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.