Yuan non-Appreciation: Strip Mining the Middle Class and we’re poorer
Matt Y goes all in on the crazy ideas that the Yuan is self correcting - and that its not really a problem in the first place.
I don’t think this remotely reflects reality. Warren Mosler also says the trade deficit isn’t that big of a deal.
Of course, Warren’s right – if we were running an MMT based economic policy from our government. If Warren was in charge of spending, I’d be happy to let him make aggregate demand high enough to overcome any offshoring of U.S. industry.
As Rodger points out in a private discussion, the proper policy would be to allow China to give us stuff for free, and then to make up the demand leakage with fiscal policy (read tax cuts and even tax income guarantees for workers) aimed at the middle class.
This would maximize the increases in our standard of living – and probably make for a more stable economic system.
But we’re not running an MMT based policy. We’re running a semi-coherent gold idolization economic policy that doesn’t even recognize we can’t go broke.
I’m all for pushing the boundries of what’s acceptable discourse and moving the center. But the proper policy isn’t going to happen in during the 12th 5 year plan.
I’ll just talk about what’s politically possible with the Yuan. If we assume we’re going to get the economic policy we’ve had for the last 30 years or so, we’re not going to see an in paradigm policy in place.
What this means is the Chinese Yuan policy is hugely detrimental to the United States, given the current policy of the U.S. I call it strip mining the middle class, because this is what it does. The Yuan policy takes jobs from U.S. residents and moves them to China.
Our overall society benefits a little – we shift computer bits around, and they send us real world goods. This is usually seen as being good for the U.S. in aggregate. But specific groups in our society are worse off – this is widely accepted as true, even by mainstream econ.
Specifically, the middle class is worse off.
Now, for some people, this isn’t a bad trade.
But I am a huge – huge, huge, huge – believer in the value of mass production. Mass production is the way society progresses, to riff on whitehead.
It’s been pointed out to me that mass production requires mass consumption.
This idea – that mass production requires mass consumption – has somehow been lost. I’d like to point out that 100 iPhones aren’t viable or useful – you couldn’t even think about creating an iPhone with a production run of only 100. It’s nonsense to think of something like this.
100 million iPhones are useful – because with 100 million iPhones, the prices are low enough for people to buy them, and the app store becomes something truly wonderful.
But the iPhone was made possible by the iPod. The iPhone isn’t possible until the iPod works out lots of problems.
It’s only after the iPod is mass consumed that the incredible iPhone becomes possible.
So when we allow China to keep their Yuan far, far below it’s fair value – and even farther below the value of “a country growing at 10% per year for another 20 years”, we’re allowing the middle class to be stripmined.
But even worse, we’re missing some truly great consumer product that aren’t being produced. I don’t know what these products might be.
All I know is that the middle class of 2011 can’t afford them – so they aren’t even being manufactured. This means we’re missing out on the second and third generations of these things that would probably have gigantic impacts on how we live.