Bernanke on inflation: Not a problem

Bloomberg.com

Great piece fron Christina Laurie about the film Inside Job

Christina Weiss Lurie: Getting a Nod from the Academy!

Excellent post from Dean Baker

Representative Ryan Can't Tell the Difference Between Greece and the United States: Where Is the Ridicule? | Beat the Press

Ah...if economics was only static

In today's NY Times, Mark Wu (law professor Harvard) writes that America's trade problem is not caused by the value of the Chinese RMB. He argues that we really do not compete against China because the products the US exports are different than the ones that China exports. He also points out that during the period 2005-2008 the RMB rose in value, but US exports to China did not increase. Parenthetically, the current account trade deficit also increased between the two countries during that period.

However, he ignores some basic economics. First, the change in value of the currency will make Chinese products more expensive in the US market if the Chinese vendors take payment in the RMB, or if they adjust dollar denominated prices to reflect the value of the RMB. It may in fact, be in the long run before the prices of imports adjust as businesses are slow to change prices. In fact the recession was effective at reducing the current account balance between the countries. Viewing the number from 2008 to 2009 the balance declined by over 15%.

Adjusting the currency value will help close the gap which us unsustainable in the long run. Professor Wu also ignores the GDP impact of the trade argument. To offset the current account balance there must be a capital account baalnce, meaning China has to do something with the dollars it gets from trade. Moving the dollars should weaken the dollar against all currencies. But if the Chinese artifically inflate the dollar, then the adjustment will not take place.

Economics is dynamic. You have to account for botht the flows and stocks to measure change. Professor Wu's mistake is not to account for the long term possibilities based on the currency value and to ignore the actions of Chinese government and business to deflate the value of their currency with respect to the dollar.

The Leader We Need

Tonight President Obama addressed the nation via the memorial service in Tucson. His words speak for themselves, but consider this passage...

The loss of these wonderful people should make every one of us strive to be better in our private lives – to be better friends and neighbors, co-workers and parents.  And if, as has been discussed in recent days, their deaths help usher in more civility in our public discourse, let’s remember that it is not because a simple lack of civility caused this tragedy, but rather because only a more civil and honest public discourse can help us face up to our challenges as a nation, in a way that would make them proud.

Many of us have criticized the President in months past for a lack of fire in his pursuit of policy goals. While trying to navigate the highly partisan divide in Washington, the President's cool seems like detachment from the struggles of working families. Today we see how valuable his calm can be in helping us through the most painful moment possible. I hope this moment leads to "a more honest and civil discourse" and his leadership continues to soar.

New Term of Macro

Back from Denver and going right into the classroom to kick-off a new term in Macro. Based on discussions at the AEA in Denver I will have a few different ideas to share with students tonight and at various times during the term.

A Good Discussion Article on Monetary Policy

NYT: Fed Pays a Record $78.4 Billio