Saturday, October 09, 2010

Cui Bono?

Warren Meyer in Forbes wonders who benefits from Democrat economic policies:
Democrats claim the American manufacturing base is declining in the face of unfair competition from a Chinese government that is unfairly helping its own manufacturers through currency manipulation and export subsidization.

To which I say: So what?

We should be thrilled that the Chinese government and its people see fit to spend their own money to subsidize lower prices for American businesses and consumers. Last week, President Obama put substantial pressure on the Chinese prime minister to revalue Chinese currency, a revaluation that would have the effect of raising prices of all Chinese goods in the United States. What possible sense does such a move make, particularly in a recession? . . .

Christian Broda and John Romalis, a pair of University of Chicago economists, have been doing work on income distribution. A couple of years ago they published a paper that showed how our measures of income inequality may be exaggerated because the metrics assume that both rich and poor experience the same rate of inflation. In fact, the researches found, over the last decade or so the poor have seen much lower rates of inflation than the rich. . . Sadly, prices for low-income Americans could be even lower were it not for past protectionist measures. . .

This means that at the same time Democrats have again raised issues of rising income inequality, they are trying to stop some of the most powerful forces at work mitigating these income differences. There is no question that if Democrats are successful in changing China’s currency policy and/or imposing new tariffs (taxes) on Chinese goods, prices will rise for all Americans, but particularly so for the lower income brackets that are supposedly the Democrats’ constituency.
Agreed on both counts, though the link between income equality and China trade, while logical, is unproven (and the first point undermined somewhat here).

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