{"id":23418,"date":"2019-09-04T11:51:31","date_gmt":"2019-09-04T15:51:31","guid":{"rendered":"http:\/\/www.megalextoria.com\/wordpress\/?p=23418"},"modified":"2019-09-04T11:51:31","modified_gmt":"2019-09-04T15:51:31","slug":"the-laws-of-economics-cannot-be-wished-away","status":"publish","type":"post","link":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/2019\/09\/04\/the-laws-of-economics-cannot-be-wished-away\/","title":{"rendered":"The Laws of Economics Cannot Be Wished Away"},"content":{"rendered":"<p><script async type=text\/javascript src=https:\/\/www.dclick.io\/static\/js\/ad.min.js><\/script><br \/>\n<img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-large wp-image-23419\" src=\"https:\/\/www.megalextoria.com\/wordpress\/wp-content\/uploads\/2019\/09\/laws-of-economics-1024x576-1.jpg\" alt=\"\" width=\"802\" height=\"451\" \/><\/p>\n<p>In areas such as <a class=\"steem-keychain-checked\" href=\"https:\/\/www.econlib.org\/library\/Enc\/RentControl.html\">rent control<\/a> and <a class=\"steem-keychain-checked\" href=\"https:\/\/www.econlib.org\/library\/Enc\/MinimumWages.html\">minimum wage laws<\/a> there\u2019s an increasing tendency to ignore the basic laws of economics, and hope they somehow don\u2019t apply to the policy being considered.<\/p>\n<p>President Trump provided another example in this recent tweet:<\/p>\n<p>&nbsp;<\/p>\n<p>There are multiple errors here. The first sentence is incorrect; the yuan was much lower when I first visited Beijing in 1994. The second sentence is also incorrect, for two different reasons. Currency manipulation is defined as artificially depreciating a currency to create a current account surplus. China\u2019s current account is roughly balanced, and the depreciation reflected market forces. So there is no currency manipulation, no \u201cmajor violation\u201d of any agreement.<\/p>\n<h2 id=\"link-0\">Econ 101 on Currency Depreciation<\/h2>\n<p>One irony here is that it is President Trump\u2019s policies that have caused the yuan to depreciate, as is explained in any principles of economics textbook. When country A puts tariffs on the exports of country B, the currency of country A will appreciate and the currency of country B will depreciate. This is ECON 101.<\/p>\n<p>In a world with more than two countries, there will be additional effects. China\u2019s currency depreciation will push it to sell more goods to third parties, such as Europe. That will cause depreciation of the euro\u2014another issue that Trump has complained about. Because the dollar would be expected to appreciate against almost all currencies, the US will buy more goods from third parties.<\/p>\n<p>Textbooks also teach us that tariffs will not improve the trade balance, which depends on saving\/investment imbalances. Textbooks also tell us that a major fiscal stimulus will cause the trade deficit to get larger. And that\u2019s exactly what has happened, the trade deficit has become even \u201cworse\u201d over the past two years in response to Trump\u2019s enormous fiscal deficits.<\/p>\n<p>Trump\u2019s reference to the Fed is an allusion to his earlier plea that the Fed manipulate the dollar lower. It\u2019s not clear why he would want the Fed to do that, as in the final sentence he says that currency manipulation will weaken China over time. So why encourage the Fed to manipulate the dollar? Wouldn\u2019t that also weaken America over time?<\/p>\n<p><center><\/p>\n<div class=\"dclickad\" data-client=\"darth-azrael\" data-slot=\"1567612232099\">\n<\/div>\n<p><\/center><\/p>\n<p>Here\u2019s King Canute:<img decoding=\"async\" class=\"medium-zoom-image\" style=\"width: 0px; height: 0px;\" src=\"http:\/\/fee.org\/media\/35220\/canute.png?width=0&amp;height=0\" alt=\"\" data-udi=\"umb:\/\/media\/e60424578f39453395fb66756e52379c\" data-zoom-target=\"https:\/\/fee.org\/media\/35220\/canute.png\" data-zoom=\"\" \/><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-47078 medium-zoom-image\" style=\"display: block; margin-left: auto; margin-right: auto;\" src=\"https:\/\/www.megalextoria.com\/wordpress\/wp-content\/uploads\/2019\/09\/Screen-Shot-2019-08-05-at-11.28.37-AM-e1565018956859.png\" alt=\"\" width=\"730\" height=\"473\" data-zoom-target=\"https:\/\/www.megalextoria.com\/wordpress\/wp-content\/uploads\/2019\/09\/Screen-Shot-2019-08-05-at-11.28.37-AM-e1565018956859.png\" data-zoom=\"\" \/><\/p>\n<p style=\"text-align: right;\"><a class=\"steem-keychain-checked\" href=\"https:\/\/www.econlib.org\/the-laws-of-economics-cannot-be-wished-away\/\"><em>This article is republished with permission from the Library of Economics and Liberty.<\/em><\/a><\/p>\n<p><script src=\"https:\/\/platform.twitter.com\/widgets.js\" defer=\"\" async=\"\"><\/script>\n<div>\n<h5><a class=\"steem-keychain-checked\" href=\"http:\/\/fee.org\/people\/scott-sumner\/\"><br \/>\nScott Sumner<br \/>\n<\/a><\/h5>\n<p><strong>Scott B. Sumner<\/strong> is the director of the Program on Monetary Policy at the Mercatus Center and a professor at Bentley University. He blogs at the Money Illusion and Econlog.<\/p>\n<\/div>\n<p style=\"font-style: italic;\">This article was originally published on FEE.org. Read the <a href=\"https:\/\/fee.org\/articles\/the-laws-of-economics-cannot-be-wished-away\/\">original article<\/a>.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/fee.org\/counter\/185083\" alt=\"\" width=\"1\" height=\"1\" \/><script src=\"https:\/\/fee.org\/Scripts\/fee-repub.js\" async=\"async\"><\/script>\n","protected":false},"excerpt":{"rendered":"<p>In areas such as rent control and minimum wage laws there\u2019s an increasing tendency to ignore the basic laws of economics, and hope they somehow don\u2019t apply to the policy being considered. President Trump provided another example in this recent tweet: &nbsp; There are multiple errors here. The first sentence is incorrect; the yuan was much lower when I first visited Beijing in 1994. The second sentence is also incorrect, for two different reasons. Currency manipulation is defined as artificially depreciating a currency to create a current account surplus. China\u2019s current account is roughly balanced, and the depreciation reflected market forces. So there is no currency manipulation, no \u201cmajor violation\u201d of any agreement. Econ 101 on Currency Depreciation One irony here is that it is President Trump\u2019s policies that have caused the yuan to depreciate, as is explained in any principles of economics textbook. When country A puts tariffs on the exports of country B, the currency of country A will appreciate and the currency of country B will depreciate. This is ECON 101. In a world with more than two countries, there will be additional effects. China\u2019s currency depreciation will push it to sell more goods to third parties, [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[2773,3509,622,2580,1836],"class_list":["post-23418","post","type-post","status-publish","format-standard","hentry","category-news-and-politics","tag-currency","tag-currency-manipulation","tag-economics","tag-tariffs","tag-trump"],"_links":{"self":[{"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/posts\/23418","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/comments?post=23418"}],"version-history":[{"count":0,"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/posts\/23418\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/media?parent=23418"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/categories?post=23418"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/tags?post=23418"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}