Friday, March 19, 2010

Roach Goes After Krugman

Following on the heels of Peter Schiff's destruction of Paul Krugman's economic advice, Morgan Stanley Asia Chairman Stephen Roach goes after Krugman.

Roach correctly called for more savings and pointed out that Krugman was in error when he called for the U.S. to push China to upvalue its currency. Specifically, Roach said, according to Bloomberg:
...that Paul Krugman’s call to push China to allow a stronger yuan is “very bad” advice and that increased Chinese spending is a better way of reducing trade imbalances.

“We should take out the baseball bat on Paul Krugman — I mean I think that the advice is completely wrong,” Roach said in an Bloomberg Television interview in Beijing when asked about Krugman’s call, characterized as akin to taking a baseball bat to China. “We’re lashing out at China rather than tending to our own business,” which is raising U.S. savings, Roach said.
Krugman defended his position by saying:
Btw, this was from a cell phone conversation held while I was, um, sitting on the beach
In his defense, he also played(?) stupid as though he had never heard of Say's Law:
I really don’t understand Roach’s argument here; he seems to have subscribed to the Underpants Gnomes theory of trade balances:

1. Increase savings
2. ?????
3. Exports
Ah, Paul, Jean Baptiste Say wrote:
"...a product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value." (A TREATISE ON POLITICAL ECONOMY, Chapter 15).
In other words, supply creates its own demand.

If you simply consume, what happens when you have finished consuming everything? It is savings, gone into producing goods, which is the key to, well, increasing goods and thus the standard of living for a nation.

1 comment:

  1. PK sure uses ", um, " quite a bit for someone who is not a pretentious dick.