A Keynesian in China

by Mario Rizzo

Paul Krugman is complaining about China’s exchange rate policy. Its government is maintaining an artificially cheap renmimbi (yuan) against the US dollar. This has stimulated the purchase of Chinese exports by US companies and individuals. It has expanded the Chinese trade surplus with the US.

The relatively rich (compared to their Chinese counterparts) American workers are suffering from depressed industries that might be stimulated if Chinese policy were to change. Specifically, if the Chinese were to allow their exchange rates to float, the US dollars would be worth less and the US would export more to China. This would stimulate the employment of resources here.

But wait a minute. Continue reading