Monday, March 15, 2010

Krugman Is At It Again

Paul Krugman has a piece in the New York Times today, in which he attacks US policy on China monetary policy. Again he bolsters his argument by presenting one side of a picture, saying,

It’s true that if China dumped its U.S. assets the value of the dollar would fall against other major currencies, such as the euro. But that would be a good thing for the United States, since it would make our goods more competitive and reduce our trade deficit. [...] So we have no reason to fear China.

That would be as blissfully unimportant as Paul Krugman implies it is if we were a nation that exported televisions, clothing, computer hardware, communication equipment, tires, furniture and other manufactured goods; and above all if we exported oil. We export none of those things, we import them, so if the dollar falls in value then those things become more expensive to us.

Note the oil part. We import oil, and the cost of oil affects everything we do and everything we make. If the dollar falls then the cost of oil is going to increase and that will affect cost of everything we make here that is affected by oil if only in terms of transportation.

Higher oil cost will increase the cost of fertilizer and water for growing food, the fuel to power the factories for processing it, and the fuel to transport it to market. Higher cost of oil will increase the cost of electricity to light and heat/cool your homes, and to pump the water to your homes. More than half of the electricity in California is used to pump water from where it is available to where it can be used for domestic and agricultural purpose.

Paul Krugman cheers the benefits of increased prices of exports, but we are no longer an exporting nation, and we have not been for many years. He blissfully ignores the effects of a falling currency on the daily lives and the pocketbooks of the people of an importing nation, but the people of that nation cannot really afford to be quite so sanguine.

Krugman touts the aspect of the picture which bolsters his argument, and ignores the aspect that doesn't suit his purpose. It's called "dishonesty."

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