Laying Down the Law

Paul Krugman gets in touch with his inner child (his inner mean child) and announces it is time for America to get tough with its economic "partners". Here's his latest blog posting:

So here’s where we are: China has done nothing to change its policy of massive currency manipulation, and its exports are surging. Meanwhile, Europe is going wild for fiscal austerity. Angela Merkel says that budget cuts will make Germany more competitive — but competitive against whom, exactly?

You know the answer, don’t you? Yep: everyone is counting on the US to become the consumer of last resort, sucking in imports thanks to a weak euro and a manipulated renminbi. Oh, and while they rely on US demand to make up for their own contractionary policies, they’ll lecture us on how irresponsible we’re being, running those budget and current account deficits.

This is not going to work — and the United States has to take steps to protect itself.

Let’s start with China. Back in April we were told to lay off on the currency manipulation charges; the grownups would work something out with China. How’s that going, exactly?

Yes, threatening an anti-dumping duty would be a big step, and might pose some risks. But doing nothing is not an acceptable option. The economic recovery is in great danger of stalling — and if it does, the consequences will be a lot worse than a diplomatic tiff.

And it’s also important to send a message to the Germans: we are not going to let them export the consequences of their obsession with austerity.

Nicely, nicely isn’t working. Time to get tough.

All I can say is "Paul, I feel your pain, buddy!"

Seriously, the US has to stop being the "consumer of last resort". There is too much debt in the US. The US needs to rev up its export engine and get more jobs. The world went through a decade of "beggar thy neighbor" competitive devaluations during the 1930s. What did that get us?

I'm surprised and shocked that these G7, G8, G11, G30, and so forth meetings prove so unable to grapple with economic reality. The world needs economic growth. It is ridiculous to wallow in recession. The current economic pain is not some external force that has over-powered people. Recessions are internal events, psychological events initiated by some market failure. The solution is psychological. Get people mobilized and working and you get past the recession.