I’m deeply confused by a Paul Krugman article in the October 22 New York Times. He argues that the Chinese are ruining the world economy, and our economy, by keeping their currency weak. Chinese exports are too cheap. I can’t figure out why this is bad. Would we be better off if we paid higher prices for Chinese-made car parts, electronics, clothing, etc.? Wouldn’t that leave us with less money to spend on other stuff and therefore worse off?
And what about this finance professor from University of Chicago, John Cochrane, who tears apart one of Krugman’s earlier pieces? Whom are we to believe, the Nobel Laureate Krugman or a glider pilot who lives in a part of the country with no ridge lift (see the bottom of his papers page)? Cochrane seems to be a bit of a contrarian, arguing in the Wall Street Journal that the Lehman failure did not cause the Collapse of 2008.