An Economist Baffles The Economist

New York Times columnist and Nobel laureate Paul Krugman pleads with the Obama administration to take a harder line against China on the value of its currency. "Time and again," Krugman writes, "U.S. officials have announced progress on the currency issue; each time, it turns out they've been had." Krugman says "clearly" nothing will happen until Washington imposes a "temporary tariff," which should at the very least be "on the table." He thinks the United States can't let "sinister" fear from multinational corporations of Chinese retaliation halt the administration from doing "what's good" for America.

Dan Schuler of Outside the Beltway agrees, and, in response to Calculated Risk's question, provides a more detailed plan for how Washington can pressure Beijing. Like Krugman, he says that fears about a Chinese sell-off of U.S. bonds are overwrought, and China would be "far more vulnerable" than the United States  in any ensuing trade war. The Daily Kos thinks the administration isn't doing more to pressure the Chinese because "these days, facts are just another commodity to be bought and sold."  Prairie Weather snarkily adds: "The truth is, our corporate masters are reluctant to upset China." And Tom Ricks notes that Krugman's column illustrates that the Chinese threat to American interests is really financial, not military.

But the Economist is baffled. Its blog correspondent says, "I can't understand what model of political economy he's relying on," and thinks Krugman is "opining here without the ballast of a sensible framework." Instead, in the Economist's view, the Princeton econ professor is urging policymakers to make "a big, dangerous bet for puny stakes" that could ultimately backfire.