Sunday, August 05, 2007

Foreign Policy: Five things my economist told me that I'm too dumb to understand

The web issue of Foreign Policy Magazine (which Kids Prefer Cheese calls the People's Magazine of international affairs) has an article called "Five Lies My Economist Told Me". I don't know why some people say ostensibly respectable journals can let their editorial standards go to hell where an Internet edition is involved. In this case, Foreign Policy hits it on the nose. Speakin' the truth, brotha! For example:

1. High productivity and low unemployment make us all better off: Despite six years of sustained growth, with unemployment averaging around 5 percent, the median U.S. worker is not faring well. Since 2001, middle-class Americans have seen their pay drop by 4 percent, although labor productivity went up by 15 percent during the same period.
Now we know this is a lie! It's low productivity and high unemployment that's the secret to success! Bring back stagflation and 10 percent unemployement. Middle class incomes are sure to rise then. And while you're at it, we need to get rid of Tivo. I don't know about you, but my middle class life hasn't improved one wit by fast-forwarding through 40 minutes of TV ads every day. After all, if it's not salary, I don't care.
2. It’s hard to grow without good banks and private property: One word: China. The gross domestic product of this Asian giant has increased sixfold between 1984 and 2004, with a stunning average growth of roughly 9 percent since 2005. Yet only in 2007 did the protection of private property acquire equal footing in Chinese property law. Moreover, experts still deem China’s banking system to be shaky despite a major overhaul that started in 2002.
Good banks and private property are a lie! It's easy to grow if you don't have banks or private property! Which, of course, is why Mao's China was going gangbusters. In fact, China would be growing much faster now that it was in the past if they had just stuck to Mao's glorious policies. After all, why do you need a bank if you don't own any property? Clearly, economic growth has never been linked to a strong financial system or some kind of assurance that you aren't going to be robbed. And any economist who tells you otherwise is just lying to you.
3. Capital must always be let free to flow: The Asian financial crisis. Starting in 1996, overvalued real estate prices collapsed in Thailand, spurring a devaluation of the Thai currency. Soon enough, the contagion spread to nearby Malaysia, Indonesia, and South Korea. Capital flight triggered painful recessions in most of East Asia. Only China and Taiwan, which had maintained tight capital controls, weathered the crisis unscathed. Malaysia split the difference by introducing capital controls in 1998, a last-minute attempt to avoid the worst.
This is completely a lie! After all, if you keep capital out of your economy, clearly it won't flee when the corrupt underpinnings of your market become apparent. Which, of course, is why Zimbabwe is an economic powerhouse, and Western markets, which got rid of their capital controls in the late 1970s, have been in the economic shitter ever since.
4. The euro will never work: In January 2002, the euro made its entrance on the world stage and into the wallets of the citizens of 13 European countries. Five years later, it is still alive and healthy—stronger than the U.S. dollar, in fact. And despite grumbling from countries like Italy, where policymakers wish they could still boost exports by devaluing the old lira, nobody is seriously considering going back to single national currencies.
That's right, you liars! The Euro is stronger than the US dollar! And the only people complaining about the Euro are little whiners like the Italians and all the lower-wage EU markets getting burned by the strong Euro. Because, you know, a strong currency is a sign of economic strength. Just ask the Chinese, and their pathetically devalued Yuan. Not an economic growth sign in sight there. (By the way, why does the FP then go on to say that the critics are right and the Euro is essentially just a political tool divorced from economics? Why back down when you've got such a compelling argument?)
5. Japan—no wait, China—is going to take over the world economy: As of 2007, the United States is still the greatest capitalist economy in the world, with a gross domestic product roughly three times as big as that of Japan, the world’s second largest economy. True, Japan’s car industry is still a rising star: Toyota briefly overtook General Motors a few months ago as the world’s largest automaker. Yet, as Newsweek columnist Fareed Zakaria put it, the Japanese “ran into a brick wall.” After more than 15 years of economic stagnation, repeated currency deflations, and record-high unemployment, the Japanese economy is just now coming out of the doldrums.
Again with the lies! All those lies in the late 1980s by such reknown economists as Clyde Prestowitz, Chalmers Johnson and Robert Reich. OK, so maybe they weren't "economists" in the U.S.-sense of the word. And by that I mean they didn't know anything about economics. And by that, I mean that Paul Krugman, who actually is an economist and knows something about industrial policy, calls them a bunch of policy poseurs (he's such an asshole like that). But somebody once said "economics" and "the Japanese and Chinese are going to crush us" in the same sentence, and if that's good enough for Foreign Policy, it's good enough for me.

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