I loved this post. Excerpt:
AAARGH!!! Foreign Policy, the People magazine of international affairs has produced a column entitled "5 Lies my Economist Told me". The problem is, they are either not really lies or else not really what a professional economist would say!!
The dissection then proceeds. How about this line?
I think there are a lot of countries in
the world who’d be thrilled to have a financial crisis because it would
mean they had experienced some foreign investment.
Seriously, how come a serious publication such as FP can get away with nonsense like that?
Well, I don’t want defend “the People magazine of international affairs”, but it seems to me that if there are economists who think that the Euro is a bad idea, then don’t they have to explain why they are not in favor of separate currencies for each state and municipality?
Marty Feldstein, for one, thinks the Euro is a bad idea. He claims a single monetary policy is too inflexible for the numerous economies of Europe. Relative to America, there is much less labor mobility in the Eurozone, so workers are less responsive to differences in regional recession/boom cycles. If you have one country overheating, while another is lagging, what’s the appropriate monetary policy?
Not liars, just motived by their own biases such as saying something is good or bad while omitting for whom (usually themselves).
Of course, I guess it’s worth noting that this practice of awarding assistantships to foreign grad students does benefit the tenured professors….so at least part of the profession isn’t necessarily so selflessly devoted. But the rest of us favor it because we’re good people!
Four of the five lies do have some substantial basis in fact and do demonstrate the limits of the economic profession. However, the last “lie† is a doozy. Japan is not the second-ranked economy in the world. China’s economy is 2.4 times larger than that of Japan and around 77% the size of the US economy.
China’s economy will surpass the United States in just a few years, perhaps before 2010. Note that China is already (by far) the dominant producer of industrial materials (for example, cement production 11x the United States) and the largest emitter of CO2. China holds the largest foreign exchange reserves as well.
My suggestion is that the editors of FP should fact check their articles. Providing authors with access to the Internet can be quite helpful as well.
Peter, China’s “exchange rate mercantilism” amounts to giving us free goods because their capital markets aren’t yet well-developed enough to funnel their considerable savings to the highest-yield investments.
China wants to (or feels forced to) engage in policies that benefit us at their expense? Great!
Again, this “exchange rate mercantilism” stuff really is just a lot of hot air from people who don’t understand exchange rates.
Keith,
“Again, this “exchange rate mercantilism” stuff really is just a lot of hot air from people who don’t understand exchange rates†
Really? Martin Wolf of the FT doesn’t understand exchange rates? The Martin Wolf who created the “Economists’ Forum† (http://ftblogs.typepad.com/wolfforum/)?
Take a look at the three presentations linked to over at “Martin Wolf must have an amazing research assistant †¦† (http://www.rgemonitor.com/blog/setser/122822). Please read them and reconsider your assertion about who does and who doesn’t understand exchange rates.
Pater, actually, it appears that Martin Wolf’s opinion is similar to mine, that China hurts themselves with their exchange rate policy. In other words, the problem ain’t Martin Wolf, but your lack of reading comprehension.
@Keith:
What Peter says and what Martin says does in no way contradict one another. Talk about poor reading comprehension… don’t you think that short-term economic ‘predation’ and long-term economic self-harmfulness can be fully compatible?
M.D. Fatwa,
The population of the United States is 2.4x that of Japan. To reach the GNP of the United States, Japan’s per-capita GDP would have to be 140% higher than that of the United States. A difficult prospect at best.
By contrast, China has 4.4x times as many people as the United States. China has only to reach 23% of the per-capita GDP of the United States to surpass the US in total GDP. Given that every developed nation of Asia has done far better than 23% of the US, China’s GDP will far exceed that of America in just a few years.
Am I an economist? One of the contributors above asks this question. Well, I have a post-graduate degree in economics from Oxford University (a Master of Philosophy,to be precise) and was the senior economist in the India Division of the World Bank in the mid-1970s. I have never studied anything called “political economy”, though my first degree at Oxford was Politics, Philosophy and Economics. I am rather inclined to think I am an economist. But I have never been an academic economist. I much prefer my current activity of engaging in public debate.
And, yes, I do understand the argument that deliberately trying to keep one’s exchange rate down, as China has been doing, cannot be predatory, but is, on the contrary, extraordinarily generous.
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