By Mike The Chinese are selling US debt.
That’s a big deal because, for the past several years, the Chinese have been selling their own currency and buying dollars (and other foreign currencies). If they start flooding the world with that money, the dollar might start to stumble.
And if the dollar starts to stumble, it might collapse–in the 1970s the dollar went from being the official foundation of the world financial system, exchangeable for gold, to just another currency. But there were a lot of dollars overseas, and America has gone through contortions to keep them there rather than have them come home and cause inflation. Hence, lots of pressure on the oil states to keep selling oil in dollars (so that there’s something a dollar will buy), for instance.
If the Chinese keep selling, it may not be just their dollars but ALL the dollars that have been out there since WWII that come home.
Short term, that would be bad, hence the title. But that’s because in today’s complicated world, almost any conceivable big economic change would be bad in the short term. (Switching, as much as possible, from coal to wind and solar power is a very urgent task, but the initial disruption would be massive and painful).
But really, maybe it’s time to let those dollars come home. First of all, this is about the best time for it–we have deflation right now, not inflation, so more money in people’s pockets would stop the deflation before it started inflation.
And one of the ways we kept the dollar away was to keep our money overvalued, killing our exports. That is, it’s not exactly that the Japanese make a car of a given quality cheaper, it depends on the exchange rate. A Japanese car that costs a million yen is more expensive than an American car that costs $10,000 if the dollar is 99 yen (1,000,000/99 = 10101), and it’s cheaper if the dollar is “weaker” at 101 yen. (1,000,000/101 = 9901). So if the dollar loses value, American products will be cheaper and people will buy them again.
In fact, the reason that China exports so much is not that it makes stuff with less labor, capital, and environmental damage. It’s not that Chinese stuff is better (good lord not). And it’s only partly that Chinese labor is poorly paid. It’s mainly the exchange rate–when Chinese sold their currency and bought dollars, they kept their money cheap and their goods cheap. And the flood of cheap Chinese goods was great for China but not so much for anyone else.
So in the less short term, maybe this is just what we need.
Inflation may be a problem in the longer term, of course, but worrying about it right now is, as Keynes said (I’m paraphrasing) like lecturing a starving man about the dangers of obesity. I would trade the economy of the high-inflation seventies for today in an instant.
By Mike So apparently, in the 2012 Olympics the police will have the power to stop people from entering events with non-sponsor items.
Now I think that most everything you can buy is actually generic—cola is cola, soap is soap, a shirt is a shirt—and the fact that people actually care about brand is just sad. Really, if Coke sponsors the Olympics and you wanted to drink a Pepsi, the very fact that you have an opinion on the marginal taste difference between two crappy colas suggests that you’re a massive loser.
But still: the power of the state will be used, or at least be available, to force people to buy one brand instead of another. That’s just wrong.
Adam Smith said it best:
“It is unnecessary, I imagine, to observe, how contrary such regulations are to the boasted liberty of the subject, of which we affect to be so very jealous; but which, in this case, is so plainly sacrificed to the futile interests of our merchants and manufacturers.”
In that quote Smith was talking about mercantilism (where powerful sellers dominate the economy, the government, and the population, and their need to sell is treated as more important than anything).
And:
“It cannot be very difficult to determine who have been the contrivers of this whole mercantile system; not the consumers, we may believe, whose interest has been entirely neglected; but the producers, whose interest has been so carefully attended to. . . .”
This happens in the US too; for instance, in many states it’s illegal to criticize the food supply (and hooboy is the food supply horrifying).
How did we get here? That’s a post for later.
By Mike The International Brotherhood of Electric Workers is suing Goldman Sachs for overpaying its executives.
That may seem odd–what do electricians have to do with Goldman Sachs, after all–but unions have pension funds, and the pension funds own stocks, and stocks represent ownership of companies. Companies like Goldman Sachs. So when the managers of GS enrich themselves at the expense of the company (they paid themselves 47% of the year’s profits, or maybe only 36%, according to the article–either way it’s a lot), they’re cheating the shareholders and the shareholders can sue.
Don’t get me wrong—the idea that big companies belong to the shareholders, that the managers work for the shareholders alone, and that nobody else—not workers, not local communities, not the public—has say in the matter, is one of the most pernicious bits of ideology ever foisted on the public.
But as long as that is the ideology, by all means let’s use it for good as well as evil. When managers pay themselves insane amounts of money, let’s send them to jail like the thieves they are.
By Mike Always happy to see when a cartoon goes to the heart of an economic issue, especially one that’s usually treated as something arcane.
Rall, if you don’t know his work, is excellent–his work in Afghanistan is more informative than a building full of cable news talking heads.
EDIT: Forgot to mention: originally found through DrDm over on Reddit.
By Mike I was pondering writing a post in praise of inflation. That sounds heretical, but really, our economic problem comes down to:
- Paper wealth (like a dollar bill) gives you a claim on real wealth (like a candy bar).
- We let paper wealth (stocks, bonds, house prices, etc.) get so far out of hand that there’s no way that everybody can get all the real wealth they think they own.
- The three ways out of this are to keep most people in serfdom producing real wealth for the owners of paper wealth, to let the paper wealth evaporate (which has happened to some degree) or to print and spend so much money that the paper wealth loses some of its value.
The difference between option 2 and option 3 is that option 2 causes a painful contraction (destroying real wealth, or at least keeping people idle instead of creating more wealth), while option 3 gets people working and creating real wealth.
And when you put it that way, somehow inflation doesn’t seem so bad.
In any case, as I said, I was planning to write a post praising inflation, but before I got all my thoughts together, I read a decent summary of many of the issues involved over at Guerrilla Post. So check it out.
By Mike Friedrich Hayek and John Maynard Keynes, battling.
Seems to me that Hayek is having words put in his mouth—just like Marx gets credit for every leftist dissent of the past century and a half, Hayek sometimes gets credit for free-market ideas that he didn’t originate (and in some cases wouldn’t have supported).
Still:
It’s Friedrich Hayek. And John Maynard Keynes. Battling.
By Mike Or at least, one Leo Johnson, partner for sustainability and climate change at PWC.
At the end of an article in the WSJ–an article that’s mainly about corporations finding excruciating new euphemisms for “we’re cutting our social responsibility budgets because we can”–comes Johnson’s flash of honesty:
“If governments provide a strong legal framework that aligns incentives with business, then you have something you could call sustainability. If not, then corporate social responsibility will just be glacé cherries on an unsustainable cake.”
In other words, corporate talk about sustainability (like the talk in the rest of the article) is just talk. Government has to change the framework that businesses work in so that businesses’ interests align with ours.
This is exactly right. It’s refreshing to see someone–someone not a lefty blogger–actually say it.
By Mike Here.
The basic points for those who don’t want to click:
- You’re right to be angry. You’re being screwed.
- The people screwing you are the very ones telling you to get angry at the socialists in Washington.
- As long as you listen to them, you’re going to continue to be screwed.
As with many economic facts, the truth is a) really not all that complicated, and b) never reported clearly. So here’s to you, anonymous CL poster.
By Mike This is from a Senate staffer. Spot-on, as far as I can tell.
Unfortunately, in this case “putting things in perspective” means “getting even more depressed about them.”
By Mike I’m a pretty big fan of Cracked.com. I’d go as far as to say it’s the generation-that-should-get-off-my-lawn’s version of Mad Magazine–funny (usually), often wickedly subversive, and done in an irreverent style that disguises what’s often really good information (even obscure scholarship). And I’m all for providing serious information in an irreverent package.
Anyway, today’s article, “Six logical fallacies that cost you money every day” is an excellent review of the ways we don’t think rationally. Which is important because economics—and especially conservative economics, from its belief in laissez faire to its exaltation of the financial world—often starts from the assumption that we do.
Don’t get me wrong–the irrationalities in the Cracked article are well known to economists, and some were first defined by economists. It’s just that they often get dropped from economic analysis. Which may sound like it doesn’t matter (Oh no! Some economic analysis doesn’t take irrational behaviors into account!) but check this out: only a few years ago many economists were saying that asset bubbles are impossible because hey, it would be stupid to pay too much for an asset. Since a bubble was impossible, there was no need to take steps to prevent or deflate one.
One last point: the article also shows that economics isn’t rocket science. The best of economics–the parts that matter in the real world–are the very parts that can be explained in layperson’s terms.
Edited for some truly atrocious spelling errors. Me write good Englishese.
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