One More Log on the RMB Fire

Here are handy talking points to bear in mind in case someone asks you, "Hey, what about that tricky Chinese RMB?"

1) It is important that China let the value of its currency rise again (it's been frozen for nearly two years), because that will reduce its economy's distorted emphasis on exports and over-production. This in turn will make economic recovery easier world-wide.

2) While this RMB change will be good in general, unfortunately it won't do much to solve today's employment problems in the United States. Such benefit as America gains from a more balanced, faster growing world economy will be indirect and slow.

3) See point #1 again. This is important for the world and should happen.

There is new evidence for this way of thinking. (Previously here and passim.) Ray C. Fair of Yale, in a paper for the Cowles Foundation, tries to calculate the impact on the US job market of a rise in the RMB. The abstract of his findings:

This paper uses a multicountry macroeconometric model to estimate the macroeconomic effects of a Chinese yuan appreciation. The estimated effects on U.S. output and employment are modest. Positive effects on U.S. output from a decrease in imports from China are offset by negative effects on U.S. output from increased inflation and from a decrease in U.S. exports to China because of a Chinese contraction.

PDF of full paper here. Again, this is an important step for China to take, and for the US to urge it to take.  But it won't solve our jobs problem. As a bonus, if you click on Fair's personal site, you will see some other surprising things. For instance, the set of "aging in sports and chess" calculations. But mainly you're now set to talk about the RMB.

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James Fallows is a national correspondent for The Atlantic and has written for the magazine since the late 1970s. He has reported extensively from outside the United States and once worked as President Carter's chief speechwriter. His latest book is China Airborne. More

James Fallows is based in Washington as a national correspondent for The Atlantic. He has worked for the magazine for nearly 30 years and in that time has also lived in Seattle, Berkeley, Austin, Tokyo, Kuala Lumpur, Shanghai, and Beijing. He was raised in Redlands, California, received his undergraduate degree in American history and literature from Harvard, and received a graduate degree in economics from Oxford as a Rhodes scholar. In addition to working for The Atlantic, he has spent two years as chief White House speechwriter for Jimmy Carter, two years as the editor of US News & World Report, and six months as a program designer at Microsoft. He is an instrument-rated private pilot. He is also now the chair in U.S. media at the U.S. Studies Centre at the University of Sydney, in Australia.

Fallows has been a finalist for the National Magazine Award five times and has won once; he has also won the American Book Award for nonfiction and a N.Y. Emmy award for the documentary series Doing Business in China. He was the founding chairman of the New America Foundation. His recent books Blind Into Baghdad (2006) and Postcards From Tomorrow Square (2009) are based on his writings for The Atlantic. His latest book is China Airborne. He is married to Deborah Fallows, author of the recent book Dreaming in Chinese. They have two married sons.

Fallows welcomes and frequently quotes from reader mail sent via the "Email" button below. Unless you specify otherwise, we consider any incoming mail available for possible quotation -- but not with the sender's real name unless you explicitly state that it may be used. If you are wondering why Fallows does not use a "Comments" field below his posts, please see previous explanations here and here.


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