Wednesday, May 23, 2007

Econorama continued

Senators and Congressmen are falling all over each other to introduce legislation to do something to China for any of a variety of presumed sins.

Many of these are centered on the concept that the Chinese currency - generally called the renminbe- is artificially undervalued, and, if allowed to float on the open market, would zoom in price vs. the dollar, making U.S. exports etc. more competitive.

Let's examine this policy from the opposite perspective - e.g. - the dollar would sink in value versus the Chinese currency. While this might be of some short-term value to some exporters, it is something of a crash diet, resulting in quick, but short-lived, weight loss. Hasn't a bedrock of U.S. policy since Alexander Hamilton was the first Secretary of the Treasury been a strong dollar? Do we think that a weak dollar is in the long-run best interest of America?

Hardly.

There are a number of constructive things Congress can do should it so chose. First, it could shave a couple of hundred billion from Federal Spending. In that case, the U.S. would begin to pay off debt - including the trillion or so owed the Chinese. Currency flows might just begin to reverse. Second, it could champion education in the U.S. Our deteriorating education standards will make it increasingly easy to export ever better jobs off shore to places like China, where not only will labor be cheaper, it will be better educated.

This does not mean spending more with the Federal Department of Education ( I defy any reader to name three beneficial things that department does without Googling the answer). In fact it might well mean dismantling that department and saving the money....

On every matter of economics, business, competition and international marketplaces I find the ignorance of our elected officials to be appalling.

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