So China gets a bad rap because it has its currency pegged to ours. And economics is the study of incentives. So why don't American policymakers seriously study all the possible ways to incentivize the Chinese to float their currency?
One way would be to make the value of the dollar worthless - although the cost to our economy would probably weigh in at some point.
Another would be to overvalue our currency (either by printing significantly less of it or having the Fed sell Bonds out the wazoo to get money off the streets) so that Chinese exports are significantly less competitive.
A third way would be to pay off our debt to the Chinese (around $2 trillion), reduce their ownership of government bonds to nothing, invest in a new generation of technology that only we manufacture and produce, reduce energy costs so we can afford higher labor costs to keep Americans employed, reduce military expenditures so we're not threatening to China, return to our status as a creditor nation by generating budget surpluses through cuts to programs and increased taxes, invest billions more in lower and higher education, increase immigration quotas to speed up the brain gain from other countries, and remove incentives for American companies to move themselves abroad.
- I'm all for the third option, but many people are not. They either mock the 'green technology,' or argue 'how dare we cut military spending while we're at war,' or 'you can't open the border for more immigrants to take our jobs!'
Whatever. We can always continue living like this!
1 comment:
Reading the article, I think Washington made a shrewd decision to put off the decision to declare China a currency manipulator. Given the strong inter-dependent relationship that both share with each other, dealing with the issue tactfully would help both sides tremendously.
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