  Why Krugman's "Blame China" Mentality Is Completely Wrong
Reported by Business Insider on Monday, 16 November 2009 (on November 16, 2009)
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(This guest post originally appeared at the author's blog)
A friend of mine suggested calling [my] site, "Krugman in Wonderland," but my wife objects, so it is obvious I need to keep peace in the family. Nonetheless, I am grateful to Paul Krugman for providing so much material that helps keep me writing. Granted, this perch is not as lucrative as Krugman's New York Times location on the editorial page, but a person has to do what he can.
The latest outrage comes today in his column that blames China for much of the economic downturn. Granted, today's column is not as outrageous as his column last Friday in which he claims that the way to end unemployment in the United States is for Congress to write laws making it nearly impossible to fire workers. Yeah, they have tried that in Spain, which has had double-digit unemployment for years, as employees carry liabilities that make it a real danger for companies to employ anyone.
Without going into a lot of detail about how currencies work in relation to one another, Krugman attacks the Chinese government for following a policy to keep its currency, the yuan, low relative to the U.S. Dollar. China does this in order to make its goods attractive for export, as the government there is trying to emulate what Japan did in promoting its own export-first policy.
Because I am no fan of government fiat currencies, I am not going to approve of China's policies, which actually punish the Chinese workers who must pay much more for their goods than they would if the yuan could float in a free market. Nonetheless, Krugman contends that somehow China is making itself better off at the expense of everyone else. That simply is not true. He writes:
So picture this: month after month of headlines juxtaposing soaring U.S. trade deficits and Chinese trade surpluses with the suffering of unemployed American workers. If I were the Chinese government, I’d be really worried about that prospect.
Unfortunately, the Chinese don’t seem to get it: rather than face up to the need to change their currency policy, they’ve taken to lecturing the United States, telling us to raise interest rates and curb fiscal deficits — that is, to make our unemployment problem even worse.
And I’m not sure the Obama administration gets it, either. The administration’s statements on Chinese currency policy seem pro forma, lacking any sense of urgency.
That needs to change. I don’t begrudge Mr. Obama the banquets and the photo ops; they’re part of his job. But behind the scenes he better be warning the Chinese that they’re playing a dangerous game.
No, the Chinese are not playing a "dangerous" game; they are playing a stupid game, because they are not permitting themselves to enjoy the fruits of their very hard labor. At the same time, one must remember that the U.S. Government has played a very dishonest game with the Chinese.
Why do I say that? Well, because it is true. For the last decade, the U.S. Government has sold trillions of dollars of debt (which the Federal Reserve System is rapidly depreciating with inflation-ravaged dollars) to China, and in return, Americans get consumer goods. Now that the Chinese realize that they have been played for suckers, our "experts" now accuse them of starting the problem in the first place, as though it was the Chinese who created the housing bubble and run the Fed.
Granted, that kind of logic is hard for someone like Krugman to understand, as he believes an economy is nothing more than a "blob" into which we throw newly-printed money. Like Aaron, who told Moses that the Golden Calf simply appeared after he threw gold jewelry into a fire, Krugman believes that an economy magically appears simply when governments print money. Which story is less believable? I'll let readers decide.
Join the conversation about this story »See Also:A Radical Solution: Obama Should Peg The Dollar To The YuanChina: No Way Are We Going To Break The Yuan PegUS-China Currency Dispute Forces Last-Minute Change To APEC Announcement
Links: Full news story
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