Lets Talk Economic Horse Sense - Road to the Middle Class

YOU ECONOMIC Neanderthals that still think, like the Spanish of 1600 and the French of 1700 and the Germans of 1870 and the Smoots and Hawleys of 1930, that trade surpluses are good and trade deficits are bad shouldn´t read this analysis of the revaluation of the Chinese Yuan by John Tamny.

You won´t want to read that the trade figures are meaningless since, as the great Bob Bartley once said, the trade figures always balance. Ludwig von Mises said it better by writing that the balance of payments is always in balance. You won´t want to think that trade warriors like Senator Smoot Schumer and Senator Hawley Graham are always (and always have been) the tool of special interests that want the government to protect their rents.

Because here´s the bottom line on revaluation of the Yuan:

Assuming revaluation succeeds in making Chinese exports more expensive, the broad American population will lose twice: first in seeing their buying power reduced, and second in the necessary loss of productivity that always results when nations don’t take advantage of the economy-boosting division of labor. Those who doubt the latter point need only study the relative employment rates of countries with open versus closed markets.

The challenge of a surging China is not that it takes American jobs. Of course it takes American jobs. “They” are always taking American jobs. That´s how a growing economy works. Millions of jobs get lost and millions of jobs get created. A hundred years ago, “they” took away all the American jobs on the farm. Forty years ago “they” started taking away the jobs of good unionized factory workers. The result? Today America has more jobs than ever.

The challenge for the United States is that if we want to remain the top dog in the world economically we have to make higher value products and do higher value services than the the rest of the world, from China to India to Old Europe. That, of course, is hard work, and not just hard work but smart work, which is even harder.

Let us not forget, already, the last time that we jawboned a foreign country into revaluing its currency upwards. It was at the Plaza Accords in 1985. The Japanese were bullied into revaluing their currency upwards and ended up screwing up their economy for twenty years. They are only just beginning to emerge from the mess. And remember the great stock market crash of 1987 when the Dow lost 25 percent of its value in a single day? That happened the “Monday after Treasury Secretary James Baker talked down the dollar on the Sunday morning talk shows.”

All we Americans need to think about is how to create and grow businesses that meet and beat the competition. Everything else will take care of itself.

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Christopher Chantrill blogs at www.roadtothemiddleclass.com. His Road to the Middle Class is forthcoming.