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- Jane Ginn’s Resume
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The U.S. and other nations of the world have been pressuring China to lift currency controls for several years. Since the beginning of the 2008 global financial crisis the pressure has intensified. Current account and trade imbalances are believed by many analysts to be, in part, a result of a significantly undervalued Chinese renminbi relative to the U.S. dollar. In late June, 2010 China made some minor adjustments, allowing the renminbi to appreciate within a relatively narrow range, partially in response to these pressures (New York Times, 2010). This temporarily boosted Asian stock markets and had a ripple effect around the world.
My purpose here today is not to discuss the merits of this loosening of capital controls by the Chinese; but rather, to discuss the implications of this for the Chinese and U.S. consumers. This thought occurred to be after reading Stephen Roache’s call for the development of a Chinese consumer society (Roach, 2009, September 22). As I was reflecting on that, I came to some surprising conclusions.
In classical microeconomics there is an assertion that intervention in the free market results in sub-optimal pricing which, ultimately negatively affects consumers. The consumers in the U.S. have been the beneficiaries of years of public policies that have, indeed, distorted prices; however, the distortions have been generally in the direction of benefiting U.S. consumers. I’m referring here to the massive agricultural and oil and gas subsidies that the U.S. government has had in place for decades as a result of both our trade and military strategies.
These benefits to consumers have not been without a more insidious form of ‘pricing’…What I’m referring to here is the impact consumerism, as a basic lifestyle, has had on U.S. society. Everywhere we see the results: the break-down of family structures, the rampant drug and alcohol use, the lack of support for quality education for our youth, the rise in violence in schools, the pressures for young people to ‘look’ adult at younger and younger ages, the reliance on prescription drugs for numbing the emptiness of lives, and the growing prevalence of obesity, even among the youth. Of course, there are many medical and sociological reasons for these trends. I’m sure you’ve read or considered many of them. My point here is not to analyze these trends; but rather to consider what might happen to Chinese society if they too adopt the lifestyle of consumerism, as they are being urged to do.
It is argued by many macroeconomists that in order to address the wide Balance of (Trade) Payment gap between the U.S. current accounts and capital accounts the onus falls on the Chinese. It is argued that, along with the reductions in currency controls, the Chinese must begin to consume some of their own products AND open their markets to products from other parts of the world. This will, it is argued, bring down the U.S. trade deficit (as the U.S. begins to export more products to China) and reduce our indebtedness to Chinese investors, including Chinese sovereign wealth funds.
Is this really what we need to advocate? Do we really want to see our Chinese compatriots encounter the same sociological degeneration that we have seen with the rise of consumerism in the U.S.? Given the propensity by the Chinese to exercise throughout one’s life, and the great emphasis on family and society, it is doubtful that there would be a severe degeneration. Nonetheless, a society of obese Chinese is not my ideal of a mutually beneficial future.
A macroeconomic balancing is, indeed, needed. But, I hope it is not at the expense of the waistlines of the Chinese everyman.
New York Times. (2010, June 21). Chinese Currency News Lifts Asian Stocks. New York Times, Global Edition .
Roach, S. (2009, September 22). Stephen Roach on the Next Asia: Opportunities and Challenges for a New Globalization. Hoboken, NJ: John Wiley & Sons.