Someone on Kevin Drum's blog pointed out that the Peters article does mention China's currency peg, so I withdraw that critique.  (Although, I would hit harder on this point--it's poses a big challenge to an exchange-rate solution to the trade deficit).

It is hyperbole, but so is your last comment. It's worth pointing out that the smallest nuclear device is roughly equal to 500 tons of dynamite. That's not exactly "any bomb". The explosives involved can drop the height of a mountain hundreds of feet in one shot.

It's also worth noting that -- explosive hyperbole aside --- extracting coal by mountaintop removal mining is an extremely nasty process, environmentally.

What do you think? What’s your program?

You already know my answer to this question...tighter labor markets created by increased government spending on real economic investments. Dems can talk sympathy with the unions from sunrise to sunset and say things like "allow unions in other countries" but none of that is going to help organized (or even unorganized) labor in this country unless/until something is done to give unions more leverage in negotiations. Give them a sustained labor shortage and they will have all the leverage they need. Wages will recover and the American labor movement will be saved.

Here's how it works: Let's say Congress decides to double or triple the number of teachers in schools in order to reduce student-teacher ratios. (I think we should shoot for 10-1.) No investment we could make in education would improve the quality of education more since the number one resource teachers need in order to get better results is more TIME to spend with each marginal student. Not only would more teachers need to be hired, but also more classrooms would need to be built.

If there are not enough teachers available---and there won't be---then they would need to be attracted back to education from the private sector with higher salaries. The teachers leaving the private sector would need to be replaced, which means a lot of other people would be promoted. Those who get promoted will also have vacated positions that will also need to be filled. In this way, the government can 'suck unemployment from above' instead of simply seeking ways to create jobs for the unskilled poor.

This is how Congress' increased demand for workers of every type would create conditions that would benefit all who work for wages. The same kind of thing would happen no matter what industry it is that Congress decides to pump money into in order to increase our long-term economic growth.

We'll push the Fed to maintain truly tight labor markets.

Well, it may be a lot to hope for, but it could happen that Democrat economists could develop the spine to start loudly challenging the conventional wisdom that inflation is some kind of ultimate economic horror that we must all be desperate to quash when there is any sign that it might rise beyond 5% annually, no matter how many people have to be kept in poverty in order to do so. Perhaps they should all start reading some of the research by UMASS economist Gerald Epstein (of the PERI Institute), who reported in a 2003 paper that:

...there is a great deal of evidence that moderate rates of inflation, inflation up to 20% or more, has no predictable negative consequences on the real economy: it is not associated with slower growth, reduced investment, less foreign direct investment, or any other important real variable that one can find."

And maybe they'd like to study the example of China, whose brilliant monetary authorities were able---as recently as the mid-1990's---to successfully 'slow down' their economy's 24% inflation rate until it again reached single-digit levels without bringing their economy's annual growth rate down below 7.2%. By their example, they have shown us that inflation is never the 'uncontrollable monster' it is made out to be, one that must be ruthlessly crushed or else it becomes a runaway freight train hurtling us all toward the dreaded nightmare of hyperinflation.

What the Chinese know is that intelligently designed credit controls can put an absolute limit on the growth of the money supply. If banks are only allowed to lend a fixed quantity of money in particular loan categories, then---all else equal---hyperinflation becomes an absolute impossibility.

Our country's poor, working class, and middle class continue to suffer needlessly because our country's money managers are dedicated to minimizing unemployment only so long as the effort to do so does not threaten to allow inflation to grow beyond a certain absolute minimum. What people who work for a living need more than anything else in this country is a monetary authority that is dedicated to minimizing inflation only so long as the effort to do so does not threaten to allow unemployment to grow beyond a certain absolute minimum.

There is never a need to maintain unemployment in order to control inflation. Our monetary authorities should be able to easily maintain an inflation rate in the 5%-25% range, with occasional spikes occurring due to various 'shocks.'

Democrat economists have a lot of work ahead of them if they want to start actually helping the underprivileged instead of just reciting homilies. But it may not actually be necessary for them to bring the banking industry (which controls the Fed) around to a new way of looking at things. Congress could take away the Fed's control of the money supply and hand it over to the Treasury if it wants to start doing the rest of us a favor. It would be a rather simply matter that would benefit us all---even the rich. Unfortunately, before a Democrat Congress is able to pull off such a coup, it will have to overcome a concerted effort by Wall Street, the finance industry, and a coalition of business interests in order to get that far.

How any Democrat economist could find fault with this kind of economic agenda is beyond my comprehension. It may not be an easy mountain to climb, but at least it offers organized labor some hope of a brighter future.

Ellen

At the risk of pre-empting my EPI colleague, i might take a stab at this one.

Essentially, what matters for bilateral deficits are bilateral exchange rates (at least, what matters in the first-order). So, if China revalues, there's no reason to expect Vietnamese exports to the US to increase at going exchange rates.

Further, it's by now widely thought (might be wrong, but, i don't think so) that many of China's trade competitors in the East Asian sphere would strongly prefer to revalue their own currencies, but, cannot because they'd lose competitiveness to China in the US consumer market if they did. A Chinese revaluation would remove the linchpin stopping global rebalancing - in short, exports from Vietnam, the Phillipines, and Bangladesh would more likely *decrease* over the medium-run due to a Chinese revaluation, as these countries took advantage of the breathing room to revalue on their own.

What we know is that the Chinese revaluation is a necessary condition for this global (and US) rebalancing.

josh bivens

So here’s what I’d say to the guy in the question:

"We can't stop globalization...

I really hate it when liberal economists use that lead. Because of course it is wrong. The statement conceals a political analysis and political trade off, essentially that of favoring the development of Bangladesh over Americans and not letting ordinary Americans in on the argument about that agenda.

I think there are good arguments for developing Bangladesh, but they need to be on the table.

The other thing that needs to be on the table is some form of world regulation that can handle global warming issues. It's all of a piece.

I take your point, but I was being glib in the interest of space.  What I meant, and now I'll be glib in the interest of time, is that I don't really see how you could do much to stop or slow the flow of capital, ideas, people, and goods across borders.

Perhaps you could block the flow of goods and people, and, as discussed you can manage currencies to affect trade flows.  But this is largely pinching one end of the balloon--the air comes out elsewhere. 

And with the internet, blocking the flow of bits and bytes is even more unlikely.

Correct me if I'm wrong--how would we block such flows?

This is hyperbole.

if you watch the video, you'll see the toxic waste spill that resulted. as you know, deer and other creatures depend on mountains for aire conditioning, food and water.

so, destruction of them-- for cheap energy-- just to make us think that the economy is healthy, is a pretty lousy deal so I wouldn't call such worries hyperbole.

I mention brazil because president bush wanted to import ethanol from that country (advertised as the place of clean energy) and yet we should probably forget about those imports and, instead, figure out how to fix the rain forest issue first.

from an economic viewpoint, trade is good but from an environmental viewpoint, one can imagine why there were gas chambers after WWII-- there was profit to be made and some people just didn't see it as a big deal.

I think american corporations shifted to overseas operations primarily because, at least at one point, the environmental movement in the US shamed them out of the country.

I wouldn't be so pissed but I was shocked to learn that remote parts of Idaho, where I liked to hike, were polluted with plutonium.

To boldly go...

I'm going to keep this going, because I don't understand the answer (I do understand the East Asian reval argument but not the "bilateral" argument).

We used to buy tires and TVs from Japan; then, from South Korea; now, we buy them from China. I see no reason why -- limiting the issue to bilateral exchange rates -- South and Southeast Asia can't hold their currencies in check and become even more export oriented than they presently are.

The fact that China's currency is undervalued doesn't prevent it from buying American. It buys American like a drunken sailor -- US Treasuries. And the Asian tiger cubs could do, would do, should do the same.

Correct me if I'm wrong--how would we block such flows?

the problem is with the rhetoric. folks like Thomas L. Friedman have no interest in defining complex products, like community, clean environment and family and rather talk about commodities and, in the process, commoditize you. they also seem to like celebrating individual achievement and risk versus community achievement and risk.

at least in america, I think that the fear of poverty creates a mania that can't be rationally discussed.

I think that gandhi was a perfect example of a person who "took back his country" when the British came in and wanted to molest the people's economic dignity.

America hasn't gotten to that point yet.

To boldly go...

Re: I mention brazil because president bush wanted to import ethanol from that country (advertised as the place of clean energy) and yet we should probably forget about those imports and, instead, figure out how to fix the rain forest issue first.

This is economic illiteracy. While we can debate the benefits and defects of ethanol (and especially sugar-based ethanol), Brazil's ethanol production IS NOT BASED IN THE AMAZON! It is NOT a cause of rainforest destruction. And more to the point if Brazil gains a (non-Amazonian) cash crop there will be less pressure to develop (destroy) the Amazonian basin.

Ellen

this is the nub of the disagreement:

"The fact that China's currency is undervalued doesn't prevent it from buying American. It buys American like a drunken sailor -- US Treasuries. And the Asian tiger cubs could do, would do, should do the same."

The fact that the yuan is undervalued is indeed the reason why Chinese consumers don't buy American exports, and, why American consumers buy so many Chinese-imports.

Prices matter, and, the US/China exchange rate is the most important price in the world right now.

Is it possible that following a revaluation other East Asian economies would decide to devalue and ramp up exports to the US? Sure, it's possible. But, all evidence points instead to their desire to revalue as well. Exports aren't the only aim in policymaking - undervalued exchange rates rob households of purchasing power, and, spending large % of your GDP on buying dollars to maintain an exchange rate peg has huge opportunity costs in terms of what that money could've purchased in the way of public investments.

Lastly, even if a bunch of economies decided, against all evidence so far, that they wanted to rush into the breach caused by a Chinese revaluation, they don't have anywhere near the industrial capacity to soak up former Chinese exports one-for-one. Exports from non-China East Asia are up by about 300% since 2001 alone, and, the export capacity of the three countries you mentioned in your first post (Bangladesh, the Phillipines, and Vietnam) are, combined, well under 5% of China's.

The US is the largest economy in the world, and, China is the second-largest and their trading relationship is by far the most unbalanced on the globe; anything which fundamentally affects trade flows between our two economies (say, a big yuan revaluation) surely matters a lot for the global economy and cannot/will not simply be undone by much smaller economies.

josh bivens

"We can't stop globalization, but we can take its benefits and plough them back into repairing the damage it has done to you..."

Globalization has run its course. And if you look carefully, you can see the beginning of its end for globalization has already started, along with the multinational corporations we see today.

As the cost of fuel rises, the result will be that "globalization" evolves back to "local markets". We'll have less due to the cost of fuel needed for manufacturing and transporting goods for delivery.

The here and now picture of the economy will continue to reflect the beginning of this change.

I agree with RaphaelM above. Mainstream economists regularly seem to fail to understand the following:

1) Natural limits to growth that cannot be overcome by so-called market-balancing higher prices
(For example, the market can continue to offer higher and higher prices to squeeze last quantities of toothpaste from a toothpaste tube, or oil from the earth, but doing so will never sustain growth expectations in consumption. Price increases will outpace extraction until the system collapses because even though there are still traces of toothpaste in the tube, for society's purposes the emphasis of the extraction industry will shift from extraction to "profit". See energy quality and relative rates below for the assumption that high prices inevitably will deliver commodity substitutes.)

2) Energy quality
(Physicists and petroleum geologists, unlike most economists, understand that energy is proportional to mass (E=mC^2), thus, obviously, "there is no shortage of energy." There is energy embodied in sand. It is quality energy that drives modern society, energy that delivers high energy return for energy invested. Comparing energy quality of oil and natural gas with substitutes (coal, wind, hydrogen, ethanol, etc.) is absolutely necessary to understand the situation, but mainstream economists simply get stuck on prices and their rear view mirror exponential growth picture of the world.)

3) Relative rates
(Mainstream economists fail to understand obvious accelerating negative implications of exponential growth in consumption, environmental destruction, and pollution relative to the much slower ability of complex society to respond constructively to hazards like global warming or, say, growth in oil and natural gas consumption relative to society's ability to develop a renewable energy substitute infrastructure for oil and natural gas on a national or global scale.)

High priests of capitalism (mainstream economists) push implicit assumptions of indiscriminate growth, growth, growth (video clip: 8.5min); often in the name of jobs, jobs, jobs while minimizing scientific and objective perspectives of our best biologists, petroleum geologists, climatologists, and physicists. With businessmen and politicians, they are leading society into biological overshoot, overshoot, overshoot.

Thanks for the forum!

right, but people try anyway. aquifers, even as we speak, are being drained away, even here in Minnesota, since people like pushing things to unnatural limits.

To boldly go...

Huh? They are trying to grow sugar in Minnesota? I realize global warming is changing climates, but I didn't think we were quiet to that point yet.

A dazzling discussion, as always. JB, you clearly cater to a better class of commentators...

I noted a daring use of E=mc2 from a possible economist here. A semi-sane physicist will tell you that issues involving mass almost always zero out, except in the rare case of nuclear explosions in which a teeeny bit of mass is actually lost. Otherwise, we're faced with the finiteness of substance. There is, for example, only so much Earth here -- H/T to those following the dynamiting of WV mountaintops.

Economics, or so it seems to me, is unencumbered by the laws of physics. If money is short, our governments can always print more money. Heartfelt photos of Weimark citizens lugging wheelbarrows of cash to the bakery to buy a loaf of bread stick in my mental craw.

Then again, the value of a body of products can only emerge, or so we're told, once the unseen hand of the forces of MARKETS slips into the room.

Which leads me to two observations: We don't know what is the value of value. Daimler spent $36B to acquire Chrysler nine years ago; a private investor group led by former Treasury Secretary John Snow now offers up $7.4B for 80% of said entity (quick math, anyone? My calculator says they're offering a quarter for every original 1998 dollar), while getting some $650M from the soon-to-be-former Daimler/Chrysler to lift the American albatross from their necks.

Cerberus (the dog from Hell) represents that itsy-bitsy cadre of people who profited from the Bush tax cuts. Those people who have so much cash on their hands they aren't even thinking. They don't even care what ends their money pursues. But for a lucky few, the betrayed hope of millions of investors can be transformed into a happy investment.

What's weird about the Cerebus deal--and there's lots that's weird about it--is that the union seems to be going along.  The UAW, no less--not some pansy white collar union.

May be they see this as there only choice but they opposed this type of deal up until quite recently, I think.

Yes--especially in a pvt sector that's 8% unionized, worker bargaining power is very much a function of the tautness of the job market.  The absence of full employment, which we never achieved in this recovery and are now heading the wrong way, is thus a big problem.

Dog from hell, indeed.