I had a brief discussion with H.G. Mills after my last post. After the exchange, he thought it would be a good idea for me to present an alternative viewpoint on the Chinese currency revaluation. This should help make the issue even more cloudy.
Do not confuse a warning of the consequences with a moral judgment. When I suggest that oil prices might rise and the quality of life of the average American will decrease, I am warning of possible consequences. The morality is much more complicated.
When people discuss problems in China, one of the things they talk about are the poor wages that Chinese factory workers receive. If China allows the renminbi to strengthen by 3%, everyone in China gets a raise. Not bad, eh?
Now, you might argue that the cost of labor just went up. And, relative to the price of raw materials purchased outside of China, you are right… sort of. It’s true that the problem is symmetric. We are accustomed to having our real wages eroded by inflation. If all you paid for was food and rent, and both increased by 3% while your paycheck stayed the same, it’s the same as saying you just got a pay cut.
In this case, we assume that Chinese wages are nominally determined. No pay cuts after the currency re-balancing. Any cash reserves are also nominally determined. The real (inflation adjusted or purchasing power parity) value of those savings and wages went up. So labor costs did go up. Workers’ real pay went up. But raw materials just got cheaper. Eventually, a new equilibrium will be established. Those workers will be able to consume more. Then prices in China will rise, but not as much as the wages went up. This is because our wages didn’t also go up. This isn’t a worldwide inflation, just a relative Chinese deflation / US inflation.
Anyway, the US has been living rich off of a monetary imbalance that didn’t “properly” reward Chinese labor (“proper” wages might still be quite low, but unless Chinese workers have certain basic freedoms, it’s impossible to judge where that might be). Effectively, the sovereign rights of China have trampled on the individual rights of its workers, in a way that was favorable for the generic American consumer. Recognizing that fixing the imbalance is going to cost us while it helps the Chinese is a completely separate issue from debating the moral value of the imbalance. In this case, I can’t find a moral justification for the imbalance. Americans, with the aid of the Chinese government, have exploited Chinese workers. We are now going to be less exploitative. Just because it hurts us doesn’t mean it isn’t right (though it’s still likely that we are going about fixing it in the wrong way. Do the ends justify the means?).
I just don’t really want to pay for it. I’ve become accustomed to my comfortable lifestyle.
