I Am Sorry, But the Stupidest Man Alive Contest Is Closed!

John Tamny of National Review nevertheless submits his application--a fangs-bared leap-attack directed against Larry Lindsey:

John Tamny on the Yuan and Lawrence Lindsey on NRO Financial: To begin, just as Chinese authorities fix the yuan's value, so too do U.S. authorities fix the dollar's value. As the Journal's George Melloan noted in a recent editorial, "no currency actually 'floats.'" As opposed to commodities set by market forces, currencies today are merely paper concepts controlled by central banks through the creation of and extinguishment of that paper.

That the above is true calls into question Lindsey's assertion that the "Chinese clearly undervalue their exchange rate."

The above is not true. If it were true, it would not "call into question" Lindsey's assertion. This year it looks like China will spend $250 billion trying to keep the value of the renminibi low: that's the reason for Lindsey's assertion.

But sorry, John. It's too late.

Comments

[Jean-Philippe Stijns]

"Rather than engage in wealth-reducing currency revaluations, the U.S. and China should seek a tight link between the two in order to ensure the kind of stability that will cause our trading relationship to continue to grow."

The guy is not even capable of maintaining internal logical consistency over such a short piece... To summarize: nominal exchange rate matter and don't matter all at the same time. Wow, what would have Hume thought about that?

"David Ranson and Arthur Laffer are but two economists who have said that absent the yuan’s tight relationship with the dollar, market forces would arguably drive the value of the former down."

What a fine company he is in! I want to know what these guys smoke to write sh_t like that.

[anne]

http://economistsview.typepad.com/economistsview/2006/04/money_talks_our.html#c16515149

April 24, 2006

Money Talks: Our Financial Future?

Paul Krugman responds to comments on his latest column:

Money Talks: Our Financial Future? The Prognosis Is Grim: Readers respond to Paul Krugman's Apr. 24 column, "CSI: Trade Deficit"

Tim Keese, Frankfurt, Germany: Income on foreign investments is accumulative, isn't it? Americans are receiving income on investments in foreign countries made decades ago, and the U.S. current account deficit is relatively new — meaning returns to foreign investors would naturally be lower, but still growing. You have to look at total investments, not just current ones. Or am I missing something here?

Paul Krugman: We've been running a current account deficit consistently since about 1980. And back in the day, when the U.S. ran surpluses, they were small compared with the size of the economy. On the other hand, the deficits since 1999 have been huge. By any measure, we're deep in the red now (the official figures say that our net debt is close to $3 trillion) — unless you believe that the current account deficits of recent years are a statistical illusion.

Jan Beckedorff, Bethesda, Md.: Please follow up with scenarios of what may happen when the chickens do come home to roost. What will be warning signs? How to defend savings and assets for those not in the wealth class? ...

Paul Krugman: The chickens-home-to-roost scenario is actually the hard part, because we have no experience with a country this big and this rich being this deep in deficit. One thing is clear, though: it's really bad for housing.

Donna Middlehurst, Chevy Chase, Md.: I'd like to see a companion analysis of the issue of why we're not paying for those budget deficits yet ... Republicans screamed for so many years about the evils of deficit spending. They're strangely silent, but there's also no rattling of the windows to signal an approaching hurricane....

Alan Soffin, Doylestown, Penn.: ...You just sketched in the trade deficit as a standing condition, but this reader is not sated. How did we get here? What forces or ideas generated this predicament? Even a hint or two would help.

Paul Krugman: I and many other economists are working on that! What seems to have happened is a mixture of several causes. Developing countries in Asia starting building up their dollar reserves after the 1997-1998 crisis; this helped cause low interest rates in the U.S., which started a housing bubble, which led to a sharp decline in U.S. saving, reinforced by the budget deficit, and so on. I'll try to write more about it in the near future; let's see what my Princeton colleagues have to say in today's seminar.

Fred Roper, Spencer, Okla.: ...The United States ... has a net surplus in trade in services, the last time I checked. Therefore, the U.S. has a negative in the trade in goods, but a surplus in trade in services and investments. What is the net result of the three put together? ... I would think that with the income the U.S. generates from services and investments that the trade deficit does not tell the whole story of what creates wealth for a country.

Paul Krugman: Last year, the U.S. did run a surplus in services, but it was only $57 billion, compared with a deficit in goods of $780 billion. And we also ran a substantial deficit in "unilateral transfers," which includes things like money that immigrant workers send home. The current account deficit, which includes all of this (and the income from US companies abroad, too) was $805 billion. Sorry, there's no comfort in the broader numbers.

[save_the_rustbelt]

Make Luskin "Stupidest Emeritus" and give the regular crown to Tamny.

Keeps the competition fresh.