Sunday, January 25, 2009

A Person Needs a Face; A Tree Needs Bark

. Sunday, January 25, 2009



Emmanuel from the mighty IPE Zone blasts me on two fronts: first for defending macroeconomists from Wilkinson, and second for not appreciating the importance of reputation to the Chinese (as recounted by Wikipedia, but two can play that game: the title of this post was taken from here). The first has nothing to do with second in my mind, but his combination of the two is intended to call my IPE chops into question. Emmanuel's argument sums up to, in Lolcatspeak, "Ur doin' it wrong".

I, too, am familiar with Cohen's writings on the US/UK IPE divide. And I, too, am fully aware of what he means by the "economism" of some American IPE types. Indeed, the primary reason why I am in IPE instead of economics proper is because I think that the utility of modern Econ is lessened by its, er, "stylization" of the world, and I'm sympathetic to arguments that make that point (that's not what Wilkinson was doing, however, and not really what Emmanuel is doing either). Anyway, I've got no horse in the UK vs. US debate, so I'm not hashing that out here. Emmanuel is surely right to point out that an economist might look at Geithner's quotes and conclude that he is merely restating the obvious. A political economist should look deeper, if she can. Geithner's statements were clearly intentional, so let's do what Emmanuel hasn't and read the subtext while considering the context.

James Fallows, a man with a hundred times more awareness of Chinese culture than Emmanuel or I (or Wikipedia), says that the Chinese aren't "manipulating" the yuan, they are "managing" it. Emmanuel pointed out Paulson's recent similar semantic two-steps. Well, you say "po-TAY-to" and I say "po-TAH-to" but Geithner's point isn't substantively refuted. In fact, nobody is arguing that Geithner is wrong, only that he would have done better to keep his trap shut.

But who was Geithner's audience? Whose reputation was Geithner concerned with? Given the fact that he was speaking during his confirmation hearing in the U.S. Senate, his first audience was clearly domestic: he was speaking to the U.S. Congress and their constituents, and vague quasi-protectionism was a pretty major aspect of the recent election. Geithner was trying to indicate that Obama is committed to helping American workers, and considers Chinese jiggering of the RMB to boost (Chinese) domestic employment at the expense of US employment to be "unfair" to American workers. As I mentioned in my last post, this is a long-running theme in the US. The Obama administration has more direct lines of communication with the Chinese than a Senate confirmation hearing, so Geithner's rhetoric was clearly intended for domestic consumption. Felix Salmon fleshes the point out more clearly here.

Despite all that, surely Geither knew that the Chinese would be listening, which is probably why he said things like "the immediate goal should be for us to convince China to adopt a more aggressive stimulus package as we do our part to try to pass a stimulus package here at home." In other words, the first priority is to boost domestic demand in China, not to duel over currency valuations. Once again, this is a pretty noncontroversial statement: everyone agrees that Chinese domestic demand needs to grow with the rest of the economy. Geithner also strongly indicated that the Obama wants to work with, and not against, the Chinese. More than once, Geithner mentioned that Obama seeks more policy coordination and cooperation with the Chinese rather than less. In any case, neither Geithner nor Obama have indicated that they are prepared to take any retaliatory action against the Chinese (much to Emmanuel's chagrin, I'm sure!), so Geithner's comments are best read as cheap talk for the benefit of domestic audiences.

Were some Chinese feathers ruffled by the bluntness of Geithner's comments? Surely. Were Chinese policymakers aware of the proper context, meaning, and intent of Geithner's remarks? Undoubtedly. Are both governments using the incident to shore up domestic support? Unquestionably. Are more reasonable and substantive discussions between Chinese and American policymakers occurring behind closed doors? Indubitably. Does this represent any sort of change in the US/China relationship? I see no economic, political, sociological, or anthropological reason to think so.

Yawn.

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A Person Needs a Face; A Tree Needs Bark
 
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