On the People’s Republic of Cheaters.

Some quick thoughts on an email from Noutheteo, who should know this already, being an econ major:

“What’s with the whole ‘China is our enemy,’ economically speaking? Could you assess some of the complaints as well as the actions the nominees are suggesting taking against China?”

When they start talking about China, I generally tune out. From an economic standpoint, China’s a boogeyman, nothing more.

China “cheats” at trade? What does that even mean? Do they give us false bills of sale? Do they welch on business deals? Do they mislabel products or ingredients? Are they violating contracts? If not, then how are they cheating?

You might point out that they manipulate their currency. Let’s clarify what that means: they artificially devalue the yuan against the dollar, meaning the dollar will buy more yuan. Some people look at that and freak out because it means our trade balance with China will worsen. They worry that because we’ll be more able to buy Chinese stuff, demand for Chinese goods will rise, which will boost demand for Chinese workers, which means they’ll have more factories, etc., and China will be less able to buy American stuff, which means demand for our stuff will decline, so our factories will shut down, and our workers will be unemployed.

But I look at that same situation and say: “Oh good! Those morons in China are making it easier for me to buy their stuff, and shooting themselves in the foot while they’re at it.” As Chinese goods become less expensive due to yuan devaluation, my income rises in a real sense: either I can buy more of their stuff than I could before, or I can buy as much Chinese stuff as I did before, but I can spend the extra savings on other, non-Chinese stuff I wanted to buy. It’s the old income effect at work.

“How’re they shooting themselves in the foot?” you might ask. Well, by devaluing the yuan, they’re making it harder for themselves to buy stuff from other countries. If that’s a good idea, then I recommend keeping an eye on China’s devaluation so that you’ll know what percentage of your cash you should burn. After all, they’re somehow enriching themselves by making it harder for themselves to buy stuff, right? You should follow suit.

But what about the jobs lost? Well, yes, we lose some jobs in some industries because the Chinese have decided to essentially give stuff away at a cut rate. But the consumer savings leads to greater demand for other products, and those are the industries that grow. It’s not a perfectly fluid transition, but the transition does occur in real life. It occurs whether we’re talking about losing jobs to China, or to women entering the workplace, or to immigrants, or to new technology. Somehow, our country keeps getting richer despite all these job losses the demagogues flip out about.

What throws cogs in the works? When folks don’t want to adapt to the transition, and refuse to do so, and get laws passed to protect themselves from the transition. Read “The Petition of the Candlemakers” (or watch the old Simpsons episode in which Burns blocks the Sun) to see where that can land us.

In short, Obama and Romney are nearly equally horrible on this matter, and the conventional wisdom is stupid.

3 thoughts on “On the People’s Republic of Cheaters.

  1. By the way, Frédéric Bastiat has got to be one of my favorite reads. His “What Is Seen and What Is Not Seen” was very enjoyable. Good inclusion with his “petition”.


  2. I find it interesting how often The Simpsons is educational and thought-provoking if you pay a little bit of attention to world events.

    Also, Homer often says “D’oh!”, which is funny.


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