Under a fixed exchange rate system, the surplus country has more power to determine policy stance than the deficit country.

a part of the reason that the Bretton Woods system collapsed? That the US was no longer willing to play ball in a system that favoured surplus countries when it went from being a surplus to a deficit country due to its colonial adventure in Indochina?

- Jake

Friends come and go. Enemies accumulate.

Further, the Chinese economy, as a prime manufacturing site currently organised around importing large volumes of raw materials to feed the factories is (% wise) much more vulnerable than the US to cost-push.

Of course this gets complicated because how much of the "cost-push" in China gets passed on to the US because you can't change the mix of US-China trade that quickly (lots of trade internal to companies).

China is already striking a balance between capture of export markets and cost of essential imports. If it fights to maintain a stable US$ exchange rate while the US counter by discounting the US$ against the ROW, the ¥RMB drops against the ROW.

With the Chinese about where they want to be and the US above where we would want to be under a neo-mercentalist stance, they'd be experiencing problems while we were still experiencing gains.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

However, I like the Paradox of Thrift because it appears to match the reality of what happened in the Great Depression and indeed in previous episodes of deflation...

Is economics ultimately a collection of just-so stories? Do we like the paradox of thrift because it is consistent with solidarity politics?

I think economics, done properly (rare, I know), lends itself more to our way of thinking than is commonly thought because of what passes for economics on television.

What it should be is a combination of sociology, political science, logic, and statistics.  What it winds up being in too many cases is mathematics' retarded brother.

Simon Johnson's blog had a post up on this the other day that made a point I've -- clumsily -- tried to make in the past, noting differences in opinion between PhD economists and undergraduates (the former being quite a bit more liberal than the latter): Studying economics as an undergraduate tends to correlate with becoming a Republican, but going on to a PhD tends to swing the person back to the left.

A little bit of economics can be a dangerous thing.

You have to get fairly deep into the subject, or you wind up believing crazy shit because your Macro 101 textbook had a pretty graph and your professor was more interested in writing papers than teaching properly.  You get people believing that RATEX is actually true rather than simply a tool for isolating other variables, which leads to all kinds of other absurdities.

Part of it is a time problem, I think.  It's difficult to fit the basic concepts of the different areas into a semester, let alone really dig into information asymmetries, price and wage adjustment, etc.  At best they'll tend to be covered to some extent in the intermediate-level classes.  And I'd guess most students aren't really interested in diving that deep into the field.  They just want the degree.

Be nice to America. Or we'll bring democracy to your country.

That's not a GAAP. GAAP records spending. Spending amounts (values) are classified either asset or liability.

Balance sheet asset category, "investment activity," refers to both cash equivalent value of securities held for sale (of which guidance boards permit a variety of valuation methodologies including purchase price applicable to this asset type) and income, if any, from interest- and dividend-earning securities.

"savings = investment" is a finance supposition; it's not even a mathematical identity.


Diversity is the key to economic and political evolution.

Its just that that gravitation toward full employment is not based on any empirical cause and effect explanation, its based on the way the model needs to be built to use the traditional analytical toolkit.

So, yes, non-empirical mainstream economics certainly is just a series of Just So stories. If we want empirical economics, we have to abandon the idea of making the re-use of a particular analytical toolkit the defining feature of mainstream economics, and replace it with an effort to provide cause and effect explanations about the material provisioning of society.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.