Wednesday, July 15, 2015

Why Greece is More Like Argentina than Like Israel

Bernard Avishai, who teaches business at the Hebrew University in Jerusalem, published an article in The New Yorker this week titled “Why Greece Needs the Euro.” A key part of his argument hinges on a comparison between Greece and Italy. In fact, Avishai has it backwards. A closer look at the Israeli experience shows that Greece does not need the euro. Here is why:

After considering the argument that Canada’s flexible exchange rate helped it recover rapidly from the global crisis of 2008, Avishai writes that “Israel is a more telling example than Canada, having suffered an economic crisis much like Greece’s, in the early eighties.” In response to the crisis, he explains, Prime Minister Simon Peres introduced a new shekel pegged to the dollar. “The Israeli government’s decision to keep the new shekel constant and to seek free access to American and European markets was the foundation of the entrepreneurial economy that emerged in Israel during the nineties,” he concludes.

A strange argument. What Avishai inexplicably fails to mention is that Israel quickly abandoned its fixed exchange rate as unsustainable. >>>Read more

Tuesday, July 7, 2015

Trump Blames US Export Woes on Chinese Currency Manipulation. Really?

Donald Trump is surging in the GOP primary polls, partly on the basis of a carefully crafted reputation for telling it as it is. Even rival Ted Cruz thinks Trump is “teriffic” and “brash,” saying, “I think he tells the truth.” But when he comes to China’s exchange rate policy, he is about as far from the truth as he could get.

Last week Jake Tapper, host of  CNN's "State of the Union," interviewed Trump on a wide range of issues. It wasn’t long before the conversation turned to trade, jobs, and China. “You have to take the jobs back from China” before you can even begin to solve problems like the national debt and healthcare, Trump asserted.

Tapper slyly pointed to a Trump necktie he had put on for the occasion. “Isn’t it hypocritical of you to talk about this,” he asked, “while you’re manufacturing your clothes in China?”

“Not at all,” Trump replied. “A lot of them are made in China, because they've manipulated their currency to such a point that it's impossible for our companies to compete with them.”
So, does China really manipulate its currency? Can we blame China for the lack of American competitiveness? We’re going to hear a lot about Chinese currency manipulation before this presidential campaign is over, so it might be a good idea to do some fact checking right at the outset. >>>Read more