Dani Rodrik of Harvard University estimates that China’s undervaluation has boosted its long-run growth rate by more than 2 per cent by allowing greater output of tradable goods, a sector that was the engine of growth and an escape route from underdevelopment for postwar successes such as Japan, South Korea and Taiwan. Higher tradable goods production in China results in lower traded goods production elsewhere in the developing world, entailing a growth cost for these countries. Of course, some of these costs may have been alleviated by China’s rapid growth and the attendant demand for other countries’ goods. But China’s large current account surpluses suggest that the alleviation is only partial.
These emerging market victims of China’s exchange rate policy have remained silent because China is simply too big and powerful for them to take on. And this despite the fact that disaffected constituencies now encompass not just companies but also central bankers, who have found macro-economic management constrained by renminbi policy. Hence the third consequence. By default, it has fallen to the US to carry the burden of seeking to change renminbi policy. But it cannot succeed because China will not be seen as giving in to pressure from its only rival for superpower status. Only a wider coalition, comprising all countries affected by China’s undervalued exchange rate, stands any chance of impressing upon China the consequences of its policy and reminding it of its international responsibilities as a large, systemically important trader.
Word is getting around that CBO has blessed a major budget reform plan proposed by Representative Paul Ryan (R-WI) as, in the words of National Review Online, “a roadmap to solvency.” It isn’t true. Even Washington Post blogger Ezra Klein, who normally does a terrific job with this stuff, reports Ryan’s plan “erases the massive long-term deficit.” That’s not true either. All this confusion is due to a letter written on Jan. 27 from CBO director Doug Elmendorf to Ryan. In that 50-page document, CBO suggests the plan could eliminate the deficit in 50 years and, even more impressively, eliminate the debt by 2080. But, and this caveat is a whopper, CBO assumed this wonderful outcome would occur only if the revenue portion of Ryan’s plan generated 19 percent of GDP in taxes. And there is not the slightest evidence that would happen. Even though Ryan’s plan has a detailed tax component, his staff asked CBO to ignore it. Rather than estimate the true revenue effects of the Ryan plan, CBO simply assumed, as the lawmaker requested, that it would generate revenues of 19 percent of GDP.
You know the old joke: Two economists are stranded on a desert island with only canned food to eat. But they have no way to open the containers. What do we do,” asks one. “Assume a can opener,” replies the other.
When it comes to Ryan’s plan, CBO has, in effect, assumed the can opener.
3) GRAPH OF THE DAY: The Option-ARMs Are Coming:
4) BEST NON-ECONOMICS THING I HAVE READ TODAY: Initial NIF experiments meet requirements for fusion ignition:
The experiments, described in an article in today’s edition of Science Express, the online version of the journal Science, resulted in highly symmetrical compression of simulated fuel capsules – a requirement for NIF to achieve its goal of fusion ignition and energy gain when ignition experiments begin later this year. “Laser-plasma interactions are an instability, and in many cases they can surprise you,” said ICF Program Director Brian MacGowan. “However, we showed in the experiments that we could use laser-plasma interactions to transfer energy and actually control symmetry in the hohlraum. Overall, we didn’t find any pathological problem with laser-plasma interactions that would prevent us generating a hohlraum suitable for ignition.” Using LPI effects to tune ICF laser energy is “a very elegant way to do it,” said Siegfried Glenzer, NIF plasma physics group leader. “You can change the laser wavelengths and get the power where it’s needed without increasing the power of individual beams. This way you can make maximum use of all the available laser beam energy.”
5) STUPIDEST THING I HAVE READ TODAY: Senator Brown of Massachusetts. Outsourced to Lee Fang of Think Progress: Flashback: In 2009, Scott Brown Said The Senate Health Bill ‘Mirrors’ The Massachusetts Plan He Supports:
Now, Brown is coming to the Senate promising to kill health reform. He reiterated this promise last Sunday, telling ABC’s This Week that legislators should scrap current legislation and “go back to the drawing board.” But late last summer, before it was politically advantageous to capitalize on health reform misinformation, Brown actually endorsed the Senate bill he now wants to kill. In an interview with MSNBC’s Dylan Ratigan, Brown stated that the Senate health bill was “really mirroring” the “really great” Massachusetts health plan:
BROWN: Well it’s been interesting looking at the Senate and the US Senate is doing. They’re really mirroring what we did a couple of years ago through Governor Romney’s leadership. We had a bipartisan plan that was carefully crafted to make sure that everybody’s interests were taken into consideration: business, providers, individuals and obviously the Commonwealth. And as I said we have a plan that is somewhat similar to what the Federal plan [...] Without the Federal stimulus dollars and the waiver money filling our plan, it would fail. And you have a really great plan, we’ve gone from 10% uninsured to really 2.6 million people uninsured, er, 2.6% people uninsured. So it’s worked, but it also has its failures.