As a follow up to my post on the yuan last week, I should point out that Paul Krugman has addressed the issue in his op-ed today. Perhaps trying to coopt the move of Democrats to focus on China as an economic scapegoat, Bush has been sending Treasury Secretary snow to China to try to get them to devalue the yuan. Without any success; it appears that the most they will get is a slight relaxation in the exchange rate. Krugman points out one good reason they won’t devalue: while they run a trade surplus with the US, they run trade deficits with other nations. For all the dodginess of its totalitarian regime, China actually has quite sound, un-sinister motives for its currency policy. As Krugman reminds us, the real problem with our economy is not China, but lack of aggregate demand and a fiscal policy poorly conceived to fight this shortfall.
He also makes a good comparison between the China devaluation plea and the attempt to go back to the UN for support in Iraq. In both instances, the administration is getting the cold shoulder because of its petulance toward China and Europe earlier. Granted, the kind of cocksure nationalism that the administration harbors has resonated with a good deal of the American public. But isn’t it the job of those in executive power to temper that form of nationalism, to recognize that there are real costs to it that the general public - by grace of not having to think about international currency exchange, say, or billion dollar budgets on a daily basis - don’t ever think about?
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