Archive for July, 2007

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Reading is necessary for life, but writing is a luxury.

Sunday, July 29th, 2007

I have not been writing lately because I have been short on time. For one thing, I have been doing too much sleeping. But I always make time for reading even if I have to cut out on the sleeping.

I figure that since I have not been writing I might as well share some of what I have been reading. This will give the nosey people in the audience an idea of what I do on the web and maybe point some people towards a few things that are worth reading.

So here is a list of 7 things that I read this week that were good enough to justify the existence of the internet. Some of these things will make it into The Ethereal Voice, but most them would have just been read and filed in the back of my mind. To balance the force, I am also going to list 3 things that highlight why the internet can never break down the barriers that prevent communication between people. In other words, there will also be a list of three things that bothered me.

7 things worth reading

Brad Setser’s recent post entitled “It is now (almost) official: q1 dollar reserve growth exceeded the US current account deficit …”

This should have been headline news in the financial press (ironically, I forgot to post a link to this over at the Ethereal Voice. I shall fix that). Instead everyone chose to pay attention to moves that the stock market was making. But I don’t really think you can understand the moves the stock market has been making without understanding the implications of Mr. Setser’s post.

If official reserve growth exceeds the US current account deficit, it means that private investors are pulling their money out of the US in net terms. In other words, the only thing that is preventing even worse carnage in the financial markets is strong buying by the world’s central banks. But how long can central banks continue to do this without causing major problems in their own countries? That is big question mark hanging over the economic future of the US.

“Seeking Words of Balm” from a blog called A Day In the Life of An Ambulance Driver.

There is not much that you can say after reading an essay like this. It is so well written and powerful that any comments seem cheap in comparison. All I will say is that death should cause us to think about what is important in life.

Tanta’s latest rant entitled “Wounded Innocence 1, Seasoned Vigilance 0“

Do you read the financial press much? Do you get disgusted by all the highly paid analysts who are claming that they were mislead by the rating agencies? If so, you will love this rant by Tanta.

She has a talent for spanking people who refuse to grow up. And this time she uses a hairbrush.

“Forget your future plans” from Inspector Gadget

If you don’t regularly read Inspector Gadget, you should. He is the best of the British police blogs. This particular post is nothing out of the ordinary for Inspector Gadget. His stuff is normally like this.

In my head, I have already written a post inspired by Inspector Gadget called the “The Last Restraint.” It will tie some of the ideas that I expressed in this post and this post with some of the common themes in Inspector Gadget’s writing. But don’t hold your breath waiting for it to appear on the web.

A post from Edward Hugh over at Demography Matters entitled “Ukraine Population and Fertility“.

It’s a boring title, but it is a scary post. Ukraine geographical location and size guarantees that any serious problems there will affect most of Europe. What’s more, a lot of countries are depending on Ukrainian labor to bail them out of their own demographic problems. I don’t think that is going to happen.

“In defense of genocide, redux” from Spengler

It is amazing how fast the human heart can stop caring about mass murder. I don’t agree with everything Spengler says. But in his latest essay he makes some points worth pondering. Especially when he says…

Time was that the g-word was unpronounceable by critics on the right or left. It is a measure of how much the world has changed since September 11, 2001, that the prospect of genocide shocks neither.

I am afraid he is right, but I don’t think that is a good thing.

This piece from the Ethereal Voice based off of stuff I read in Calculated Risk.

I wrote the piece in the Ethereal Voice on America’s Home Mortgages decision to pull their dividend at the last moment. So technically it is not something that I read this week. But the post is based entirely on information that I read at Calculated Risk. The only reason I am not highlighting a post of theirs on the subject is because I had to collect a lot relevant information from the comment sections of their posts.

Anyway, if Calculated Risk and Tanta are correct, the implication of America’s Home Mortgages decision to withdraw their promised dividend seems pretty dire. How many other companies out their have seen a similar cutting off of credit?

“Sikh To Death” by the War Nerd.

When I was around 6 years old, there was this little girl who was heavily overweight who lived across the street from where I lived. She must have led a sad life because her method for attracting attention was to be as gross and offensive as possible. That is what War Nerd is like. He makes frequent references to the fact that he is overweight and he goes out of his way to be as offensive and gross as possible. He must be desperate for love.

Whatever his peculiar problems are, he knows a lot about history. Most of the time, I already know as much as he does about what he is writing about (me king of jungle 🙂 ) but sometimes he writes about things I am ignorant about. Such is the case with his latest essay on Sikh history.

It made me realize how little I know about Sikh history and made me want to learn more. Especially since I never fully trust the War Nerd’s version of events for reasons that should be obvious to anyone who reads him.

Three things that make me despair of communication with my fellow human beings

“Are children a public good?” from Free Exchange

This post has a few good things in it. Most notably it makes some good points on the dangers of only valuing children for their economic potential. But that point loses some of its punch when one gets the feeling that author has no use for children, period. I mean, what do you make of this sentence…..

People differ rather vehemently on this issue, but I see nothing wrong with a population dwindling away entirely, as long as living conditions remain high.

It says something when a person can imagine a high standard of living even as their community dies off around them. As much as I like to play the recluse and live way off in the country, I cannot conceive of a high quality of life that does not involve other people. Maybe robots will enable us to do without other people, but does that really mean that we will have high living standards?

This post nicely illustrates that point I was trying to make in my post entitled “The only demographic effect that educated people will accept.” The unwillingness of people to acknowledge the seriousness of the demographic problem has nothing to do with ignorance and everything to do with their existential world view.

Of course, I would take issue with lots of other ideas in this post. For example, I don’t find the idea that immigration will still provide a viable source of labor in a world that has below replacement birth rates very creditable. Nor do I think that productivity growth can exceed 3 percent over the long term (which it would need to do in many countries in order to make up for the aging of the population). But what is the point of arguing these points if one’s fundamental values are so divergent?

This piece by Randy over at Demography Matters called “Why it’s not a good idea to scare away the creative class”

The central idea of this post is that the cultural conservatives that now rule Poland are driving away all the smart people in Poland. Supposedly, smart people just can’t put up with being ruled by government that is motivated in part by religious ideas.

The main problem with this idea is that there is no evidence to support it. The comment section for this particular post is full of people from eastern Europe who point out that Poland’s problems are no different then those of other Eastern European countries who have liberal governments.

Edward Hugh tries to rescue his fellow contributor by saying….

I agree with the general consensus here that wage differentials are a main driver of the migrant flows which are taking place, and since these wage differentials are large, and likely to remain so, the flows are likely to continue, and this in itself is a cause for concern.

OTOH, I think Randy may well have a point when it comes to peoples decision about whether or not to *return* home at some point.

But there is no evidence to suggest that that people from Poland will be more reluctant to return home than other eastern Europeans. So why does Randy invest so much time promulgating a view that there is no evidence for?

I think it is because Randy has succumbed to the natural human tendency to blame all the problems of the world on one’s ideological opponents. Since he already believes that social conservatives are bad news, it is easy to impute all manner of problems to them whether it is justified or not. Social conservatives turn around and do the same thing. (A good example of this would be this piece in the Brussels Journal blaming the flight of the creative classes from Great Britain on liberal immigration polices.)

Such tactics might please one’s fellow ideological travelers, but it also lowers the quality of discourse. It makes the already deep divisions that divide mankind even worse. And that is in nobody’s long term interest.

Reason & Revelation by Doctor Bob

This post involves me rather personally as the post was response to a comment that I left on Dr. Bob’s site. Or at least, Doctor Bob imagines that he is responding to a comment that I left. From my particular perspective, Doctor Bob seems to have missed my point entirely and gone on to do battle with some imaginary phantom.

For this I take full responsibility. It is the job of the writer to make himself understood. And unfortunately I have long history of writing things that are impossible for people to understand. If I write a long essay on subject, nobody can understand it. If I write a short couple of paragraphs on a subject in the most simplistic manner I can imagine, nobody understands me.

I am not sure why I have this problem. I know one common mistake I make is that I overestimate how much knowledge my intended audience and I share. For example when I was young teenager I wrote an essay called two modest proposals. I was sure that my intended audience (which was composed of people who knew me and were very well educated) would get the obvious reference to Jonathan Swift. Even if they didn’t, I was sure that my audience knew me well enough to recognize when I was being ironic.

But I was wrong on both counts. The fact that nobody recognized the illusion to Jonathan Swift still boggles my mind. How do they teach people in high school about the use of irony in the English language without making reference to Swift’s famous Modest Proposal?

I do try to learn. And in the case of Dr. Bob I tried hard to avoid even a hint of irony and I tried hard to be as clear as possible. But somehow Dr. Bob got the idea that this represents my views….

To maintain that any claim to revelation is valid, if we only believe it to be so, substitutes self-direction based on emotion (invariably self-serving) for revelation from the source of absolute truth.

For the record, I don’t believe that any revelation is valid if only people believe it to be valid. But I am a loss as to how to get Dr. Bob to a place where he can understand my point well enough to argue against it. Any ideas on how I could present my point more clearly or should I just give up?

Posted in Uncategorized | 2 Comments »

Young male economic participation, existential questions, and the failure of the social sciences

Saturday, July 21st, 2007

Why should we bother to exist? What gives life meaning? Why shouldn’t we all just give up and go off into that good night?

I doubt that you want to hear my answers to those questions. And frankly, I am not at all sure that I would be edified to hear your answers to those questions. But in spite of our reluctance to talk about such existential issues, we should always remember that those questions are foundational to the social sciences. To forget this is to render the social sciences worthless.

In the past, such a reminder would not have been necessary. To even raise the issue would have had all the relevance of pointing out that the sky was blue. After all, most of originators of the social sciences were philosophers who dealt with existential issues as a matter of course. For example, Adam Smith wrote The Theory of Moral Sentiments as well as An Inquiry into the Nature and Causes of the Wealth of Nations.

But these days it seems that the social sciences would rather forget the existential questions. They envy their comrades over in the hard sciences. They want to spell out the laws that govern men with same precision that the physicists have when they lay out the laws that govern rocks.

It is only natural, then, that the social sciences would seek to emulate the way that the hard sciences ignore the existential questions. After all, it would be kind of silly for a physicist to explore the purpose of a rock’s existence. A physicist can never answer such a question. Thus, pondering such questions would only distract the physicist from the questions that they can answer.

Similarly, a social scientist cannot really answer the question “what is the purpose of human life” with a scientific answer. Hence, any social scientist who desires to be “scientific” will seek to avoid dealing with those questions.

The problem is that people are not like rocks. They can ask “To be or not to be?” The answer they give to that question has profound implications for how they behave. Those changes will not be predicted or understood by theories that assume that peoples’ answers to existential questions remains constant amongst all people and all cultures at all times.
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Posted in Demographics, Life, Religion | 1 Comment »

Why I vary my arguments

Thursday, July 19th, 2007

This post is a comment that I left on my own blog in response to Mr. La Roche. This is getting to be a bad habit with me. But when I write two pages out, I hate to bury it in the comment section. Especially when writing out those two pages prevented me from writing the post that I wanted to write tonight.

Those who are already familiar with my essay site might want to skip the first part of this post (all the way to the Continue Reading tag). But they might find the second part to be an interesting insight into my philosophy of argument (though I don’t always follow that philosophy as well as I should).

Thanks for responding the way that you did. It occurred to me after I had posted my reply that the obvious response would be to point out that I had just been criticizing the Economist for being unreasonable. That lends a certain air of irony to my argument, does it not?

If I can fault The Economist for being unreasonable how can I argue the wishy-washy crap that I argued in the above post? I blame lack of sleep and being short on time.

The fact is that I appreciate a well reasoned argument, even if I disagree with it. And I dislike a poorly reasoned argument, even if I agree with it. A well reasoned argument that I disagree with helps to sharpen my own thinking, but poorly reasoned argument whose conclusions that I agree with only makes me ashamed.

Having said that, I don’t believe that reason has much to do with what we perceive to be the truth, and that is what I was trying to get at in my last response to you.

One of the people who helped me refine my own thinking on the matter of reason and truth was a Dutch philosopher by name of Benedict de Spinoza. He is not widely known in America, but I hear that he has a wider following over in Europe, so maybe you are already familiar with his work.

If you have heard of Spinoza, you know that he argued the exact opposite of my position. He is a good example of how someone can make a very reasonable argument that I appreciate even when I disagree with it. But the real reason I bring him up is that I think he laid out the best possible case for reason as a universal guide to truth.

One of the reasons that I find Spinoza so impressive is that he takes the a priori position that reason is the only valid guide to truth and he reasons from that about how the world must be in order for that a priori position to be true. Most people don’t even stop to think about how the world has to be in order for reason to work. They just assume that reason works and don’t bother thinking about what that implies. But Spinoza took the time to think about what the nature of reason required the universe to be like if it was to work.

Now I find Spinoza’s argument to be very impressive. It is easy for me to see why Einstein practically worshipped Spinoza. It is really eerie to see how well Spinoza anticipated future scientific advances simply by reasoning out what reason itself required. Einstein’s own work is a particularly noteworthy vindication of Spinoza’s thought process.

But contrary to Spinoza, I think that reason itself requires one to believe that Spinoza was wrong. As a consequence, I think that we must give up all hope of using reason to work people towards a common truth.

If you’re the type who is willing to entertain philosophical arguments, I argued this position in my essay called Spinoza, Einstein, and the Failure of Reason. But if you are not the type who likes to deal with philosophical arguments, you will probably find that the essay is too much too deal with.
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Posted in Life | 1 Comment »

The only demographic effect that educated people will accept

Tuesday, July 17th, 2007

Why is it that there is one and only one demographic effect that the majority of highly educated people in the world are willing to accept? And why is that one effect the idea that less children are good for the environment?

A lot of highly educated people are willing to argue that people in the developed world should have fewer babies because their children will consume a disproportionate share of the world’s resources. Even more educated people are willing to lay all the problems that Africa and other third world countries have at the door of overpopulation. And even those who are not willing to be quite so accusatory still feel that less people would be better for the environment.

Why can’t all of these people make the mental leap between the idea that having children will have an effect on the environment to the idea that not having children might have effects on other things? After all, fewer children are supposedly good for environment because less kids means less future economic activity. Yet somehow people can only see benefits from that fact. Any kind of talk of a down side to that particular fact is treated as wild talk from the doom and gloom crowd.

But the inconsistency of your average educated person goes further than that.

After all, if you take the underlying assumption of “less kids is good for the environment” seriously, you should be against all forms of economic growth. In fact, you should wish to see every economy in the world in recession.

The fact of the matter is that the absolute number of people in the world has very little to do with how much of the earth’s resources are consumed. The real key is the level of economic development that those people are operating under.

For example, let us say that X represents the maximum amount of consumption per year that the earth can sustain (grant me for a moment that such a limit exits if you don’t belong to that school of thought). Let us say that every human being consumes a certain amount. It therefore follows that a constant growth of the human population will lead humanity to bump up against the limits imposed by X. This much everyone can understand.

But let us say that GDP per person represents a rough guide to how much of the Earth’s resources a person consumes. It would therefore follow that a static human population could reach X simply through economic growth. Heck, even a falling human population could reach X if economic growth grew faster than the human population declined. It would therefore follow that man’s infinite wants are a bigger problem than absolute human numbers.

In other words, is it better for a place to be full of subsistence farmers or one big monoculture grown to provide the bio fuel for some dude’s private rocket ship?

Some hard core environmentalists are consistent on this point. They are against economic growth as much as they are against population growth. And for that consistency I respect them.

But most educated people fly all around the world for their vacations. They eat expensive food and drive expensive cars. They live in big houses/apartments compared to their less educated peers and they want even bigger houses or a second vacation home. And when they have their cocktail parties they discuss their stocks and how population growth is such a threat to the world.

That bothers me.

I think that willingness of the educated classes to lay so much blame for the environmental problems of the world at the feet of those crass enough to have babies says a lot about them. It also goes a long way towards explaining why they are so resistant to the idea that there might be negative effects to having too few children.

Posted in Demographics, Economics | 1 Comment »

This calls for some celebration

Monday, July 16th, 2007

Yesterday, I wrote to Mr. Nichols in spare moment saying…

Poetic temperament is a valid excuse for having problems writing. But not for taking stuff that you have already written down. Have a little mercy on the rest of humanity.

He never responded. But Philosophical Poetry went back up today. Hooray!!

Given Mr. Nichols past record you can never be sure how long the thing will stay up. So those who have never had the opportunity to read some of Mr. Nichols’ poetry should immediately go and read some today.

You can start with Why the Titanic Sank, It is not envy that consumes, and How inadequate the howl.

You can also read a review of his two sites that I did awhile back.

Posted in Art | No Comments »

A rephrasing of the question of Psychology

Monday, July 16th, 2007

I am making this response to a comment on my last post into a post of its own. I am doing this mostly because I think that this comment is what I should have said in the first place. It captures the heart of my reaction to Mr. La Roche’s post in a more condensed fashion then my original post did.

Mr. La Roche

The thrust of my post was “what makes you think that your viewpoint is not extreme?” In other words, how does your reasoning process differ from those views of which you disapprove? If we are honest with ourselves, the answer almost always points to our having a differing a priori from those who hold views of which we disapprove. Differences in the quality of our reasoning often have very little to do with it.

I try to guard against my tendency to think that I have superior reasoning by only arguing using the opposing frame of reference. Thus, the arguments that I use can vary a lot depending on whether I am arguing against a conservative, a liberal, or whatever.

But this only gets one so far. You can’t escape the fact that we all have differing a priori and that they create barriers of communication between us. It is important that we don’t make those barriers worse by assuming that our differing a priori is proof that we have better reasoning skills.

Ape Man

Posted in Life | 3 Comments »

On the question of Psychology

Sunday, July 15th, 2007

In a comment left on my rant against the Economist and in a post on Fistful of Euros, Guy La Roche asks….

Has anyone questioned, since Ape Man mentioned the name, the psychology behind a guy like Mark Steyn? It would go a long way in understanding his motives and way of thinking. And it might explain his appeal to many.

I am inclined to respond by saying….

“Has anyone questioned the psychology behind a magazine like The Economist? It would go a long way in understanding their motives and thinking. It also might explain their appeal to many.”

I brought up Mark Steyn because The Economist did. It was clear that The Economist piece on the demographics of Europe was about discrediting Mark Steyn. The article betrayed no real interest in exploring the issue.

My point in bringing up Mark Steyn was to point out that The Economist was really no better than Mark Steyn. Why should Mark Steyn be considered a peddler of dangerous demagoguery and The Economist a respectable magazine when they both use the same reasoning process? Why should reading Mark Steyn be the mark of a fool and reading The Economist to be proof of one’s broadmindedness?

I am a little sensitive to this implicit double standard because when I was younger I would have read Mark Steyn avidly. In fact, back in the day when I use to regularly read the National Review and other such publications, I probably did read some of his articles. I don’t remember for sure now, but I seem to remember reading some of his stuff somewhere when I was younger.

I no longer avidly read the writings of men like Mark Steyn because I no longer find them profitable. Of course, I still try to read enough to keep abreast of what they are saying because I like to be well informed about what other people believe. But a long time ago (relative to my short life anyway), I had to face the fact that I could not be a fellow ideological traveler with men like Mark Steyn and be true to my own beliefs.

But even though things have changed, I think I can explain a large part of Mark Steyn’s appeal. Judging by my own experience, the biggest appeal of Mark Steyn and men like him comes from who their enemies are.

This is how it worked with me. I had extremely negative experiences with liberals while I was growing up. Naturally, then, I sought out conservative publications because they were always bashing liberals. In other words, events that happened in my personal life shaped the type of ideology that I sought out. I wanted people who would help me oppose the people that I did not like.

A lot of people don’t seem to think that it works this way. They seem to think that men like Mark Steyn cause people to dislike immigrants or liberals or whatever. But the reality is that people like Mark Steyn are popular because they give expression to feelings that are already there.

The same thing could be said about The Economist. The Economist is popular because they do a good job articulating the views of their particular social class. You can’t really accuse The Economist of leading people astray because The Economist follows received opinion. You will never find the Economist pushing something that runs counter to ideas common to the global Anglo Saxon elite.

What I am trying to say is that the problem comes from the bottom and works its way up rather than coming from the top and working its way down. Therefore, it seems to me that questioning the psychology of Mark Steyn or The Economist misses the mark. It makes it seem like there is something special to them that is not common to all of us. What we need to do is to question our own psychology.

What makes us think that we are better than the likes of Mark Steyn?

Posted in Politics | 4 Comments »

Why moderate Muslims don't matter

Thursday, July 12th, 2007

One of things that annoys me about life is the people who claim to sincerely care about Islam and yet turn around and say that they want Islamic moderates to rescue Islam from the fanatics. In my not so humble opinion, people who are looking for moderate Muslims to step up to the plate and rescue Islam from the hands of fanatics are either hypocrites or deluded. They should just cut right to chase and say that they want to destroy Islam.

After all, a religion dominated by moderates is a dead religion. It has always been this way and it always will be this way. In other words, a desire to see moderates take over the Islamic faith is the same as a wish to see Islam destroyed.

I don’t want anyone to mistake my meaning. There is nothing special about Islam that makes this so. All religions are this way. Those who want the Catholic Church to become more moderate are making the same mistake (or being equally hypocritical) as those who desire Islam to be more moderate. Moderation is the death of all religions.
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Posted in Uncategorized | 1 Comment »

How I view China….

Wednesday, July 11th, 2007

A comment that I left on my previous post….

Mr. techy2468

I am glad that I am not the only one who thinks that the US and China are equally to blame.

But I think that you and I fundamentally differ on the nature of what China is doing. You see China as being someone who is sneakily manipulating its currency to gain an unfair advantage. But I see China as being akin to General Motors. They are desperate to maintain the market for their goods so they are offering 0% financing to their customers.

It is not an accident that China started its massive currency intervention when all the signs were pointing to the fact that the US was going to have a recession. I think we in the US would have had a good recession if China had not “saved” us.

So in the short term China’s policy has been very good to the US. But in the long run, it is putting off pain today for more pain tomorrow just like GM is.

I think that the pain that you and Mr. Setser fear from higher interest rates is going to happen no matter what. The only question is whether you want your pain now or you want it worse later.

Posted in Economics | 5 Comments »

Why isn't Brad Setser arguing that the Fed should raise interest rates?

Tuesday, July 10th, 2007

If you follow Brad Setser, you know that he is very concerned about China’s policy of artificially lowering the value of the Yuan so as to subsidize their export sector. He has extensively argued that China’s policy poses grave dangers to the economic health of the US, China, and the world at large. He uses every chance he can get to argue that China should change its policy and that the US and the rest of the world should pressure China to do so.

As regular readers know, I am broadly sympathetic to his argument. But I think he puts too much of the blame on China. He should really turn his attention towards The Federal Reserves and start directing some of his ire towards them.

Don’t get me wrong. I want the Chinese to stop subsidizing its export sector by artificially lowering the value of Yuan just as badly as Mr. Setser. And as some of my previous posts have demonstrated, I can’t conceal my contempt for China’s irrational economic policy.

But I think that Mr. Setser puts too much stress on the artificially low value of the Yuan. To my mind, the real problem is that US interest rates are artificially low.

Of course, these two problems are not really separate. China cannot keep the Yuan artificially low without subsidizing US interest rates. And US interest rates would not be so low if China and others were not trying to keep their currencies artificially low against the dollar. Mr. Setser himself articulates this in his latest post by saying….

A lot of folks are sitting on capital gains that stem in no small part from low interest rates — low rates that stem at least in part from this huge flow. A lot of people in New York make their money selling debt — usually packaged in complicated ways — to folks who sold their Treasuries or Agencies to the PBoC. Private equity firms might not be the kings of Wall Street in the absence of the huge surge in central bank demand for debt, and the resulting easy availability of liquidity.

The longer emerging markets continue to subsidize the issuance of dollar denominated debt, the more deeply this subsidy will start to be woven into the fabric of the US economy — and into the structure of the US financial sector. There no longer is much of a constituency for adjustment — at least as far as I can tell — in the US financial sector.

But if cheap money is distorting US economy as the above quote seems to argue, isn’t that an argument for making money more expensive?

Moreover, if US interest rates were higher, won’t China stop subsidizing the US? After all, China is only trying to make sure that the dollar stays strong relative to Yuan. Higher interest rates should cause the dollar to stay strong against the Yuan without any outside help, right?

One might protest that we should not raise interest rates to suit China’s needs, but that objection holds no water if you follow Mr. Setser’s logic in the quote above. After all, Mr. Setser argues that in the absence of China’s (and others) reserve accumulation, interest rates would already be higher than they are now. Thus, a rate rise would only be bringing rates to their natural level. So it seems to me that anyone who believes that China’s reserve accumulation is detrimental to US long term economic health should also believe that the Fed should raise rates.

In short, if you accept Mr. Setser’s argument that artificially low interest rates are distorting the economy, then you believe that interest rates are going to have to rise sooner or later. So why not force the issue before more damage can be done?

Of course, there are objections that could be made to this line of argument. Perhaps the most powerful objection would center on the difficulty in determining what the “natural” interest rates should be. Just because someone is convinced that China is artificially holding down interest rates does not mean that they feel confident that they know what the “natural” interest rate should be.

But the Fed never knows what the “right” interest rate is. That does not stop them from trying to carry out their duty to fight inflation and maintain the soundness of the financial system. If you truly believed that the Chinese subsidies represent such a threat, why shouldn’t the Fed take corrective action?

Besides, most of those who worry about China support either trade restrictions or capital controls to deal with the “threat.” But if either of those things were successful at dealing with the “threat,” they would cause interest rates to rise. Plus, those “solutions” run the risk of distorting the US economy in ways that are equally bad as the damage done by China’s cheap money.

I don’t really expect anyone to accept the above argument. I am not entirely sure I accept it myself. But I can’t help but feel that Mr. Setser is trying to save himself some metal work by making the current mess all China’s fault with the poor old US sitting by helplessly. The current mess is as much in the US interests as it is in China’s. That is the real reason the US is “just sitting by.”

I think that this is true even in the US manufacturing sector. True, a high dollar/low Yuan makes it harder to export. But cheap credit makes it easier to sell domestically. If it were not for China, General Motors would have gone bankrupt already.

If we don’t have the guts pay the price necessary to bring this thing to a head now, how can we blame China for their lack of guts?

Basically, I have a problem with the idea that China is imposing something on the rest of the world and it bothers me when people I respect put forward that idea. For example, in the comments to this excellent post, Macro Man says….

Under the current regime, however, China’s “right” to set its own exchange rate entails an obligation on the part of foreign countries to accept the exchange rate (and, increasingly, yield curve slope) that China gives it. I and a lot of financial participants have a problem with this, but it tends to get glossed over amidst all the protectionist rhetoric coming out of the US and, to a smaller degree, Europe.

I just don’t buy this. When America ceases to want cheap money, then I will believe that China is obligating people to accept its exchange rate. But until then I will continue to hold both countries equally culpable.

Posted in Economics, Uncategorized | 3 Comments »

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