Two interesting bits of writing on China today, which is becoming a bit of an obsession. But all economic roads seem to lead there these days.
The first is from uber-economist nerd Brad Setser, where he differs (politely) with his former mentor Dr. Nouriel "Doom" Roubini in Roubini's NYT op-ed on China. The gist of it is the cost-benefits of "reserve currency" status, which the US is still shakily holding onto:
In the second conception of global financial order, China should allow
its currency to appreciate, offset the drag from slower growth of
exports with aggressive policies to stimulate domestic demand
(including the rapid implementation of a broad social safety net, even
if this produces sustained budget deficits) and bring its current
account surplus down. China’s government would no longer steadily
accumulate large quantities of dollar reserves. More balanced trade
flows would allow the RMB to eventually float – allowing China to
direct domestic monetary policy toward stabilizing China’s own economy
rather than stabilizing its exchange rate.
The US would get less subsidized financing to be sure – but according
to this view, large inflows from China and other emerging economy
central banks have proved to be a mixed blessing. Dollar pegs prevented
a necessary adjustment in the dollars’ value relative to a host
emerging economies, keeping the trade deficit up.
That changed the
composition of US output, as the US shifted out of the production of
tradable goods and services – and instead specialized in home
construction and creative financial engineering. And, well, the US
financial sector wasn’t able to effectively intermediate large inflows
from the world’s central banks. US financial institutions – and
European ones running large offshore dollar balance sheets – were stuck
with a lot of credit risk from lending to increasingly indebted
American households, as
the world’s central banks were far more willing to take currency risk than credit risk.
And now – as Martin Wolf likes to note – there is a risk that a new
buildup of dollar (and euro) reserves will finance an unsustainable
buildup of government debt in the US (and Europe).
(Emphasis Added)
IE- Reserve currency status distorts our economy by making things we sell to the world more expensive than they otherwise would be, meanwhile it makes debt and things we buy from the world cheaper than they would be. This is great if you are an indebted financier, less great if you make steel or something.
Given the wage gaps between the US and the emerging world and growing productivity there, losses in tradeable goods was inevitable compared to say the sixties. The extent and speed of that loss, however, has been magnified by an overly expensive US dollar. It's also made it easier for the nation to get into debt and long term not producing things others want to buy while charging what you buy from others doesn't work so good.
However, it makes overseas vacations cheaper, so there are always trade offs...
And from just plain Uber-Economist Paul Krugman we get another China article. This time on the mountain of carbon spewing out of China's economic miracle and what we may have to do about it:
China’s emissions, which come largely from its coal-burning
electricity plants, doubled between 1996 and 2006. That was a much
faster pace of growth than in the previous decade. And the trend seems
set to continue: In January, China announced that it plans to continue
its reliance on coal as its main energy source and that to feed its
economic growth it will increase coal production 30 percent by 2015.
That’s a decision that, all by itself, will swamp any emission
reductions elsewhere.
So what is to be done about the China problem?
Nothing,
say the Chinese. Each time I raised the issue during my visit, I was
met with outraged declarations that it was unfair to expect China to
limit its use of fossil fuels. After all, they declared, the West faced
no similar constraints during its development; while China may be the
world’s largest source of carbon-dioxide emissions, its per-capita
emissions are still far below American levels; and anyway, the great
bulk of the global warming that has already happened is due not to
China but to the past carbon emissions of today’s wealthy nations. ---
Historical injustice aside, the Chinese also insisted that they should
not be held responsible for the greenhouse gases they emit when
producing goods for foreign consumers. But they refused to accept the
logical implication of this view — that the burden should fall on those
foreign consumers instead, that shoppers who buy Chinese products
should pay a “carbon tariff” that reflects the emissions associated
with those goods’ production. That, said the Chinese, would violate the
principles of free trade.
As the United States and other advanced countries finally move to
confront climate change, they will also be morally empowered to
confront those nations that refuse to act. Sooner than most people
think, countries that refuse to limit their greenhouse gas emissions
will face sanctions, probably in the form of taxes on their exports.
They will complain bitterly that this is protectionism, but so what?
Globalization doesn’t do much good if the globe itself becomes
unlivable.
The politics of this make it pretty inevitable, not mention the economics, as a local cap and trade policy would further incent the off shoring of energy intensive goods. Bet on a Carbon tarrif authorization to make it into any Cap and Trade bill that passes (If you're wagering at home, that is).
