Thursday, February 26, 2009

Dr. Mankiw Finds A Nut

Dr. Greg Mankiw's blog is insufferable, most of the time.

In a vain attempt to make up for a life-changing bad decision -- his acceptance of George W. Bush's invitation become Chairman of the Council of Economic Advisors (if you look at the current American and world economies, you might see a reason that he should feel....well...a bit chastened) -- Dr. Mankiw gives all kinds of right wing economic insanity a platform. Maybe by handing folks making numbskull errors a megaphone, he avoids having to admit before his colleagues that he blew it.

However, in a recent post on the U.S. attitude toward Chinese purchases of U.S. Treasuries -- an attitude that if you listen to the lobbyists from U.S. automakers, extends to Japan -- Dr. Mankiw finds a glaring and obvious contradiction.

When Timothy Geithner warned China about manipulating its currency (and, sub-rosa, Japan about even thinking about intervening in currency markets to weaken the yen) at his confirmation hearing in January, he was pandering to the U.S. Democratic Party's support base. As a man seeking a job, Geithner had little choice: 59* of the 100 Senators are Democrats, with a solid chunk of them from America's industrial heartland (which should not be construed as an attempt to absolve Republicans from the Rust Belt and textile industry states, for their trade talk is just as bad).

As Mankiw's choice of quotes points out, you cannot reconcile criticizing currency manipulation with bankrolling American profligacy.

Of course, until the current collapse in trade with the United States, Japan, China and other exporters were engaged in what amounted to vendor finance--meaning that Japan, China and the other Asian exporters vacuuming up Treasuries were deriving a benefit from their bankrolling of U.S. consumption: employment in their export industries.

So it was not as if Asian exporting countries were just doing the U.S. a big favor out of charity, or perhaps simplemindedness.

However, as America's economy is failing to suck in imports from Japan and the rest of Asia and the U.S. government, in its legislation and language promotes America First industrial support policies, Geithner's January warning looks hypocritically mendacious.

* Yes, Bernard Sanders is an independent and Senator Al Franken's victory had/has not been certified. Cut me a little slack here, though. Does anyone know what one should call Senator Joseph Lieberman nowadays?

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