tag:blogger.com,1999:blog-970611666708740586.post7530036892846282810..comments2023-08-28T11:48:39.554-07:00Comments on Reserved Place: Mad about mercantilismRebelEconomisthttp://www.blogger.com/profile/13241098878248190971noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-970611666708740586.post-14996915706606993822011-05-27T10:46:33.358-07:002011-05-27T10:46:33.358-07:00I thought very different, but your arguments are s...I thought very different, but your arguments are so valid and they are confusing me. Definitely I have to think better what I must believe... but anyway thanks for the post, it helped me to be more informed about this stuff.Viagra online without prescriptionhttp://www.rx-mex.com/noreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-1973664533262932792008-10-19T05:43:00.000-07:002008-10-19T05:43:00.000-07:00Howard and Jesse,Thank you both for your comments....Howard and Jesse,<BR/><BR/>Thank you both for your comments. It is a pleasure to debate these issues with people who express clear views. I would be happy to review your book if you send me a free copy.<BR/><BR/>I suspect that many of the arguments you make against mercantilism are reasonable, but do not allow for the possibility of intervention by the "victim" nation's government to neutralise, and perhaps even exploit, mercantilist policies. It is like a man rowing a dinghy complaining that the wind is making the sea choppy, when he would be richly compensated if only he would put up the sail. Howard provides one example himself when he says that mercantilism – which, as you know, nowadays involves buying debt rather than gold - has deterred investment in America. Surely there must be an opportunity being missed if investment is depressed when interest rates are low (assuming that low interest rates are a consequence of the debt purchases by foreign currency authorities). As I explained in a <A HREF="http://reservedplace.blogspot.com/2008/04/us-economic-policy-shot-in-foot-2.html" REL="nofollow">previous post</A>, I believe that the US government could have made more of the reserve status of the dollar by selling more debt into the foreign demand and investing themselves, either in domestic infrastructure, which is arguably in a poor state in the USA, or in America's own foreign exchange reserves (so that now, to link with Jesse's comment, they would have more family silver to sell).<BR/><BR/>I agree with Jesse that China’s exchange rate peg represents a constraint on both countries in the short run, given that China restricts capital inflows (if not, the USA could respond in kind by buying renminbi assets to offset the exchange rate impact of Chinese intervention). In the longer term, however, if the US authorities consider that America is disadvantaged by China's pegged exchange rate policy, they are able to neutralise that exchange rate constraint, and even turn it to their relative advantage, by engineering a real depreciation by restraining American unit labour costs and producer prices to increase more slowly than in China. This is what <A HREF="http://blogs.ft.com/brusselsblog/2007/11/a-stability-pachtml" REL="nofollow">Germany did</A> to regain competitiveness in EMU. You might say that it would be impossible for the USA to increase its competitiveness in this way sufficiently rapidly to offset China's rapid productivity growth as it benefits from "catch up", but that would be tantamount to saying that China is winning the trade competition because it is becoming more efficient, not because it is manipulating the value of its currency. You might also consider that such austere policies would be politically impossible to implement in America, but if so that would not be China's fault.RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-69131437015398393592008-09-29T20:08:00.000-07:002008-09-29T20:08:00.000-07:00Dear RebelEconomist,I wanted to follow up on what ...Dear RebelEconomist,<BR/><BR/>I wanted to follow up on what Howard wrote with a further comment. You wrote: <BR/><BR/>"The second argument against the idea that China's exchange rate policy gives them a competitive advantage applies regardless of how the policy is implemented. This argument, which appeals to RebelEconomist's mathematical pretensions, is simply that the currency peg imposes a restriction on the Chinese economy, and calculus teaches us that a constrained optimum cannot be superior to the unconstrained optimum."<BR/><BR/>I think you are misinterpreting the mathematical result you cite. The decision to peg its currency does probably create an inferior constrained optimum, but this is an inferior equilibrium in US/China trade, which imposes costs on both countries relative to open trade. Both countries would probably be better off with unconstrained trade. The costs of the constrained situation are allocated unevenly though. China appears to have paid short term costs for relative long term gains in terms industrial plant and production. The US draws short term benefits from cheap consumer goods, but at substantial long term costs. It is partly because of our fiscal and trade irresponsibility over the last decade that we may now be forced to "sell the family silver" as you suggest in a more recent post.<BR/><BR/>Jesse Richman<BR/>www.tradeandtaxes.blogspot.comJessehttps://www.blogger.com/profile/15499437871759996548noreply@blogger.comtag:blogger.com,1999:blog-970611666708740586.post-83519141461622364762008-09-28T14:45:00.000-07:002008-09-28T14:45:00.000-07:00Dear RebelEconomist,Thanks for mentioning in your ...Dear RebelEconomist,<BR/><BR/>Thanks for mentioning in your posting on Brad Setser's blog that you were responding to my arguments with this posting. Too bad you didn't mention our book when you were criticizing it. Trading Away Our Future is readily available (see www.idealtaxes.com).<BR/><BR/>Some day, you will have to reread Adam Smith to find out what he is really saying about mercantilism. He is saying that mercantilism hurts the world economy as a whole. To him, mercantilism was the concept that accumulating gold should be the goal of economic policy. He was advocating, instead, that growth in GDP should be that measure. In other words, the wealth of a nation was its production, not its stock of gold.<BR/><BR/>You should also look at what Hume actually argued. He said that an inflow of gold drives up prices in the surplus country and drives prices down in the deficit country which tends to correct the trade imbalance. <BR/><BR/>Hume was correct about the mercantilism of his day, but did not anticipate modern mercantilism. <BR/><BR/>In fact, if the goal of the gold mercantilists were to build their industry (not their gold hoards), they could have practiced the same system that the modern mercantilists practice today by using the gold obtained from trade to buy assets in the trade deficit country.<BR/><BR/>It's also too bad you haven't yet checked Peking University Heng-Fu Zou's 1997 mathematical treatment of mercantilism, "Dynamic Analysis of the Vineer Model of Mercantilism. So you would have realized that your consumption argument was a short-term argument. Zou demonstrated that the modern form of mercantilism results in long-term gain in consumption for the practicing country even though in the short run it has less consumption.<BR/><BR/>The huge factor that you missed entirely in your analysis is the effect of mercantilism upon investment opportunities in the practicing country and the victim country. By holding its exchange rate approximately 40% below where it should be, China makes its products 40% less expensive to American consumers and American products 40% more expensive to Chinese consumers. As a result China gets investment while the United States does not, making Chinese products even less expensive to American consumers, compared to American products.<BR/><BR/>Seeing as the current US investment slump is causing our economy to go into economic stagnation, you really should look into the factors that are causing it.<BR/><BR/>Howard Richman<BR/>www.tradeandtaxes.blogspot.comAnonymousnoreply@blogger.com