By John Tamny

President Obama's arrival in China has predictably generated all manner of commentary about the economic relationship between it and the United States. Not surprisingly, the majority of the commentary has been economically untrue, misguided, or both.

First up is the notion that China artificially keeps the value of the yuan lower than it would naturally be. What this commentary misses is that currencies aren't commodities, rather they are concepts. Nothing else.

In that sense, China is one of many countries that pegs its...]]> Thu, 12 Nov 2009 00:00:00 -0600 "For one particular car produced by an American manufacturer, for example, 30 percent of the car's value is due to assembly in Korea, 17.5 percent due to components from Japan, 7.5 percent due to design from Germany, 4 percent due to parts from Taiwan and Singapore, 2.5 percent due to advertizing and marketing services from Britain, and 1.5 percent due to data processing from in Ireland. In the end, 37 percent of the production value of this American car comes from the United States."~Douglas A. Irwin, Free Trade Under Fire

With birthrates falling in wealthy nations, there's a growing perception that those countries face a somewhat darker economic future for their...]]> Thu, 05 Nov 2009 00:00:00 -0600 With the Bureau of Labor Statistics set to announce presumably another dire unemployment figure tomorrow, it's a certainty that politicians from both sides of the aisle will issue all manner of statements suggesting if we just let them make more laws and spend more money, jobs will be plentiful. Politicians bloviate about numerous things, but none more than job creation.

"Job creation" is the altar at which politicians worship. Last spring President Obama defended his administration's near trillion dollar "stimulus" plan because it would supposedly lead to the creation of 3 million new jobs, while House Minority Leader John Boehner explained Republican...]]> Tue, 03 Nov 2009 00:00:00 -0600 The 18th century French writer Voltaire once observed that the State is "a device for taking money out of one set of pockets and putting it into another." Voltaire elegantly distilled what we're witnessing right now as Washington seeks to prop up what private investors won't: the redistribution of limited capital from the productive to the unproductive. "Stimulus" this is not.

Though economic logic tells us that GMAC should never have received even one dollar of federal largesse, if the planned handout of an additional $5.6 billion is approved by Treasury, GMAC will be the unworthy recipient of $17 billion of taxpayer funds. The latest GMAC lifeline is being defended as a way to...]]> Tue, 27 Oct 2009 00:00:00 -0500 In his brilliant 1981 book Reaganomics, economist Bruce Bartlett observed that "to the Keynesians, all tax cuts are the same." Seeking to show why that was not the case, Bartlett took readers on a masterful ride through tax policy in the 20th century.

As Bartlett put it, the "individual entrepreneur is still the basic motivating force in the economy " and any "measures which suppress entrepreneurship will ultimately cause the economy to stagnate." With the top tax rate at the nosebleed level of 71 percent at the time of the book's publication, Bartlett's cure was among other things lower taxes in order to reduce the cost of innovation.

Fast forward twenty-eight years,...]]> Thu, 22 Oct 2009 00:00:00 -0500 In a world full of paradoxes, Princeton economics professor and New York Times columnist Paul Krugman has become rich decrying what he deems "income inequality." Only in America could an individual denounce the wealth gap while becoming the very person he denounces.

In that sense, it may be that polar opposites Karl Marx and Joseph Schumpeter were right: capitalism is seemingly its own worst enemy. In rich societies, commentators can become wealthy while trashing wealth creation.

The irony with Krugman is that when it comes to policy prescriptions meant to elevate the living standards of the lower and middle classes, much of what he proposes is inimical to their...]]> Tue, 20 Oct 2009 00:00:00 -0500 In a column last week for the Wall Street Journal, former Bush adviser Karl Rove suggested troubles ahead for health care legislation thanks to the Senate's Baucus Bill lacking what is termed a "public option". With the house bill including the latter, compromise might be difficult in such a way that substantial health care legislation could be imperiled.

Rove's thoughts are hard to discount given his skill at reading the political tea leaves. Still, it doesn't take a health care scholar to see that the Baucus Bill is merely a backdoor path toward a government managed public health care option.

That's the case because if passed, the Baucus Bill promises to erase...]]> Tue, 13 Oct 2009 00:00:00 -0500 Peter Morici is very correct that the dollar has served as the "reserve central banks hold to back up national currencies", and he's also correct that the amount of the gold in the world is limited. The problem lies in his assessment of relative currency values, the role of gold in shaping them, and his pre-classical view that trade is somehow harmful.

First up, it is precisely because gold is limited in supply and that it has very few industrial uses that it is such a worthy measure of money. With nearly every ounce of gold ever mined still with us, there's a massive disparity between the gold stock (roughly 137,000 metric tons) and gold discoveries (flow) that frequently reach 2,000...]]> Thu, 01 Oct 2009 00:00:00 -0500 Tomorrow the Bureau of Labor Statistics will announce the unemployment rate for September. While economists' projections ahead of the announcement suggest it's going up, the bigger story is how government intervention in the private economy drives what should be a naturally low number much higher.

For background, in his 1978 classic, The Way The World Works, the late Jude Wanniski addressed per capita income within countries. While income per individual in the U.S. dwarfed that within India, Wanniski argued that India's low number was almost certainly unreliable given the desire among its citizens to hide their economic activity from an overbearing, socialist...]]> Tue, 29 Sep 2009 00:00:00 -0500 For those who'd been optimistic that Federal Reserve officials might eventually wake up to the true nature of inflation, last week's FOMC meeting likely dashed all hope. The Fed continues to reveal a shocking blindness about inflation's actual causes, and instead comforts itself with the false notion that subpar economic growth is inflation's cure.

The important part of last week's FOMC statement went like this:

"With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time."

What Fed officials still don't see is that...]]> Tue, 22 Sep 2009 00:00:00 -0500 Last week it was announced that the Federal Reserve would move forward on its plan to police and restrict pay among employees of large financial institutions. At first blush it's hard not to be just a little bit sympathetic toward these efforts.

Indeed, while the symbol that is Wall Street talks a good game about markets and capitalism, many firms were more than eager to take bailout money, not to mention willing to change their regulatory status to that of bank holding companies in order to access taxpayer subsidized cash during a time of need. All that, plus during the crisis period of a year ago, rather than ask for less help and less regulation from Washington, financial...]]> Thu, 17 Sep 2009 00:00:00 -0500 Last September, when investment bank Lehman Brothers' looming failure was said to threaten the broad financial system, Stephens Bank CEO Warren Stephen sent a memo to his staff in which he wrote, "One thing I know for sure, this crisis will not affect Stephens Inc." While Lehman's balance sheet was leveraged up to 30-to-1, Little Rock-based Stephens Inc. could only claim leverage of 2-to-1.

With its list of assets and liabilities nothing if not prosaic, Stephens would not suffer collateral damage from Lehman's collapse. But some financial institutions, including Citigroup and Bank of America, saw their share prices go into freefall after Lehman's bankruptcy, and in Citi's case, a...]]> Thu, 10 Sep 2009 00:00:00 -0500 Peter Morici is a renowned economist and University of Maryland professor of economic means who believes that the "trade deficit" was a "principal cause of the Great Recession". He also believes that the deficit's existence "threatens to stifle recovery and push unemployment above 10 percent through 2011."

The irony in all this is that Professor Morici doubtless runs numerous trade "deficits" himself. Presumably he runs a deficit with the builder who put a roof over his head, with the automaker who built the car he drives, and with the grocery store whose items stock his refrigerator.

But do Morici's deficits impoverish him? Far from it. In order to run those alleged...]]> Wed, 26 Aug 2009 00:00:00 -0500 Yesterday President Obama confirmed what futures markets seemingly already knew, that Ben Bernanke would be reappointed as Fed Chairman. Whatever one's opinion of Bernanke, his successes and failures will now reflect on the man who chose to keep him in place at the Federal Reserve.

Bernanke's reappointment is yet another reminder that Washington is truly a different world. While business failures in the private sector are routinely starved of capital so that they can no longer bring harm to customers and investors alike, Washington failures get reappointed and are handed an expanded portfolio of duties.

About Bernanke, regardless of all the investor talk about the need for...]]> Thu, 20 Aug 2009 00:00:00 -0500 Last month federal agents arrested a large number of New Jersey politicians on bribery and money laundering charges. As described in the Wall Street Journal, one $97,000 bribe was handed off in an empty Apple Jacks box.

Last week the New York Post exposed the highly suspect activities of State Sen. Pedro Espada Jr. A self-described "hero" to his largely Hispanic constituency, Espada was somehow able to secure for his son a $120,000/year state job. The only problem was that no one in the son's downtown Manhattan office had ever seen him before because he'd never shown up for work.

And on Tuesday of this week, Dallas's former mayor pro tem and a city planning...]]> Tue, 11 Aug 2009 00:00:00 -0500 "Chinese industry will continue to grow, it can't help but expand with all the reinvestment they pour into it," remarked an American engineer who has helped construct multi-million dollar projects in several parts of China. "But it will be slow, and uneven, and wasteful," the engineer added. ~Fox Butterfield, Alive in the Bitter Sea, 1982, p. 279

In the past year the role of government vis-à-vis the economy has changed profoundly. While the U.S. economy has never been entirely free, in modern times the prevailing view was that private business entities should be able to seek profit free of government oversight.

That idea has changed quite a bit amid...]]> Tue, 04 Aug 2009 00:00:00 -0500 In a piece written to shed light on the allegedly evil doings of Goldman Sachs, Rolling Stone contributing editor Matt Taibbi unwittingly let readers in on why the majority of his strident protests against Wall Street's most prominent bank were near meaningless. For those who caught on, they likely quit reading halfway through. Sadly for this somewhat masochistic writer, pure curiosity took him to the bitter end.

But for those not privy to the article in question, about credit-default swaps Taibbi observed that they "were essentially a racetrack bet between AIG and Goldman: Goldman is betting the ex-cons will default, AIG is betting they won't." For a piece which included no...]]> Thu, 30 Jul 2009 00:00:00 -0500 The great Canadian economist Reuven Brenner has likened macroeconomic calculations to dangerous mythmaking that sustains "the illusion that prosperity is necessarily linked with territory, national units, and government spending in general." Truer words have rarely been written, particularly when we consider how very much our economic health is related to productivity outside our borders.

Simplified, with the only closed economy being the world economy, our productivity accrues to individuals outside the United States, and foreign productivity similarly accrues to our own economic well-being. National economic statistics presume a war among the economically productive based on country...]]> Thu, 23 Jul 2009 00:00:00 -0500 About former Federal Reserve chairman Arthur Burns, Rice University historian Allen Matusow once wrote that "he had no fixed monetary principle of his own, except a determined eclecticism that translated into unsteadiness of purpose." It would be fair to describe our present Fed Chairman in the same way.

Indeed, in an opinion piece for the Wall Street Journal on Tuesday, Ben Bernanke set out to explain the central bank's plan for managing economic growth and inflation in a way that could only be described as a hybrid of Phillips Curve and monetarist thinking. But to be fair, they're not dissimilar.

Phillips Curve advocates argue that there's a point at which economies...]]> Tue, 21 Jul 2009 00:00:00 -0500 In testimony before Congress last week, former Treasury secretary Henry Paulson said he was "proud to have been among the many public servants" who came together "to prevent a far more damaging meltdown of our financial system." It would be hard to list a lack of certitude among his weaknesses.

A more humble Paulson might have thanked Congress for allowing the very architects of our financial meltdown the opportunity to administer the system's return to health. Paulson then should have apologized for having done such a poor job of fixing something that he should never have been allowed to fix to begin with.

Indeed, if a frenzied rush to housing this decade lay...]]> Thu, 16 Jul 2009 00:00:00 -0500 Though Las Vegas is perhaps best known as a tacky City of Sin where what happens within its limits stays there, its fortunes and misfortunes provide us with broad lessons about how economies work. Indeed, if one set out to understand the true workings of supply and demand, employment, inflation and Schumpeterian creative destruction, a tour of Las Vegas would provide living anecdotes that confirm and at times explode many widely held economic viewpoints.

The city's origins. Wikipedia describes Las Vegas as a former stopover town for pioneers on their westward migrations in the late 19th century. As a city, it was not incorporated until 1911. Government spending gave...]]> Tue, 14 Jul 2009 00:00:00 -0500 In the Wall Street Journal last week, French president Nicolas Sarkozy teamed up with U.K. Prime Minister Gordon Brown on a piece meant to reduce oil-price volatility. Given their shared view that oil volatility "damages both consumers and producers", they have called upon the International Organization of Securities Regulators "to consider improving transparency and supervision of the oil futures markets in order to reduce damaging speculation."

Sadly, for those around the world reliant on stable oil prices, their alleged solutions completely miss the point. And they'll do nothing to reduce substantial volatility when it comes to the price of oil.

For one,...]]> Tue, 07 Jul 2009 00:00:00 -0500 Last Thursday's news of yet another increase in the national rate of unemployment was predictably met with quite a few downcast headlines. The Wall Street Journal led with "Rising Job Losses Damp Hopes of Recovery", while top Pimco investment strategist Mohamed El-Erian penned a piece for the Financial Times titled "American jobs data are worse than we think."

In times like these it's hard to minimize the pain felt by many Americans. For those who are jobless, every day they're out of work likely combines humiliation with fear that nothing will materialize. And for those lucky enough to be working, each day likely begins with perilous thoughts of an axe that is soon...]]> Tue, 30 Jun 2009 00:00:00 -0500 Responding to the almost monolithically positive coverage of the Obama administration by the national press, Phil Bronstein, editor-at-large for the Hearst Newspapers, observed recently that the Administration and the reporters covering it should "get a room." And while USA Today's account of Barack and Michelle Obama's "United We Serve" initiative appeared after Bronstein's quip, its coverage of same serves as yet another example of a media apparently unwilling to show even the remotest amount of skepticism about an Administration and program that deserve a great deal of it.

As USA Today's Andrea Stone wrote, "First Lady Michelle Obama will launch a summer of...]]> Thu, 25 Jun 2009 00:00:00 -0500 The recent spike in U.S. Treasury yields has generated renewed commentary about the specter of inflation. It's even being asked if we're repeating the inflationary mistakes of the late ‘70s that occurred on Jimmy Carter's watch.

In some ways Treasury Secretary Geithner added gasoline to the fire with his much laughed at recent suggestion that Chinese investments in Treasuries are safe, but the inflation we're doubtless experiencing should in no way be solely blamed on our current Treasury head. Just as the Carter administration inherited massive inflation whose origins could be traced to the Nixon administration, the admittedly hapless Obama Treasury team is presently dealing...]]>