions from more nations nations participating in global trade, particularly, from emerging markets as China.
In short, the major fallacy of the mercantilist view is the perspective that trade is a zero sum game. It isn't. In fact globalization has generally benefited the world.
And currencies, the favorite snake oil nostrum, have hardly been the determinant of the share of exports or competitiveness or economic growth. [see previous discussion: Big Mac Index: The Fallacy of Blessed And Burdened Currencies]
In fairness to the Economist, they mentioned other factors that may have helped China's expanding exports amidst a falling share of her major trading partners during the recent recession.
``Lower incomes encouraged consumers to trade down to cheaper goods, and the elimination of global textile quotas in January 2009 allowed China to increase its slice of that market."
Nevertheless, article's underlying theme seems slanted towards 'Sino phobia' -which unnecessarily portrays her as arbitrarily benefiting from the recession.
Again the Economist, ``Strong growth in China’s spending and imports is unlikely to dampen protectionist pressures, however. China’s rising share of world exports will command much more attention. Foreign demands to revalue the yuan will intensify. A new year looks sure to entrench old resentments".
Well perhaps it is more than just a misperception of the role of trade but from an anti-foreign bias endemic in the public's mind.
According to Professor Bryan Caplan, ``The root error behind 18th-century mercantilism was an unreasonable distrust of foreigners. Otherwise, why would people focus on money draining out of “the nation” but not “the region,” “the city,” “the village,” or “the family”? Anyone who consistently equated money with wealth would fear all outflows of precious metals. In practice, human beings then and now commit the balance of trade fallacy only when other countries enter the picture. No one loses sleep about the trade balance between California and Nevada, or me and iTunes. The fallacy is not treating all purchases as a cost but treating foreign purchases as a cost." (emphasis added)
Bottomline: Mercantilist solution deals with symptoms and not the cause. This means that policymakers who follow mainstream prescriptions is likely to suffer from the law of unintended consequences.
Here is another example of the fixation of the currency "magic wand" solution to global ills.
In a recent article by the Economist, the woes of Japan's diminishing share of world trade has unfairly been pinned to its firming currency.
From the Economist, ``Its 10% slice this year will equal that achieved by Japan at its peak in 1986, but Japan’s share has since fallen back to less than 5%. Its exporters were badly hurt by the sharp rise in the yen—by more than 100% against the dollar between 1985 and 1988—and many moved their factories abroad, some of them to China. The combined export-market share of the four Asian tigers (Hong Kong, Singapore, South Korea and Taiwan) also peaked at 10% before slipping back."
While it may be true that Japan's share of world exports have fallen, blaming the strong yen is far from accurate. There may have been some companies or industries that may be affected, but this can't be applied in the general or macro sense.
What this implies is that the article has engaged in selective perception of its presentation of facts or has engaged in fact twisting in of support of a preconceived bias, i.e. inflationism via anti-market bias currency interventions.
As you will note from the chart above by Google's public data, exports as % of GDP has been rising for the world.
This means that for most of the world's major economies, exports have been improving. This includes the BRIC's or particularly China or even the 'burdened' strong yen of Japan.
Yet, to give a better perspective, the world's GDP has been in an uptrend going into the 2008 crisis, with most of the world's economies reflecting such improvement.In other words, the impression that China has been stealing export market share, by manipulating her currency, at the expense of Japan who 'suffers' from a strong currency is far from the reality.
Instead, what has been happening is that as globalization gets entrenched, the pie of world output has been increasing with an increasing share of contributions from more nations nations participating in global trade, particularly, from emerging markets as China.
In short, the major fallacy of the mercantilist view is the perspective that trade is a zero sum game. It isn't. In fact globalization has generally benefited the world.
And currencies, the favorite snake oil nostrum, have hardly been the determinant of the share of exports or competitiveness or economic growth. [see previous discussion: Big Mac Index: The Fallacy of Blessed And Burdened Currencies]
In fairness to the Economist, they mentioned other factors that may have helped China's expanding exports amidst a falling share of her major trading partners during the recent recession.
``Lower incomes encouraged consumers to trade down to cheaper goods, and the elimination of global textile quotas in January 2009 allowed China to increase its slice of that market."
Nevertheless, article's underlying theme seems slanted towards 'Sino phobia' -which unnecessarily portrays her as arbitrarily benefiting from the recession.
Again the Economist, ``Strong growth in China’s spending and imports is unlikely to dampen protectionist pressures, however. China’s rising share of world exports will command much more attention. Foreign demands to revalue the yuan will intensify. A new year looks sure to entrench old resentments".
Well perhaps it is more than just a misperception of the role of trade but from an anti-foreign bias endemic in the public's mind.
According to Professor Bryan Caplan, ``The root error behind 18th-century mercantilism was an unreasonable distrust of foreigners. Otherwise, why would people focus on money draining out of “the nation” but not “the region,” “the city,” “the village,” or “the family”? Anyone who consistently equated money with wealth would fear all outflows of precious metals. In practice, human beings then and now commit the balance of trade fallacy only when other countries enter the picture. No one loses sleep about the trade balance between California and Nevada, or me and iTunes. The fallacy is not treating all purchases as a cost but treating foreign purchases as a cost." (emphasis added)
Bottomline: Mercantilist solution deals with symptoms and not the cause. This means that policymakers who follow mainstream prescriptions is likely to suffer from the law of unintended consequences.
