The world economy is poorly served by the current system of exchange rates. That system has contributed to today’s global financial imbalances, which are widely viewed as posing significant economic risk. These imbalances have also created political tensions between countries over how to adjust them, and within countries over job losses. Exchange rates matter more than ever under globalization, which means the world needs a better system. Read the rest of this entry »
Exchange Rates: There is a Better Way
October 31st, 2007Triangular Trouble: the Euro, the Dollar and the Renminbi
October 15th, 2007For the last several years the euro has been appreciating steadily against the U.S. dollar. Given the Chinese renminbi and other East Asian currencies are pegged to the dollar that means the euro has been appreciating steadily against all. This spells trouble for Euroland, and it suggests European policymakers should join with the U.S. to address the global problem of under-valued currencies. Read the rest of this entry »
The Flaws in Rubinomics
October 9th, 2007With Senator Hillary Clinton firmly cemented as the front-runner for the Democratic Party’s nomination, Rubinomics—named after former Treasury Secretary Robert Rubin, who shaped economic policy under President Clinton—has re-emerged as a critical issue. This is because Senator Clinton has firmly embraced it. Rubinomics rests on faulty economics and embodies bad politics. Progressive Democrats and the nation need to understand this. Here’s an explanation. Read the rest of this entry »
Jack Welch’s Barge: The New Economics of Trade
October 1st, 2007The classical theory of comparative advantage has driven US trade policy for the past fifty years. That policy, in combination with technical innovations that have lowered costs of transportation and communication, has opened the global economy. Yet paradoxically, this opening has rendered classical trade theory obsolete. That in turn has left the US economically vulnerable because its trade policy remains stuck in the past and based on ideas that no longer hold. Read the rest of this entry »
Inflation, Chinese Style
September 19th, 2007China’s government recently announced inflation hit a ten-year high of 6.5 percent in August. This increase in inflation is directly related to global trade imbalances, yet China is trying to control inflation without addressing that problem. That carries two consequences. First, it is doubtful this strategy can work, which likely augurs rising Chinese inflation. Second, the strategy aims to shift the onus of global trade adjustment on the U.S., which may come back to haunt China and the global economy. Read the rest of this entry »
The Fed and America’s Distorted Expansion
September 11th, 2007The U.S. economy has been in expansion mode since November 2001. Though of reasonable duration, the expansion has been persistently fragile and unbalanced. That is now coming home to roost in the form of the sub-prime mortgage crisis and the bursting house price bubble. Read the rest of this entry »
China’s Empty Threat
September 4th, 2007The United States Congress is currently contemplating critical legislation aimed at remedying the huge U.S.-China trade deficit. China and businesses that benefit from Chinese imports oppose this legislation, and to discourage action China has hinted at retaliation – including possibly selling its U.S. Treasury bond holdings. That threat has prompted some to argue against legislative action on grounds that risks of a trade war are too large and costly. Such thinking is mistaken. The reality is China’s threats are empty, whereas its currency manipulation is wreaking significant real damage on the U.S. economy. Read the rest of this entry »
Market Bondage
August 16th, 2007With Wall Street beset by a crisis of confidence and the mortgage-backed securities market seizing up, there is urgent need for an immediate emergency Federal Reserve interest rate cut. This sudden need has also revealed how today’s financial system places monetary policy in bondage to markets. That system has evolved over the past twenty-five years with the Fed’s approval, and the current crisis starkly reveals need for reform. Read the rest of this entry »
Marginal Productivity Theory and the Mainstream
June 7th, 2007In an earlier discussion on the state of orthodox economics hosted by TPM Café, I posted an article excavating the microeconomic foundations of neo-classical economics. In that article I wrote:
“There is one place that even orthodox lefties dare not go. That untouchable place is marginal product theory of income distribution, which basically says that competitive markets ensure that people are paid their contribution to production. This theory provides both a justification and an explanation of income distribution.” Read the rest of this entry »
The Profit vs. Country Dilemma
June 5th, 2007Vladimir Ilyich Ulyanov, alias Lenin, was the leader of the 1917 Bolshevik revolution in Russia. One of his best known quotes is “The capitalists will sell us the rope with which we will hang them.†Today, Lenin must be chuckling in his Moscow mausoleum as he watches US business dealings with China. Read the rest of this entry »