Slaughtering Schumer

by Don Boudreaux on May 29, 2007

in Myths and Fallacies, Trade

Sen. Charles Schumer (D-NY) wrote — in response to Matthew Slaughter’s fine op-ed that appeared last week in the Wall Street Journalthis letter:

Contrary to Matthew Slaughter’s assertion (“Yuan Worries,” May 22), the vast majority of economists agree that a floating currency is an important tenet of free trade. Floating currencies alleviate the destabilizing effects of large imbalances in trade.

Undervaluation of the yuan makes China’s exports to the United States cheaper and U.S. exports to China more expensive, putting American companies who play by the rules at a significant price disadvantage. As a member of the World Trade Organization, China has an obligation to its global trading partners to play by the rules, not just when they benefit China. For those of us who believe in free trade, China’s continued failure to play fairly makes it impossible to convince Americans that free trade is in our interests, and it leaves Congress no choice but to act.

Those of us moving in this direction are defending free trade; those who are blindly opposing these efforts only serve to undermine the fragile consensus for free trade. Sens. Max Baucus, Charles Grassley, Lindsey Graham and I are working on a measure within the framework of the WTO that will push the Chinese to start playing by the basic rules of free trade.

Sen. Charles E. Schumer (D., N.Y.)
Chairman
Joint Economic Committee
Washington

Sen. Schumer and the colleagues he lists are no more real free-traders than the members of Milli Vanilli were real vocalists.  Here’s a letter that I sent today in response to Sen. Schumer’s confusion:

To the Editor:

With
both the spunk and the brains of the Energizer Bunny, Sen. Charles
Schumer keeps insisting that the value of the Chinese yuan is too low
and that this (alleged) fact is a benefit to China (Letters, May 29).

China
can lower the value of the yuan against the dollar only by increasing
the supply of yuan relative to the dollar – a policy that causes
inflation in China.  This result hardly benefits the Chinese people or
strengthens their economy.  Also, by increasing nominal prices in China
relative to those in the U.S., yuan inflation ensures that Americans do
not buy Chinese goods and services at prices kept artificially low.

Sincerely,
Donald J. Boudreaux

Update: My friend Andy Roth reveals yet more evidence that, despite Schumer’s protests to the contrary, the Senator from New York is no friend of consumers (that is, is no free trader).

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{ 20 comments }

Daniel May 29, 2007 at 11:53 am

To quote Milton & Rose Friedman, "We could say to the rest of the world: We cannot force you to be free. But we believe in freedom and we intend to practice it."

http://www.hoover.org/publications/digest/3550727.html

M. Hodak May 29, 2007 at 12:06 pm

Sen. Schumer wouldn't know the "rules of free trade" if they were inscribed on rock tablets from Sinai. He won't accept the rule of "Leave the traders alone" because that doesn't allow him and his cohort to maintain their "fragile consensus" of how much to interfere on behalf of their respective interests, none of whom give a damn about freedom.

I just don't like politicians this morning.

Jon May 29, 2007 at 12:35 pm

Bravo Daniel.

I'm of the opinion that 99% of all politicians are either willfully manipulative, or willfully stupid. As such when they say stupid stuff, it angers me, but has ceased to amaze me.

Brad Hutchings May 29, 2007 at 1:38 pm

Reading Shumer's letter, I had a flashback to 4th grade. The teacher said the phrase "play by the rules". We all immediately put on our serious face showing approval. The teacher rewarded all of us with candy. Well, except for the kid that was drooling. This was a daily ritual immediately following the Pledge of Allegiance.

The Cynical Libertarian May 29, 2007 at 2:34 pm

If it was not in the interests of US firms to trade in Yuan, wouldn't they use gold or silver or iron ore or some such non-fiat form of 'currency'?

Jon May 29, 2007 at 2:39 pm

Question:

Was the drooling a negative externality or simply a Pavlovian response to the candy?

Brad Hutchings May 29, 2007 at 2:52 pm

Heh Jon. For that made up story to work, I guess both! There is truly no phrase that makes me cringe more than "plays by the rules". Notice that it's always Dems (+ Lindsay Graham) who use it, obviously playing to their base. And the funny thing is, let's all be honest here… Growing up, it was the kids of Dems and their families that didn't play by the f*&^%%n' rules! Which is, of course, what made them more fun ;-) .

Jon May 29, 2007 at 3:13 pm

Brad I'm 21 in two weeks and an undergrad, I'm still a "kid." Forgive me but I tend to think "F*&% the rules." Whenever a new rule comes up I always inevitably end up questioning why.

The difference is that we "libertarian" youngins (yes an awful southernism, I do apologize) stay that way. The Democratic kids claim to fight the system, only to insist that others play by their rules without question.

-Just my .02

Matt C. May 29, 2007 at 3:47 pm

Here is a question that I have always had. Can you be pro- free trade and anti- free trade agreement? I am willing to let fly open the doors of free trade in a heartbeat. I would rather fight for this ideal than provide a platform for some extra-governmental entity to make decisions that Americans will be forced to follow, without the very least input such as a worthless vote.

I have always struggled with this ideal. I am grateful that I am able to buy goods at cheaper prices, but agreements like NAFTA and CAFTA are more managed trade than free trade. These types of agreements are influenced almost as much by special interest groups as are any other bill. Are “free trade” agreements not subject to Olson’s Collective Action theory?

anon May 29, 2007 at 6:29 pm

Schumer is the most dangerous kind of leftist…slick, subtle, and modest.

on "southernisms" from Jon…would you rather talk like some degenerate from Boston?! rofl

Craig May 29, 2007 at 7:37 pm

OK, what am I missing? I'm no fan of Schumer, but are you saying that were China to allow the Yuan to trade freely, that its exchange value would remain virtually the same as it is now?

Isn't it possible that it might rise substantially or even drop some (which would really annoy the good Senator)?

vidyohs May 29, 2007 at 8:43 pm

Well Don, of course Chuckie Schumer is no free trade advocate. He is a socialist through and through.

Slick, well no, just a slimy son of a b**ch who would sell any individual down the river for his own personal advancement.

Next to the Clintons and Kennedy, Chuckie Schumer is one SOB that should be out on the streets looking for a job tomorrow.

BravoZulu May 29, 2007 at 11:48 pm

Wasn't it, if I recall correctly, Schumer and Paul Craig Roberts who co-wrote an op-ed that claimed that comparative advantage is no longer a operative principle in the economics of trade?

Therein lies the biggest clue as to Schumer's socialist views – a profound disbelief in economics and that the elites are smarter than the market.

ben May 30, 2007 at 5:34 am

As the t-shirt goes: you can't have slaughter without laughter.

Russ Nelson May 30, 2007 at 9:33 am

Schumer is a moron. Here we merely argue about why that is so.

Nick May 30, 2007 at 9:48 am

Craig:

Even if we assume that the yuan "should" be worth dramatically more as compared to the dollar, whatever manipulation the chinese are doing is not some sort of free lunch. The extra yuan cause inflation. At the end of the day instead of trading one dollar for one yuan which purchases one bag of dog food, the extra inflation causes us to trade two dollars for two yuan, which we trade for one bag of dog food (notice while the yuan remains "pegged" at one to one against the dollar we get less for each yuan in terms of real goods). If china weren't "manipulating" and their currency rose against the dollar we would trade two dollars for a yuan, which we would then trade for a bag of dog food.

The controversy over the yuan is an example of how economic reality tends to defy artificial attempts to control it, and an example of an american politician making a big deal out of something that really is irrelevant in order to look like they're doing something when they really aren't.

The Dirty Mac May 30, 2007 at 10:12 am

It should be also noted that Senator Schumer led the xenophobic charge against Duba Ports World.

Jon May 30, 2007 at 12:43 pm

@ anon
Touche, still southernisms carry a bit of "uneducated air" about them.

Colin Keesee June 1, 2007 at 6:11 am

It is people like Schumer that prompted me to tell my friend, physics major, how great his science is because it is rarely politicized. As a result he will not have to see public policy maker declaring gravity unfair or proclaiming that inertia no longer applies in today's world.

Christer Tamm June 3, 2007 at 8:26 am

I read this over at Coyote Blog (http://www.coyoteblog.com/coyote_blog/2006/04/disturbing_trad.html):

It is important to note that each and every one of these government interventions subsidizes US citizens and consumers at the expense of Chinese citizens and consumers. A low yuan makes Chinese products cheap for Americans but makes imports relatively dear for Chinese. So-called "dumping" represents an even clearer direct subsidy of American consumers over their Chinese counterparts. And limiting foreign exchange re-investments to low-yield government bonds has acted as a direct subsidy of American taxpayers and the American government, saddling China with extraordinarily low yields on our nearly $1 trillion in foreign exchange. Every single step China takes to promote exports is in effect a subsidy of American consumers by Chinese citizens.

This policy of raping the domestic market in pursuit of exports and trade surpluses was one that Japan followed in the seventies and eighties. It sacrificed its own consumers, protecting local producers in the domestic market while subsidizing exports. Japanese consumers had to live with some of the highest prices in the world, so that Americans could get some of the lowest prices on those same goods. Japanese customers endured limited product choices and a horrendously outdated retail sector that were all protected by government regulation, all in the name of creating trade surpluses. And surpluses they did create. Japan achieved massive trade surpluses with the US, and built the largest accumulation of foreign exchange (mostly dollars) in the world. And what did this get them? Fifteen years of recession, from which the country is only now emerging, while the US economy happily continued to grow and create wealth in astonishing proportions, seemingly unaware that is was supposed to have been "defeated" by Japan.

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