Those who favor affirmative action for people with no discernible skills undoubtedly appreciate Dana Milbank's page 2 column in the Washington Post. Today Mr. Milbank used his column to tell the world that he knows absolutely nothing about economics. The theme of the piece was that in ten years the United States will be like Greece. He discusses the trip to the United States of Greek Prime Minister George Papandreou seeking support for his country during its current fiscal crisis and tells readers: "if current trends persist, an American president will be doing the same thing in about 10 years." The article goes on: "He or she will probably be in Beijing, asking for more favorable interest rates or pleading with the Chinese government to keep speculators from betting on an American default." Okay, now let's imagine that Milbank had taken an econ class at some point. Suppose speculators were betting heavily against the dollar. The value of the dollar would be plummeting. If China still had its peg of the yuan to the dollar, then it would be spending trillions of dollars every year keeping its currency from rising. What would we be begging China about in this story? Suppose China had broken its peg to the dollar so the big bad speculators had pushed the yuan from its current value of about 15 cents to 30 or 40 cents. Chinese goods now cost 2 or 3 times as much in the United States and our goods cost one half as much to people in China. What would we be begging China about in this story? (Our other trading partners would be in the same situation.) Currency values correct trade imbalances. While U.S. productive capacity has taken a hit from the policies that Milbank and his Post colleagues favor (the high dollar and trade policies they have promoted), it still produces and exports an enormous amount of goods and services. If we ever faced a crisis like that facing Greece today, it would be at least as much a problem for the rest of the world as for the United States. The reason that Greece faces such enormous difficulties is that it is part of the euro zone and therefore does not have a currency that can simply adjust in value. This basic point, which has been widely noted in the business press, apparently escaped Milbank's attention.
--Dean Baker
