Krugman: Holding China to Account

[ProSense]

Holding China to Account

By PAUL KRUGMAN

The dire state of the world economy reflects destructive actions on the part of many players. Still, the fact that so many have behaved badly shouldn’t stop us from holding individual bad actors to account.

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To get our trade deficit down, however, we need to make American products more competitive, which in practice means that we need the dollar’s value to fall in terms of other currencies. Yes, some people will shriek about “debasing” the dollar. But sensible policy makers have long known that sometimes a weaker currency means a stronger economy, and have acted on that knowledge. Switzerland, for example, has intervened massively to keep the franc from getting too strong against the euro. Israel has intervened even more forcefully to weaken the shekel.

The United States, given its special global role, can’t and shouldn’t be equally aggressive. But given our economy’s desperate need for more jobs, a weaker dollar is very much in our national interest — and we can and should take action against countries that are keeping their currencies undervalued, and thereby standing in the way of a much-needed decline in our trade deficit.

That, above all, means China. And none of the arguments against holding China accountable can stand serious scrutiny.

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[ProSense]

1. More information:

Reuters: White House says reviewing China bill, shares goal

EPI: Growing U.S. trade deficit with China cost 2.8 million jobs between 2001 and 2010