The Post once again raises fears that less educated workers might gain some of the protection currently enjoyed by more educated workers. In an article on Treasury Secretary Paulson's trip to China, it quotes without comment Senator Schumer's comment that China's continued refusal to raise the value of its currency could damage the "increasingly fragile consensus for free trade." Of course, there is no such consensus and Mr. Schumer does not support free trade. He has not been active in any efforts to remove the barriers that protect doctors and lawyers and other highly paid professioanls. Mr. Schumer's focus has been in removing any barriers that protect less-educated workers from competition with the developing world. There is no economic theory that implies that protection for less educated workers is more harmful than protection for highly educated workers. It would have been interesting if the reporter had asked Mr. Schumer why he is so worried that manufacturing workers might get some of the same protections currently enjoyed by people like himself (Schumer was a lawyer in his pre-politician days). The NYT didn't do much better with the China story. It includes without comment the statement that China wants the U.S. to increase its savings rate as a way to reduce its trade deficit with China. Well, a higher savings rate will only reduce the trade deficit if it leads to a recession or at least substantially slower growth. This one is pretty simple. U.S. demand for imports from China depends on the value of the dollar and the level of demand in the U.S. economy. A higher savings rate can reduce demand in the U.S. economy, but the idea that China would suggest the U.S. should reduce its trade deficit by having a recession is rather peculiar. It's also worth notiing that China's currency policy has been one of the main factors lowering the U.S. savings rate. China's central bank has bought hundreds of billions of dollars of U.S. treasury bonds. This has kept long-term interest rates extraordinarily low, which in turn has fueled the housing bubble. The unprecedented run-up in housing prices has allowed people to borrow against their homes at an incredible pace, giving us the first negative savings rate since the depression. While the Fed deserves blame for not trying to counteract this effect and acting to burst the bubble, China's policies are a major factor behind the record low U.S. savings rate.
--Dean Baker
