Becker, Roach and the Peking Duck

Everyone needs to take a deep breath when it comes to China’s undervalued currency, two economists write in Wednesday’s op-ed pages. University of Chicago professor Gary Becker says in the Wall Street Journal that, for now, the yuan “is a gift to American and other consumers . . . because it makes goods produced in China much cheaper.” And eventually it is in China’s interest anyway to put “greater faith in competition and private markets” and to float its currency as inflation rates rise in the United States. Becker believes this will also lead to improvements in personal freedoms for the PRC’s citizens, technological innovation, and university quality and attendance.

In the New York Times, Yale fellow and Morgan Stanley honcho Stephen Roach agrees that Congress and others should learn to stop worrying about the yuan. By focusing on Beijings refusal to float its currency, Roach writes, Washington is merely trying “to duck responsibility by blaming China,” when, in fact, America’s “unprecedented savings gap” is the root of the problem. Roach thinks the best way to ease the tensions between the United States and the People’s Republic—and solve the savings- and trade-deficit issues along the way—is to encourage Beijing to pursue policies that would turn its citizens into powerful consumers (i.e., bolstering the social saftey net and encouraging service-oriented jobs). On the other hand, slapping China with tariffs or forcing it to sharply increase its currency value would only “backfire.” And, Roach warns advocates of dollar devaluation, “No nation has ever devalued its way to prosperity.”

And in other related news, the Times is reporting that China has begun attempting to ratchet down the tension with Japan over disputed islands and the recent fishing boat fiasco. But now it’s Japan’s turn to reject the overtures (last week China refused a meeting on the sidelines of the UN General Assembly), and the Journal notes that the tiff has gone a long way toward “fueling” Japan’s small but vociferous band of right-wing nationalist activists.