Thursday, October 25, 2012

My letter to the NY Times re: No, it's NOT a better way

Re: Better Ways to Deal with China

Dear Sirs:
Eduardo Porter's recommendations for "dealing with our trade deficit with China"--a multilateral approach using carrots and sticks--assumes that China's manipulation of its currency causes harm to its trading partners. It does not. The sole harm is to its own citizens, who pay for the manipulation in the form of higher prices. China's trading partners get bargains. Mr. Porter's mercantilist philosophy was disproven first by the classical economists and later by the Austrian school economists. Nevertheless, this upside down thinking--in which a weaker currency is deemed to be "better" than a stronger one--has been embraced by exporters, who lobby politicians to intervene to help them make more sales. Since inflation is a delayed phenomenon and its source is poorly understood, the gullible public buys into the fallacy that getting a bargain from an overseas supplier is bad for them.

Patrick Barron

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