April 21: Econ 101b: Why Is Asia Gambling on Bretton Woods II?

April 21: Why Is Asia Gambling on Bretton Woods II?

Notes: Slides: http://delong.typepad.com/delongslides/2008/04/econ-101b-april.html; Lecture Audio: http://www.j-bradford-delong.net/2008_mov/20080421_091146.mp3

Readings:

• Barry Eichengreen,"China's Exchange Rate Regime: The Long and Short of It" http://www.econ.berkeley.edu/~eichengr/research/short.pdf
• C. Fred Bergsten, "The Dollar and the Renminbi" http://www.iie.com/publications/papers/paper.cfm?ResearchID=747
• Institute for International Economics, "China: The Balance Sheet" http://www.petersoninstitute.org/publications/chapters_preview/04648/01pa04648.pdf

Comments

[Robert Waldmann]

I am going to nominate Robert Kuttner for the Donald Luskin memorial prize in economic science (leaving out the denominator division).

Kuttner dares question the isights of Larry Katz (and Larry Summers too). He makes a fool of himself and I mean a Luskin like fool.

I quote Ezra Klein quoting Robert Kuttner emphasis mine
http://www.prospect.org/csnc/blogs/ezraklein_archive?month=04&year=2008&base_name=bad_titles_good_articles#105935

"Many economists once thought that widening income inequality was caused in part by the shift to a service economy. Factory jobs, the argument went, tended to pay above *the median wage* because each job added a lot of value. The more productive and capital-intensive the machinery became over time, the more value each job added. So by the mid-20th century, industrial workers could command middle-class wages and good fringe benefits. By contrast, human-service jobs were hands-on and labor intensive. A nursing-home worker or a pre-k teacher was low-tech. So the pay was low, too.

We now know that this picture was highly misleading. How do we know? Just look at the global economy. Autoworkers in Mexico use the same production technology as workers in Michigan, but their pay is about $2 an hour. In China, autoworkers may earn 50 cents a day."

Kuttner quotes a hypothesis about the ratio of wages to the median wage, then claims he can refute it by dividing wages by the exchange rate. His calculation leaves out the median dollar wage of all workers in Mexico and in China. I put the comment here, because many people have noticed that the renmibi might be a bit undervalued (I was determined to make it somewhere on this blog).

Kuttner's analysis of relative wages by sector in Mexico and China is at the same level as Luskin's calculation of the real exchange rate. Luskin neglected to multiply by the foreign price level, Kuttner neglects to divide by the national median wage.

However, Kuttner manages an additional bit of idiocy. He pretends, indeed asserts, that there was not a global economy in the mid 80's. His claim about the history of thought absolutely requires the assumption that there were no manufacturing workers in the PRC or in Mexico when the Larry's made their arguments.

Does he really think he is going to get away with either howler ? Does he want to make sure that no economist ever takes him seriously ? I think so, epatez les economists seems to be his motto.