Democracy & Technology Blog Rutledge on China

John Rutledge, a key economist in the early Reagan administration and since a super smart watcher of financial markets, doesn’t like China’s currency change. He and I agree that China’s U.S. dollar peg has been a boon for both nations over the last decade. (I first wrote about the Chinese monetary issue and urged them to retain the dollar link after visiting China two years ago.) Our mild disagreement now hinges on politics. Were American politicians smarter about economics, and were our own Treasury Department not agitating for a Chinese currency change, I would be perfectly happy for China to continue its dollar peg. The idea that floating and flexible exchange rates are somehow “free market economics” is wrong. The floating currencies themselves are not governed by the market but are managed and manipulated by small groups of fallible humans known as central bankers. In my view, China’s move was smart chiefly as a political matter, serving to let the air out of the bulging protectionist balloon without fundamentally changing its “strong and stable” monetary policy. If China’s unhinging from the dollar truly leads to the “floating and flexible” monetary relationship U.S. policy makers say they want, along with a substantial revaluation of the yuan, I would join Rutledge in lamenting China’s action. My judgment that this is a positive move on net stems from China’s brilliant monetary management of the last decade and overall economic strategy of the last 27 years.
-Bret Swanson

Bret Swanson

Bret Swanson is a Senior Fellow at Seattle's Discovery Institute, where he researches technology and economics and contributes to the Disco-Tech blog. He is currently writing a book on the abundance of the world economy, focusing on the Chinese boom and developing a new concept linking economics and information theory. Swanson writes frequently for the editorial page of The Wall Street Journal on topics ranging from broadband communications to monetary policy.