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Mostrando postagens com marcador Barry Eichengreen. Mostrar todas as postagens
Mostrando postagens com marcador Barry Eichengreen. Mostrar todas as postagens

segunda-feira, 18 de setembro de 2023

Is this how globalisation ends? - Barry Eichengreen (Prospect)

A globalização não acaba; é um processo contínuo, desde a mais remota antiguidade, com altos e baixos em função de eventos políticos, desastres naturais, catástrofes econômicas e outras rupturas geopolíticas ou de natureza vária. O que ocorre atualmente é um rescaldo da pandemia e, sobretudo, um acirramento da oposição entre algumas das grandes potências, por erros de cálculo, arrogância, expansionismo imperialista, etc. Vai passar, mais um "baixo" na trajetória da globalização, que vai continuar assim por baixo por certo tempo. (PRA)

 PROSPECT 

From the October 2023


Is this how globalisation ends?

Our interconnected, hyperglobalised economy survived the financial crisis, Brexit, Donald Trump and the pandemic. Now it faces a new kind of threat—and this time it really could be fatal

 

By Barry Eichengreen

 

September 6, 2023


The death of globalisation has been declared more often than you can count. Yet despite myriad tensions and challenges, the global system of production, trade and finance endures. Globalisation survived the Global Financial Crisis. It survived Brexit and four years of Donald Trump’s presidency. And it survived Covid-19, confounding predictions that the virus would spell an end to global supply chains. 

It is tempting to conclude that globalisation is simply too deeply embedded in modern society to be reversed. Corporations such as Apple, which designs its products in California but manufactures in Asia, derive enormous benefit from the ability to hire talent, source inputs and conduct assembly operations in multiple countries around the world. What is true of large corporations and manufacturers is increasingly true of small companies and services as well. The Wall Street Journal wrote recently of Scottevest, a travel clothing firm that once employed 20 office workers at its headquarters in Ketchum, Idaho but now instead uses graphic designers in Ukraine, customer service agents in Albania and an order processor in India, all made possible by the internet’s global reach.

Brexit may prevent British farmers from employing eastern European labour, but if they want reliable fruit-pickers they still need foreign workers, some now imported from as far away as South Africa and Indonesia. Covid-related shipping container shortages and port shutdowns may have interrupted supplies of foreign goods, but this only confirmed how much consumers depend on imported merchandise in the course of daily life. Large corporations, small companies, fruit farmers and consumers understand that globalisation is an indispensable aspect of our 21st-century world. They can be expected to protest forcefully—and effectively—against attempts to turn back the clock.

At least, that’s the theory. In reality, this Panglossian narrative is too simple. For current threats to globalisation are more serious than their predecessors. They are of a different sort than past threats successfully rebuffed. 

With the benefit of hindsight, we can see that the heyday of late 20th- and early 21st-century globalisation was the two-decade period ending with the onset of the Global Financial Crisis in 2008. Over those 20-odd years, global exports and imports rose even faster than global GDP, driven by the fast growth of China and its integration—along with other emerging markets—into the global trading and financial system. An increasing share of this trade was in parts and components, as production processes were disaggregated and distributed internationally, aided by advances in global transportation (such as containerisation) and communication (the internet once again). Cross-border financial flows likewise grew faster than global GDP in the decade leading up to the crisis, as global banks and non-bank financial firms extended their international reach. 

The past 15 years, by contrast, have seen global trade and capital flows rise no faster than global GDP. World exports plus imports are equivalent to about 50 per cent of world GDP—roughly where they were before the Global Financial Crisis. Cross-border financial assets as a share of global GDP are similarly about as high today as on the eve of the crisis. Globalisation may not be over, but the age of “hyperglobalisation”—when international transactions grew even faster than the world economy—is evidently over.

So, what was different about the past 15 years? And where does the global economy go from here?

As is often the case, more than a single factor was at work. China’s double-digit economic growth slowed over this period, along with its contribution to the rise of foreign trade and investment. Responding to the Global Financial Crisis, banks -“deleveraged” (reduced their debt levels), while bank regulation tightened, slowing the breakneck rate of expansion of cross-border interbank lending.

But if you were to sum up the headwinds faced by globalisation during this period in two words, these would be: populist backlash. Successive crises, and policymakers’ management of those crises, created mounting popular discontent with the operation of the global economic system. In the Global Financial Crisis, Wall Street was bailed out while Main Street was not. As Daron Acemoglu and Simon Johnson recount in their recent book, Power and Progress, the US insurer AIG received $182bn of federal government aid in autumn 2008 in order to avoid bankruptcy, but was nonetheless permitted to pay out half a billion dollars in bonuses, including to some of the individuals responsible for the firm’s ills. Nine financial firms that were among the largest recipients of bailout money were allowed to pay, in total, 5,000 employee bonuses of more than $1m. 

Workers who lost their jobs in the recession received no comparably generous support. A backlash was predictable. On the left, it coalesced in 2011 as the Occupy Wall Street campaign, and then as the global Occupy movement led by young people denouncing inequality, globalised finance and the political influence of the 1 per cent.

This was a consequential—if somewhat inchoate—political movement. But it did not topple globalisation, financial or otherwise. Political figures, frequently on the left and not unsympathetic to Occupy’s underlying message, were already taking steps to address the excesses of financial globalisation. In the US, figures such as Barney Frank and Elizabeth Warren championed legislation to protect consumers, strengthen financial supervision and limit the need for future bank bailouts. The UK adopted the Financial Services Act of 2012, replacing the Financial Services Authority with a different framework—built around the new Financial Conduct Authority and Prudential Regulation Authority, along with strengthened regulatory powers for the Bank of England—with the goal of enhancing regulatory oversight, monitoring systemically important financial institutions and providing orderly resolution as an alternative to bailouts. The European Central Bank, in its role as supervisor of systematically important Eurozone banks, clamped down on cross-border flows. The boffins in Basel, sitting on the Committee on Banking Supervision, promulgated new requirements for how much capital banks must have on hand. We can question whether these reforms went far enough, but they provided some evidence of responsiveness to popular complaints.

Brexit, and Trump’s election in 2016, were quintessential populist moments. Trump capitalised on anti-elite and anti-immigrant sentiment, the political and financial class on the one hand and foreigners on the other being classic targets of populist ire. He claimed globalisation, along with the “deep state”, was the crux of America’s problems. The global trading system was unfair to US business. The World Trade Organisation (WTO) was treating the country “very badly”. Immigration was threatening America’s prosperity and its way of life. Trump’s response was to slap tariffs on imports from China—and also from Europe and Canada. He threatened to withdraw from the WTO and blocked appointments to its appellate body, withdrew the US from the Trans-Pacific Partnership trade deal, rewrote the North American Free Trade Agreement and began constructing a “big, beautiful wall” across America’s southern border.

© Lo Cole 23

© Lo Cole 23 


Yet not even Trump could reverse globalisation. Banking and business elites, conscious of the advantages of a globalised economy, not least for themselves, pushed back on his vow to withdraw from the WTO. They pushed back against the most egregious of his tariffs. Silicon Valley, which imports large numbers of entrepreneurs and engineers, pushed back against restrictive changes in immigration law and practice. All this is consistent with the premise that globalisation is deeply embedded. 

In addition, however, the political system took notice of the dislocations that Trump sought to exploit. Acknowledging the “China shock”—the fact that the increase in imports from economies such as China’s into the US disproportionately affected the job prospects of certain workers in certain regions—the Biden administration retained Trump’s tariffs on that country. To address inequality, it pushed (with mixed success) for a more generous federal minimum wage, student loan forgiveness and higher taxes on the wealthiest Americans. It advanced subsidies and tax breaks for companies bringing manufacturing jobs back to the US. Its ideas for immigration reform stalled in Congress, admittedly. Nevertheless, the broad thrust of these policies was to avoid the excesses of hyperglobalisation and compensate its losers. It was to signal that the political system heard their voices. 

magazine block image

This article is from the October 2023 issue


Brexit was about “taking back control” from faceless bureaucrats in Brussels, faceless European bureaucrats being the bête noire of British critics of globalisation. It was about Britain’s inability to regulate immigration as it wished, whether on economic or identity-related grounds, so long as it remained in the European single market. And it, too, was about the China shock, with studies like that by Italo Colantone and Piero Stanig in the American Political Science Review showing that support for Leave was systematically higher in regions hit harder by import competition from China. 

Brexit has not exactly enhanced Britain’s economic prospects, but neither has it significantly dented globalisation. It wasn’t meant to: its proponents claimed that “Global Britain”, rather than turning inward, would quickly negotiate free trade deals with scores of countries around the world. We are still waiting, but no matter. Neither has Brexit damaged globalisation’s European dimension. Britain’s manifest difficulties have not encouraged other countries to follow it out of the single market; quite the contrary. Brexit has not even reduced immigration, which in Britain reached an all-time high in 2022. Leaving the European Union and its single market just changed the immigrants’ countries of origin. The need for foreign doctors and nurses, as well as foreign fruit-pickers, has not gone away. 

Covid could have seriously damaged globalisation, as countries closed their borders, containerships piled up off the Port of Long Beach and producers and policymakers gained new appreciation of the fragility of global supply chains. It could have frayed US–China relations further and aggravated xenophobia, with talk of lab leaks, infection arriving via foreign airliners, and Trump cackling about the “kung flu”. In this context, there was ample potential once again for a populist backlash to spell the end of globalisation. But it turned out otherwise. Governments provided unprecedented support to constituents whose incomes and welfare were threatened by the global pandemic. The potential for backlash was thereby contained.

Hence, aspects of globalisation dented by Covid were allowed to recover. International travel is back with a vengeance, assisted by vaccines and natural immunity. The Federal Reserve Bank of New York’s Global Supply Chain Pressure Index, which measures mainly shipping and air freight costs, is back below pre-pandemic levels, in an impressive demonstration of the adaptability of global logistics. Rather than abandoning global supply chains, producers have sought to build in additional redundancy and resilience, sourcing from countries closer to home and cultivating suppliers from multiple parts of the world. This reflects, and serves as yet more evidence of, the fact that from an immediate economic standpoint the advantages of globalisation are profound. 

It also is a reminder that globalisation is about more than economics—it’s about security, national and international. And herein lies the real and present danger to globalisation as we know it.

© Lo Cole 23© Lo Cole 23 

Specifically, the US under Biden is taking a more aggressive position regarding imports and exports of advanced technology to and from China. In part, this may reflect a desire to slow China’s economic rise and protect high-tech jobs in the US. More fundamentally, however, these measures aim at slowing China’s acquisition and development of dual-use technologies—those that can be used for both military and civilian purposes—that provide it with advantages in espionage and on the battlefield. 

Globalisation is about more than economics. It is about security

Thus, in 2022 the US banned sales and imports of select new communications equipment made by the Chinese companies Huawei and ZTE, fearing that their gear could enable Chinese surveillance of US communications. It placed restrictions on video surveillance and radio systems made by the Chinese companies Hikvision, Dahua and Hytera, specifying that importation and sale of such systems would be approved only if it could be shown that they would not be used for purposes relating to public safety, security of government facilities or national security more widely. In promulgating these rules, the US Federal Communications Commission cited an “unacceptable risk” to US national security. 

At the beginning of 2023 the Biden administration then halted approval of most licences for US companies to export to Huawei. Though the Trump administration had already added Huawei to the so-called “entity list” of blacklisted companies, the Commerce Department continued to provide licences to US firms such as Qualcomm and Intel, so long as their exports were not high-speed 5G related. The US also imposed extensive restrictions on the export to Chinese groups of chipmaking equipment and of advanced semiconductors used in everything from artificial intelligence to hypersonic weapons. Most recently, in August, Biden issued an executive order restricting US investment in China in high-tech sectors such as microelectronics and quantum computing. 

China has hit back with its own “unreliable entity list”, blacklisting two US aerospace and defence companies. This prohibits them from trading or investing in China, while denying entry and work permits to their executives. Beijing has also slapped export restrictions on gallium and germanium, two metals widely used in semiconductors and electric vehicles, and hinted about a similar ban on exports of rare earths. 

Cumulatively, then, all three principal strands of globalisation linking the US and China have been impacted: foreign trade, foreign investment and migration in connection with work.

As with other measures, for example financial sanctions on Russia, the US, realising that unilateral sanctions are ineffective in a globalised world, has sought to enlist the support of other countries, voluntary or otherwise. It has used its “entity list foreign direct product rule” to ban sales to Huawei by firms in other countries of any item making use of US inputs. Though European tech associations objected to this “extraterritorial application” of US export controls, they were able to do little about it. The US urged the Dutch government to block sales of advanced lithography machines by Veldhoven-based ASML, the only company in the world currently capable of producing such specialist semiconductor-manufacturing equipment (and which in practice was anyway not exporting its cutting-edge tech to China). The Dutch pushed back, reminding the US that European trade policy is decided at the EU level and that they were obliged to consult with their European partners. In March of this year the Dutch government gave way to US pressure and joined the ban.

And in much the same manner that the US pressures its allies, we can expect China to apply analogous pressure to countries in its sphere of influence.

The future of globalisation thus turns on two sets of questions. First, can geopolitical rivals such as the US and China limit trade, investment and knowledge transfer in products and processes with national security and military implications while otherwise continuing to do business with one another? Or will tensions inevitably spread to other products and sectors, negatively affecting trade and investment ties between the two countries generally? 

Notwithstanding the severe US-China tensions, the two countries remain among one another’s most important trading partners. The US Treasury secretary, Janet Yellen, insists that American restrictions will remain “narrowly targeted” and “would not be broad controls that would affect US investment broadly in China.” The objective, as Yellen and her Biden administration colleagues put it, is to “de-risk”, not to “decouple”. 

But the very concept of national security, or at least its breadth of application, is amorphous. Do electric vehicles with onboard computers receiving over-the-air software updates, when produced using foreign technology, constitute a national security risk if passengers would, for example, be left vulnerable to having their movements tracked?

The distinction between de-risking and decoupling, similarly, is in the eye of the beholder. US direct investment in China hit a near 20-year low last year. US private equity and venture capital investments in China fell by fully three-quarters from 2021 to 2022. That’s about as decoupled as it can get. In the first five months of this year, US merchandise imports from China were down 24 per cent from the same period one year earlier. Mexico has now overtaken China as America’s numero uno trade partner. US companies such as HP and Apple have been moving production out of China in favour of other emerging markets. To be sure, the extent to which these trends reflect rising costs, slowing growth and political repression in China, as opposed to geopolitical tensions, remains uncertain. But there is no question that geopolitical strains pointing to the possibility of further restrictions on bilateral trade and investment are one factor at work.

The second question is, will other countries be forced to align themselves with one of the two camps or be able to continue doing business with both? Countries such as Germany, that are staunch US allies but also depend heavily on the Chinese market, clearly want to have it both ways. The strategy for relations with China published by the German government over the summer labels China a “systemic rival”, but also points to the desirability of maintaining bilateral trade and denies any intention of “imped[ing] China’s economic progress and development”.

But the case of ASML and the Dutch government bowing to US pressure suggests that countries wanting to have it both ways may not succeed. The US continues to press its European and Asian allies to limit investment in China. If tensions between Washington and Beijing ratchet up further, countries will be forced to ally with one side and bar trade, investment and technology transfer to the other. Certainly a shooting war over Taiwan would have this effect. It would have devastating implications for more than just globalisation, of course. But one can also imagine more limited conflicts—more accusations of espionage, the development of reported Chinese military training facilities in Cuba—that, if less dramatic, would work in the same direction, undermining globalisation as we know it. 

Countries have shown an ability to deal with financial crises, public health emergencies and populist eruptions that, left unattended, would threaten globalisation. They have shown the capacity to rein in financial globalisation where this has been allowed to run amok. They have inoculated their populations, economically and politically, as well as medically, against a virus whose contagious international spread is itself a consequence of global interconnectedness. They have shown a recognition, at least belatedly, that globalisation doesn’t automatically lift all boats and that its viability rests on policies and programmes to compensate the losers. What they have not shown is that globalisation is compatible with geopolitical rivalry and geostrategic risk. The US and China, in particular, will have to develop a strategy for ratcheting down that risk if globalisation is to survive.

Barry Eichengreen is, with Asmaa El-Ganainy, Rui Esteves and Kris Mitchener, currently completing a new book on public debt. His last book was “The Populist Temptation: Economic Grievance and Political Reaction in the Modern Era” (Oxford)

 

 

sexta-feira, 29 de janeiro de 2016

Globalizacao: atualmente e cem anos atras - M. Bordo, B. Eichengreen, D. Irwin (NBER, 1999)

Um paper de 1999, mas ainda muito interessante, para demonstrar que existem coisas novas e boas, mas, como se diz, as boas não são novas, e as novas podem não ser boas...
Vale ler...
Paulo Roberto de Almeida

Is Globalization Today Really Different than Globalization a Hunderd Years Ago?

Michael D. Bordo, Barry Eichengreen, Douglas A. Irwin

NBER Working Paper No. 7195
Issued in June 1999
NBER Program(s):   DAE   IFM   ITI 
This paper pursues the comparison of economic integration today and pre 1914 for trade as well as finance, primarily for the United States but also with reference to the wider world. We establish the outlines of international integration a century ago and analyze the institutional and informational impediments that prevented the late nineteenth century world from achieving the same degree of integration as today. We conclude that the world today is different: commercial and financial integration before World War I was more limited. Given that integration today is even more pervasive than a hundred years ago, it is surprising that trade tensions and financial instability have not been worse in recent years. In the conclusion we point to the institutional innovations that have taken place in the past century as an explanation. This in turn suggests the way forward for national governments and multilaterals.

quarta-feira, 12 de junho de 2013

Barry Eichengreen: "licoes" de historia economica - entrevista

O grande economista e historiador econômico da Califórnia lembra humildemente algumas lições importantes para os neófitos (que somos todos nós).
Paulo Roberto de Almeida

An interview by Mark Sniderman
Cleveland Fed , Spring 2013, May 24, 2013

To some, the term “economic historian” conjures up images of an academic whose only interests lie deep in the past; an armchair scholar who holds forth on days long ago but has no insights about the present. Barry Eichengreen provides a useful corrective to that stereotype. For, as much as Eichengreen has studied episodes in economic history, he seems more attuned to connecting the past to the present. At the same time, he is mindful that “lessons” have a way of taking on lives of their own. What’s taken as given among economic historians today may be wholly rejected in the future.
Barry Eichengreen is the George C. Pardee and Helen N. Pardee Professor of Economics and Professor of Political Science at the University of California, Berkeley, his hometown. He is known as an expert on monetary systems and global finance. He has authored more than a dozen books and many more academic papers on topics from the Great Depression to the recent financial crisis.
Eichengreen was a keynote speaker at the Federal Reserve Bank of Cleveland’s research conference, Current Policy under the Lens of Economic History, in December 2012. Mark Sniderman, the Cleveland Fed’s executive vice president and chief policy officer, interviewed Eichengreen during his visit. An edited transcript follows.

Sniderman: It’s an honor to talk with you. You’re here at this conference to discuss the uses and misuses of economic history. Can you give us an example of how people inaccurately apply lessons from the past to the recent financial crisis?
Eichengreen: The honor is mine.
Whenever I say “lessons,” please understand the word to be surrounded by quotation marks. My point is that “lessons” when drawn mechanically have considerable capacity to mislead. For example, one “lesson” from the literature on the Great Depression was how disruptive serious banking crises can be. That, in a nutshell, is why the Fed and its fellow regulators paid such close attention to the banking system in the run-up to the recent crisis. But that “lesson” of history was, in part, what allowed them to overlook what was happening in the shadow banking system, as our system of lightly regulated near-banks is known.
What did they miss it? One answer is that there was effectively no shadow banking system to speak of in the 1930s. We learned to pay close attention to what was going on in the banking system, narrowly defined. That bias may have been part of what led policymakers to miss what was going on in other parts of the financial system.

Another example, this one from Europe, is the “lesson” that there is necessarily such a thing as expansionary fiscal consolidation. Europeans, when arguing that such a thing exists, look to the experience of the Netherlands and Ireland in the 1980s, when those countries cut their budget deficits without experiencing extended recessions. Both countries were able to consolidate but continue to grow, leading contemporary observers to argue that the same should be true in Europe today. But reasoning from that historical case to today misleads because the circumstances at both the country and global level were very different. Ireland and the Netherlands were small. They were consolidating in a period when the world economy was growing. These facts allowed them to substitute external demand for domestic demand. In addition, unlike European countries today they had their own monetary policies, allowing them step down the exchange rate, enhancing the competitiveness of their exports at one fell swoop, and avoid extended recessions. But it does not follow from their experience that the same is necessarily possible today. Everyone in Europe is consolidating simultaneously. Most nations lack their own independent exchange rate and monetary policies. And the world economy is not growing robustly.

A third “lesson” of history capable equally of informing and misinforming policy would be the belief in Germany that hyperinflation is always and everywhere just around the corner. Whenever the European Central Bank does something unconventional, like its program of Outright Monetary Transactions, there are warnings in German press that this is about to unleash the hounds of inflation. This presumption reflects from the “lesson” of history, taught in German schools, that there is no such thing as a little inflation. It reflects the searing impact of the hyperinflation of the 1920s, in other words. From a distance, it’s interesting and more than a little peculiar that those textbooks fail to mention the high unemployment rate in the 1930s and how that also had highly damaging political and social consequences.
The larger question is whether it is productive to think in terms of “history lessons.” Economic theory has no lessons; instead, it simply offers a way of systematically structuring how we think about the world. The same is true of history.

Sniderman: Let’s pick up on a couple of your comments about the Great Depression and hyperinflation in Germany. Today, some people in the United States have the same concerns. They look at the expansion of the monetary base and worry about inflation. Do you find it surprising that people are still fighting about whether big inflation is just around the corner because of US monetary policy, and is it appropriate to think about that in the context of the unemployment situation as well?
Eichengreen: I don’t find it surprising that the conduct of monetary policy is contested. Debate and disagreement are healthy. Fiat money is a complicated concept; not everyone trusts it. But while it’s important to think about inflation risks, it’s also important to worry about the permanent damage to potential output that might result from an extended period subpar growth. To be sure, reasonable people can question whether the Fed possesses tools suitable for addressing this problem. But it’s important to have that conversation.

Sniderman: Maybe just one more question in this direction because so much of your research has centered on the Great Depression. Surely you’ve been thinking about some of the similarities and differences between that period and this one. Have you come to any conclusions about that? Where are the congruencies and incongruences?
Eichengreen: My work on the Depression highlighted its international dimension. It emphasized the role of the gold standard and other international linkages in the onset of the Depression, and it emphasized the role that abandoning the gold standard and changing the international monetary regime played in bringing it to an end.
As a student, I was struck by the tendency in much of the literature on the Depression to treat the US essentially as a closed economy. Not surprisingly, perhaps, I was then struck by the tendency in 2007 to think about what was happening then as a US subprime crisis. Eventually, we came to realize that we were facing not just a US crisis but a global crisis. But there was an extended period during when many observers, in Europe in particular, thought that their economies were immune. They viewed what was happening as an exclusively American problem. They didn’t realize that what happened in the United States doesn’t stay in the United States. They didn’t realize that European banks, which rely heavily on dollar funding, were tightly linked to US economic and financial conditions. One of the first bits of research I did when comparing the Great Depression with the global credit crisis, together with Kevin O’Rourke, was to construct indicators of GDP, industrial production, trade, and stock market valuations worldwide and to show that, when viewed globally, the current crisis was every bit as severe as that of the 1930s.
Eventually, we came to realize that we were facing not just a US crisis but a global crisis. But there was an extended period during when many observers, in Europe in particular, thought that their economies were immune.

Sniderman: Given that many European countries are sharing our financial distress, what changes in the international monetary regime, if any, would be helpful? Could that avenue for thinking of solutions be as important this time around as it was the last time?
Eichengreen: One of the few constants in the historical record is dissatisfaction with the status quo. When exchange rates were fixed, Milton Friedman wrote that flexible rates would be better. When rates became flexible, others like Ron McKinnon argued that it would be better if we returned to pegs. The truth is that there are tradeoffs between fixed and flexible rates and, more generally, in the design of any international monetary system. Exchange rate commitments limit the autonomy of national monetary policymakers, which can be a good thing if that autonomy is being misused. But it can be a bad thing if that autonomy is needed to address pressing economic problems. The reality is that there is no such thing as the perfect exchange rate regime. Or, as Jeffrey Frankel put it, no one exchange rate regime is suitable for all times and places.
That said, there has tended to be movement over time in the direction of greater flexibility and greater discretion for policymakers. This reflects the fact that the mandate for central banks has grown more complex – necessarily, I would argue, given the growing complexity of the economy. An implication of that more complex mandate is the need for more discretion and judgment in the conduct of monetary policy—and a more flexible exchange rate to allow that discretion to be exercised.

Sniderman: I’d be interested in knowing whether you thought this crisis would have played out differently in the European Union if the individual countries still had their own currencies. Has the euro, per se, been an element in the problems that Europe is having, much as a regime fixed to gold was a problem during the Great Depression?
Eichengreen: Europe is a special case, as your question acknowledges. Europeans have their own distinctive history and they have drawn their own distinctive “lessons” from it. They looked at the experience of the 1930s and concluded that what we would now call currency warfare, that is, beggar-thy-neighbor exchange-rate policies, were part of what created tensions leading to World War II. The desire to make Europe a more peaceful place led to the creation of the European Union. And integral to that initiative was the effort was to stabilize exchange rates, first on an ad hoc basis and then by moving to the euro.
Whether things will play out as anticipated is, as always, an open question. We now know that the move to monetary union was premature. Monetary union requires at least limited banking union. Banking union requires at least limited fiscal union. And fiscal union requires at least limited political union. The members of the euro zone are now moving as fast as they can, which admittedly is not all that fast, to retrofit their monetary union to include a banking union, a fiscal union, and some form of political union. Time will tell whether or not they succeed.
But even if hindsight tells us that moving to a monetary union in 1999 was premature, it is important to understand that history doesn’t always run in reverse. The Europeans now will have to make their monetary union work. If they don’t, they’ll pay a high price.
I didn’t anticipate the severity and intractability of the euro crisis. All I can say in my defense is that no one did.

Sniderman: Let me pose a very speculative question. Would you say that if the Europeans had understood from the beginning what might be required to make all this work, they might not have embarked on the experiment; but because they did it as they did, there’s a greater likelihood that they’ll do what’s necessary to make the euro system endure? Is that how you’re conjecturing things will play out?
Eichengreen: If I may, allow me to refer back to the early literature on the euro. In 1992, in adopting theMaastricht Treaty, the members of the European Union committed to forming a monetary union. That elicited a flurry of scholarship. An article I wrote about that time with Tamim Bayoumi looked at whether a large euro area or a small euro area was better. We concluded that a small euro area centered on France, Germany, and the Benelux countries made more sense. So one mistake the Europeans made, which was predictable perhaps on political grounds, though no more excusable, was to opt for a large euro area.
I had another article in the Journal of Economic Literature in which I devoted several pages to the need for a banking union; on the importance, if you’re going to have a single currency, single financial market and integrated banking system, of also having common bank supervision, regulation, and resolution. European leaders, in their wisdom, thought that they could force the pace. They thought that by moving to monetary union they could force their members to agree to banking union more quickly. More quickly didn’t necessarily mean overnight; they thought that they would have a couple of decades to complete the process. Unfortunately, they were side-swiped by the 2007-08 crisis. What they thought would be a few decades turned out to be one, and they’ve now grappling with the consequences.

Sniderman: You’ve written about the dollar’s role as a global currency and a reserve currency, and you have some thoughts on where that’s all headed. Maybe you could elaborate on that.
Eichengreen: A first point, frequently overlooked, is that there has regularly been more than one consequential international currency. In the late nineteenth century, there was not only the pound sterling but also the French franc and the German mark. In the 1920s there was both the dollar and the pound sterling. The second half of the twentieth century is the historical anomaly, the one period when was only one global currency because there was only one large country with liquid financial markets open to the rest of the world—the United States. The dollar dominated in this period simply because there were no alternatives.
But this cannot remain the case forever. The US will not be able to provide safe and liquid assets in the quantity required by the rest of the world for an indefinite period. Emerging markets will continue to emerge. Other countries will continue to catch up to the technological leader, which is still, happily, the United States. The US currently accounts for about 25 percent of the global economy. Ten years from now, that fraction might be 20 percent, and 20 years from now it is apt to be less. The US Treasury’s ability to stand behind a stock of Treasury bonds, which currently constitute the single largest share of foreign central banks’ reserves and international liquidity generally, will grow more limited relative to the scale of the world economy. There will have to be alternatives.
In the book I wrote on this subject a couple of years ago, Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System, I pointed to the euro and the Chinese renminbi as the plausible alternatives. I argued that both could conceivably be significant rivals to the dollar by 2020. The dollar might well remain number one as invoicing currency and currency for trade settlements, and as a vehicle for private investment in central bank reserves, but the euro and renminbi could be nipping at its heels.
In the fullness of time I’ve grown more pessimistic about the prospects of those rivals. Back in 2010, when my book went off to the publisher, I didn’t anticipate the severity and intractability of the euro crisis. All I can say in my defense is that no one did. And I underestimated how much work the Chinese will have to do in order to successfully internationalize their currency. They are still moving in that direction; they’ve taken steps to encourage firms to use the renminbi for trade invoicing and settlements, and now they are liberalizing access to their financial markets, if gradually. But they have a deeper problem. Every reserve currency in history has been the currency of a political democracy or a republic of one sort or another. Admittedly the US and Britain are only two observations, which doesn’t exactly leave many degrees of freedom for testing this hypothesis. But if you go back before the dollar and sterling, the leading international currencies were those of Dutch Republic, the Republic of Venice, and the Republic of Genoa. These cases are similarly consistent with the hypothesis.
The question is why. The answer is that international investors, including central banks, are willing to hold the assets only of governments that are subject to checks and balances that limit the likelihood of their acting opportunistically. Political democracy and republican forms of governance are two obvious sources of such checks and balances. In other words, China will have to demonstrate that its central government is subject to limits on arbitrary action – that political decentralization, the greater power of nongovernmental organizations, or some other mechanism – that place limits on arbitrary action before foreign investors, both official and private, are fully comfortable about holding its currency.
I therefore worry not so much about these rivals dethroning the dollar as I do about the US losing the capacity to provide safe, liquid assets on the requisite scale before adequate alternatives emerge. Switzerland is not big enough to provide safe and liquid assets on the requisite scale; neither is Norway, nor Canada, nor Australia. Currently we may be swimming in a world awash with liquidity, but we shouldn’t lose sight of the danger that, say, 10 years from now there won’t be enough international liquidity to grease the wheels of twenty-first-century globalization.

Sniderman: It sounds to me as though you’re also trying to say that the United States should actually become comfortable with, perhaps even welcome, this development, because its absence creates some risks for us.
Eichengreen: I am. The United States benefits from the existence of a robust, integrated global economy. But globalization, in turn, requires liquidity. And the US, by itself, can’t all by itself satisfy the global economy’s international liquidity needs. So the shift toward a multipolar global monetary and financial system is something that we should welcome. It will be good for us, and it will be good for the global economy. To the extent that we have to pay a couple more basis points when we sell Treasury debt because we don’t have a captive market in the form of foreign central banks, that’s not a prohibitive cost.

Sniderman: And how has the financial crisis itself affected the timetable and the movement? It sounds like in some sense it’s retarding it.
Eichengreen: The crisis is clearly slowing the shift away from dollar dominance. When the subprime crisis broke, a lot of people thought the dollar would fall dramatically and that the People’s Bank of China might liquidate its dollar security holdings. What we discovered is that, in a crisis, there’s nothing that individuals, governments and central banks value more than liquidity. And the single most liquid market in the world is the market for US Treasury bonds. When Lehman Bros. failed, as a result of U.S. policy, everybody rushed toward the dollar rather than away. When Congress had its peculiar debate in August 2011 over raising the debt ceiling, everybody rushed toward the dollar rather than away. That fact may be ironic, but it’s true.
And a second effect of the crisis was to retard the emergence of the euro on the global stage. That too supports the continuing dominance of the dollar.

Sniderman: Economists and policymakers have always “missed” things. Are there ways in which economic historians can help current policymakers not to be satisfied with the “lessons” of history and get them to think more generally about these issues?
Eichengreen: It’s important to make the distinction between two questions – between “Could we have done better at anticipating the crisis?” and the question “Could we have done better at responding to it?” On the first question, I would insist that it’s too much to expect economists or economic historians to accurately forecast complex contingent events like financial crises. In the 1990s, I did some work on currency crises, instances when exchange rates collapse, with Charles Wyplosz and Andrew Rose. We found that what works on historical data, in other words what works in sample doesn’t also work out of sample. We were out-of-consensus skeptics about the usefulness of leading indicators of currency crises, and I think subsequent experience has borne out our view. Paul Samuelson made the comment that economists have predicted 13 out of the last seven crises. In other words, there’s type 1 error as well as type 2 error [the problem of false positives as well as false negatives].
Coming to the recent crisis, it’s apparent with hindsight that many economists – and here I by no means exonerate economic historians – were too quick to buy into the idea that there was such a thing as the Great Moderation. That was the idea that through better regulation, improved monetary policy and the development of automatic fiscal stabilizers we had learned to limit the volatility of the business cycle. If we’d paid more attention to history, we would have recalled an earlier period when people made the same argument: They attributed the financial crises of the 19th century to the volatility of credit markets; they believed that the founding of the Fed had eliminated that problem and that the business cycle had been tamed. They concluded that the higher level of asset prices observed in the late 1920s was fully justified by the advent of a more stable economy. They may have called it the New Age rather than the Great Moderation, but the underlying idea, not to say the underlying fallacy, was the same.
A further observation relevant to understanding the role of the discipline in the recent crisis is that we haven’t done a great job as a profession of integrating macroeconomics and finance. There have been heroic efforts to do so over the years, starting with the pioneering work of Franco Modigliani and James Tobin. But neither scholarly work nor the models used by the Federal Reserve System adequately capture, even today, how financial developments and the real economy interact. When things started to go wrong financially in 2007-08, the consequences were not fully anticipated by policymakers and those who advised them – to put an understated gloss on the point. I can think of at least two prominent policy makers, who I will resist the temptation to name, who famously asserted in 2007 that the impact of declining home prices would be “contained.” It turned out that we didn’t understand how declining housing prices were linked to the financial system through collateralized debt obligations and other financial derivatives, or how those instruments were, in turn, linked to important financial institutions. So much for containment.

Sniderman: I suppose one of the challenges that the use of economic history presents is the selectivity of adoption. And here I have in mind things like going back to the Great Depression to learn “lessons.” It’s often been said, based on some of the scholarship of the Great Depression and the role of the Fed, that the “lesson” the Fed should learn is to act aggressively, to act early, and not to withdraw accommodation prematurely. And that is the framework the Fed has chosen to adopt. At the same time, others draw “lessons” from other parts of US economic history and say, “You can’t imagine that this amount of liquidity creation, balance sheet expansion, etc. would not lead to a great inflation.” If people of different viewpoints choose places in history where they say, “History teaches us X,” and use them to buttress their view of the appropriate response, I suppose there’s no way around that other than to trying, as you said earlier, to point out whether these comparisons are truly apt or not.
Eichengreen: A considerable literature in political science and foreign policy addresses this question. Famous examples would be President Truman and Korea on the one hand, and President Kennedy and the Cuban Missile Crisis on the other. Earnest May, the Harvard political scientist, argued that Truman thought only in terms of Munich, Munich having been the searing political event of his generation. Given the perspective this created, Truman was predisposed to see the North Koreans and Chinese as crossing a red line and to react aggressively. Kennedy, on the other hand, was less preoccupied by Munich. He had historians like Arthur Schlesinger advising him. Those advisors encouraged him to develop and consider a portfolio of analogies and test their aptness – in other words, their “fitness” to the circumstances. One should look not only at Munich, Schlesinger and others suggested, but also to Sarajevo. It is important to look at a variety of other precedents for current circumstances, to think which conforms best to the current situation, and to take that fit into account when you’re using history to frame a response.
I think there was a tendency, when things were falling down around our ears in 2008, to refer instinctively to the Great Depression. What Munich was for Truman, the Great Depression is for monetary economists. It’s at least possible that the tendency to compare the two events and to frame the response to the current crisis in terms of the need “to avoid another Great Depression” was conducive to overreaction. In fairness, economic historians did point to other analogies. There was the 1907 financial crisis. There was the 1873 crisis. It would have been better, in any case, to have developed a fuller and more rounded portfolio of precedents and analogies and to have used it to inform the policy response. Of course, that would have required policy makers to have some training in economic history.

Sniderman: This probably brings us back full circle. We started with the uses and misuses of economic history and we’ve been talking about economic history throughout the conversation. I think it might be helpful to hear your perspective on what economic history and economic historians are. Why not just an economist who works in history or a historian who works on topics of economics? What does the term “economic history” mean, and what does the professional discipline of economic historian connote to you?
Eichengreen: As the name suggests, one is neither fish nor fowl; neither economist nor historian. This makes the economic historian a trespasser in other people’s disciplines, to invoke the phrase coined by the late Albert Hirschman. Historians reason by induction while economists are deductive. Economists reason from theory while historians reason from a mass of facts. Economic historians do both. Economists are in the business of simplifying; their strategic instrument is the simplifying assumption. The role of the economic historian is to say “Not so fast, there’s context here. Your model leaves out important aspects of the problem, not only economic but social, political, and institutional aspects – creating the danger of providing a misleading guide to policy.”
Economists reason from theory while historians reason from a mass of facts. Economic historians do both.

Sniderman: Do you think that, in training PhD economists, there’s a missed opportunity to stress the value and usefulness of economic history? Over the years, economics has become increasingly quantitative and math-focused. From the nature of the discussion we’ve had, it is clear that you don’t approach economic history as sort of a side interest of “Let’s study the history of things,” but rather a disciplined way of integrating economic theory into the context of historical episodes. Is that way of thinking about economic history appreciated as much as it could be?
Eichengreen: I should emphasize that the opportunity is not entirely missed. Some top PhD programs require an economic history course of their PhD students, the University of California, Berkeley, being one.
The best way of demonstrating the value of economic history to an economist, I would argue, is by doing economic history. So when we teach economic history to PhD students in economics in Berkeley, we don’t spend much time talking about the value of history. Instead, we teach articles and address problems, and leave it to the students, as it were, to figure how this style of work might be applied to this own research. For every self-identifying economic historian we produce, we have several PhD students with have a historical chapter, or a historical essay, or an historical aspect to their dissertations. That’s a measure of success.

Sniderman: Well, thank you very much. I’ve enjoyed it.
Eichengreen: Thank you. So have I.

Barry Eichengreen
Position: George C. Pardee and Helen N. Pardee Professor of Economics and Political Science, University of California, Berkeley
Other Positions: Research associate, National Bureau of Economic Research; research fellow, Centre for Economic Policy in London, England; past president, Economic History Association
Former Positions: Senior policy advisor, International Monetary Fund
Education: Yale University, MA, MP, and PhD in economics
University of California, Santa Cruz, AB
Selected Publications: 
The World Economy after the Global Crisis: A New Economic Order for the 21st Century, co-edited with Bokyeong Park. London: World Scientific Studies in International Economics Co. Pte. Ltd. (2012).
Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System. New York, NY: Oxford University Press (2011). 
“Financial Crises and the Multilateral Response: What the Historical Record Shows” (with Bergljot Barkbu and Ashoka Mody), Journal of International Economics,vol. 88, issue 2, pp. 422-35 (2012). 
“Economic History and Economic Policy,” Journal of Economic History, vol. 72, issue 2, pp. 289-307 (2012).
“Bretton Woods and the Great Inflation,” with Michael Bordo. NBER Working Paper 14532 (December 2008).

quinta-feira, 25 de outubro de 2012

Crise dos Anos 1930 e as licoes para o presente - Barry Eichengreen

Um excelente paper do conhecido economista de Berkeley, aqui apenas resumido, mas remetendo ao texto completo:

Crisis and Growth in the Advanced Economies - Barry Eichengreen

http://www.palgrave-journals.com/ces/journal/v53/n3/full/ces20115a.html
Comparative Economic Studies (2011) 53, 383–406. doi:10.1057/ces.2011.5; published online 24 March 2011

Crisis and Growth in the Advanced Economies: What We Know, What We Do not, and What We Can Learn from the 1930s

Barry Eichengreen1
1University of California, Evans Hall 508, CA 94708 Berkeley, USA. E-mail: eichengr@econ.berkeley.edu
Top

Abstract

This paper addresses the question of whether the medium- and long-term growth potential of the advanced economies has been impaired by the global financial crisis. It evidence from the Great Despression of the 1930s to illuminate the prospects, concluding the following. First, the impact of weak bank balance sheets and heightened risk aversion made it harder for small firms. in particular, to fund investment projects. Second, there is little evidence that increased public debt or policy uncertainity had major effects in depressing investment. Third, structural unemployment dissolved quickly in the face of increased demand. Fourth and finally, the crisis was also an opportunity as firms used the downtime created by the Depression to reorganize and modernize their operations.
 

domingo, 26 de agosto de 2012

Padrao Ouro e Economia Austriaca: Barry Eichengreen desmonta a defesa

O economista Barry Eichengreen é muito conhecido para ser apresentado. Autor de Globalizing Capital (com edição brasileira) é um dos especialistas mais conhecidos em sistemas monetários.
Neste longo artigo para a revista americana National Interest, ele critica os defensores da volta ao padrão ouro (Ron Paul e os adeptos da economia austríaca em geral), dizendo que não há garantias de que uma política monetária baseada no ouro, em moedas concorrentes, na ausência de bancos centrais seria mais eficiente, ou causaria menos crises e recessões do que a situação atual, de intervencionismo monetário.
Vale a pena a ler seu artigo, que começa aqui e se prolonga em sete outras partes...
Paulo Roberto de Almeida

A Critique of Pure Gold

National Interest 
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    issue
    GOLD IS back, what with libertarians the country over looking to force the government out of the business of monetary-policy making. How? Well, by bringing back the gold standard of course.
    There’s no better place to see just how real this oddball proposal is than in Iowa, with its caucuses just a few months away. In June, prospective voters were entertained not just by the candidates but also by the spectacle of an eighteen-day, multicity bus tour cosponsored by the Iowa Tea Party and American Principles in Action, or APIA. (The bus was actually a giant RV with a banner on the side featuring images of the U.S. Constitution, the American flag and the web addresswww.teapartybustour.com.) APIA is the nonprofit 501(c)(4) arm of the American Principles Project, the parent group of Gold Standard 2012. Gold Standard 2012 “works to reach out to lawmakers to advance legislation that will put the U.S. back on the gold standard” (quoting its blog). The goal of the bus tour, according to Jeff Bell, policy director of APIA and former Reagan aide, was to interest potential caucus voters in the idea that the United States should return to the gold standard, in the expectation that vote-hungry candidates for the Republican nomination would respond to a public groundswell.
    The candidates, for their part, were cautious. Businessman Herman Cain, having backed the gold standard in earlier speeches, acknowledged a change of heart on the grounds that “one of my economic advisers said that it’s going to be more difficult than practical.” Minnesota congresswoman Michele Bachmann averred only that she would “take a close look at the gold standard issue.” Such caution did not, however, prevent Cain and Bachmann, along with former Minnesota governor Tim Pawlenty, former Pennsylvania senator Rick Santorum, former New Mexico governor Gary Johnson and former House Speaker Newt Gingrich from joining up with APIA’s magical mystery tour.
    Nor did it prevent state legislators from attempting to move ahead on their own. A Montana measure voted down by a narrow margin of fifty-two to forty-eight in March would have required wholesalers to pay state tobacco taxes in gold. A proposal introduced in the Georgia legislature would have called for the state to accept only gold and silver for all payments, including taxes, and to use the metals when making payments on the state’s debt.
    In May, Utah became the first state to actually adopt such a policy. Gold and silver coins minted by the U.S. government were made legal tender under a measure signed into law by Governor Gary Herbert. Given the difficulty of paying for a tank of gas with a $50 American eagle coin worth some $1,500 at current market prices, entrepreneurs then floated the idea of establishing private depositories that would hold the coin and issue debit cards loaded up with its current dollar value. It is unlikely this will appeal to the average motorist contemplating a trip to the gas station since the dollar value of the balance would fluctuate along with the current market price of gold. It would be the equivalent of holding one’s savings in the form of volatile gold-mining stocks.
    Historically, societies attracted to using gold as legal tender have dealt with this problem by empowering their governments to fix its price in domestic-currency terms (in the U.S. case, in dollars). But the idea that government should legislate the price of a particular commodity, be it gold, milk or gasoline, sits uneasily with conservative Republicanism’s commitment to letting market forces work, much less with Tea Party–esque libertarianism. Surely a believer in the free market would argue that if there is an increase in the demand for gold, whatever the reason, then the price should be allowed to rise, giving the gold-mining industry an incentive to produce more, eventually bringing that price back down. Thus, the notion that the U.S. government should peg the price, as in gold standards past, is curious at the least. More curious still is the belief that putting the United States on a gold standard would somehow guarantee balanced budgets, low taxes, small government and a healthy economy. Most curious of all is the contention that under twenty-first-century circumstances going back to the gold standard is even possible.
    FOR THIS libertarian infatuation with the gold standard, one is tempted to credit, or blame, the godfather of the Tea Party movement, Texas’s Ron Paul. (The Tea Party has its own spontaneous origins, to be sure, and Paul is reluctant to claim credit for its existence. But his success in using new media to raise $6 million for his 2007 presidential bid on the anniversary of the Boston Tea Party by appealing to hot-button issues like debt, taxes and government infringement on personal liberties provided the template for the movement’s subsequent growth.) Paul has been campaigning for returning to the gold standard longer than any of his rivals for the Republican nomination—in fact, since he first entered politics in the 1970s.
      Começa aqui e se prolonga: 

    sexta-feira, 16 de dezembro de 2011

    Barry Eichengreen sobre o privilegio exorbitante do dolar e os problemas americanos


    Globalist Bookshelf > Global Economy
    U.S. Dollar Decline as a National Strategy?

    By Barry Eichengreen | Friday, December 16, 2011


    Some prominent economic analysts have called for a weaker dollar as a cure for the United States’ economic ills. They argue it would rebalance the U.S. economy toward exports and help reduce income inequality. But as Barry Eichengreen, author of “Exorbitant Privilege,” explains, such a strategy would not work as advertised.
    Considering the United States’ continuing economic turmoil, some very smart people argue that dollar depreciation and rebalancing the U.S. economy toward exports are ideas to be welcomed, not resisted. Their argument is that the strong dollar that resulted from America’s exorbitant privilege of serving as the world’s reserve currency for well over half a century now has contributed to the hollowing out of the American manufacturing industry.


    Changes in exchange rates cannot solve all problems. If Americans are concerned, as they should be, with income inequality, they will need to address it through other means.

    Given that there are fewer people engaged in manufacturing in the United States, and hence fewer people with jobs from whom to learn, learning on the job — a crucial part of any advanced and successful manufacturing economy — has been slowed. This, in turn, has set back improvements in efficiency, long a U.S. hallmark. All the while, other manufacturing-heavy economies, from Germany to China, have been sprinting ahead.
    If only we pursued a weaker dollar strategy, then, the argument goes, the United States would be in a position to produce more manufactured goods for foreign consumption, instead of using the nation’s productive potential to prepare fast-food meals for American households (a curious strategy anyway, since they are eating out less).
    With households tightening their belts (in both senses), there will be more good jobs and fewer “McJobs.” Another way of thinking about this change is as a shift in the composition of what America exports: from the derivative securities purchased by foreign central banks and private investors, toward John Deere earthmoving equipment, Boeing Dreamliners and — who knows — maybe even motor vehicles and parts.
    This shift, as it is envisioned, would also help to redress the problem of income inequality, according to the advocates of a weaker dollar, since manufacturing uses more blue-collar labor than does the financial sector. The growth of income inequality in the United States in the last decade was largely accounted for by the exceptional increase in the compensation of the top 0.01% of earners.
    Suffice it to say that these folks were not assembly-line workers. A substantial share of that top-earning group was made up of the managing directors and executives of investment banks, hedge fund managers and private equity and venture capital professionals. With the United States now producing and exporting fewer financial services, and with more blue-collar workers in good manufacturing jobs, it is believed, this trend will be reversed.


    Some argue the U.S. should restrain the growth of labor costs à la Germany, and also actively lower its exchange rate in the manner of China.
    Moreover, other countries have boosted their manufacturing sectors by keeping their exchange rates low and exporting more of what they produce. The proposition is that the United States should meet fire with fire, not simply restraining the growth of labor costs à la Germany, but also actively lowering its exchange rate in the manner of China.
    If only it were true. It would be nice if a lower dollar could miraculously rejuvenate American industry and create large numbers of manufacturing jobs, while narrowing income inequality. But the circumstances of the United States are not the same as Germany’s. Having long been the producer of capital goods for much of Europe, Germany is a dominant supplier of production equipment, now also to emerging markets.
    While it has other economic and financial problems, with a well-developed system of apprenticeship training providing legions of skilled mechanics, it never allowed its manufacturing sector to wither. Attempts to grow U.S. manufacturing employment would have a less favorable starting point.
    The circumstances of emerging markets like China differ even more radically from those currently prevailing in the United States. China has been able to grow its manufacturing employment and raise the incomes of its unskilled masses by shifting rural peasants into assembly operations, where they can learn the requisite skills in a matter of days.
    This is not unlike the situation in Highland Park, Michigan, a century ago when Henry Ford built the first assembly line. The simplicity of the technology used to produce the Model T, by our contemporary standards, made it possible to train workers, many of whom were immigrants or straight off the farm, in less than a week.


    When shifting a worker from a fast-food restaurant to a semiconductor plant, the fundamental constraint is imparting the skills, not simply lowering the cost of their labor.
    The situation in the United States today is different. Manufacturing has migrated to developing countries — thankfully so, for this is what we mean by economic development. The spread of industrialization is lifting two-thirds of the world’s population out of poverty. Developing countries increasingly dominate industries that rely on unskilled and semiskilled labor that can be trained in a week, since this is what they possess in abundance.
    This also means that the U.S. equivalent of China shifting a rural peasant into assembly operations is shifting a worker from the counter of a fast-food restaurant to the foundry of a semiconductor fabrication plant. But this is not how the world works. Manufacturing activities in which the United States is internationally competitive require skilled workers, not hamburger flippers. Given time, more Americans can acquire the skills and training to work in a semiconductor fab. But the fundamental constraint is imparting the skills, not simply lowering the cost of their labor.
    None of this should come as a surprise. If you ask which U.S. plants have shut down as a result of Chinese competition, the answer is low-productivity plants with lots of production workers. An exchange rate for the U.S. dollar that is, say, 30% lower is not going to be of much help to an unskilled or semiskilled worker in the United States competing head-to-head with Chinese labor, especially when labor productivity in China is growing by 6% per annum.
    Ramping up U.S. exports is desirable on any number of grounds. But it will benefit mainly capital and skilled labor, since they are the factors used intensively in the production of those exports, not the unskilled workers whose jobs have migrated to developing countries.
    Changes in exchange rates cannot solve all problems. If Americans are concerned, as they should be, with income inequality, they will need to address it through other means, be they changes in the tax code, caps on bankers’ bonuses or more investment in education and training.
    Editor's Note: This feature is reprinted from "EXORBITANT PRIVILEGE: The Rise and Fall of the Dollar and the Future of the International Monetary System" by Barry Eichengreen with permission from Oxford University Press, Inc. Copyright © 2011 by Barry Eichengreen.