Bill Totten's Weblog

Friday, January 15, 2010

A Chinese Response to Krugman

by Evan Osnos

The New Yorker (January 11 2010)

In a New Year's Day Op-Ed piece in the Times, Paul Krugman declared that "Chinese mercantilism is a growing problem, and the victims of that mercantilism have little to lose from a trade confrontation. So I'd urge China's government to reconsider its stubbornness. Otherwise, the very mild protectionism it's currently complaining about will be the start of something much bigger."

The most direct response I've seen from a state-run sector of the Chinese media came today, in the English edition of the Global Times (in English, I suppose to ensure a broader audience). The piece, signed with the name Liu Ge, suggests that the aforementioned reconsideration has yet to begin. Excerpts:

Pushing Americans back to the factory to produce footwear, clothing, and television sets, so that the shelves of Wal-Mart could be re-filled with US-made products may sound like a good recipe to solve the employment issue.

However, are Americans willing to go back to the assembly line? Are US consumers willing to foot the bill? Will US companies move their factories from Asia back to the US?

Krugman wrote in his book, The Conscience of a Liberal (2007), "It's only in retrospect that the political and economic environment of my youth stands revealed as a paradise lost, an exceptional episode in our nation's history".

The paradise referred by Krugman is the period from the end of World War Two to the 1970s, also the time when he was growing up. His nostalgia is touching, but shouldn't affect our policy judgments.

It's true that during this time the US economy grew rapidly, wage levels rose sharply and the gap between the rich and the poor was significantly reduced.

However, at that time billions of people worldwide had still not joined the wave of globalization. With globalization, the US has been forced into a very different kind of economy.

A general manufacturing industry can no longer survive there. When the US found that modern service sectors such as high-tech, communications and finance could not guarantee full employment, it was no longer possible to return to this earlier paradise.

Paul Krugman is like a doctor facing a patient with extensive cancer. He can diagnose the cause of what plagues the US, but he cannot provide a genuine cure.

Krugman's prescription is not a question whether the Chinese want to accept it or not, but a question whether Americans want to accept or achieve it or not. We do not need to be too serious about the arbitrary judgments of popular economists.

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Bill Totten


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