Towards A Good Samaritan World

Monday, December 06, 2004


The Economist warns its readers at the beginning of an article on the future of the dollar not to believe the article:

FORECASTING exchange rates is an inexact business. As Alan Greenspan, the chairman of America's Federal Reserve, once said, the activity “has a success rate no better than that of forecasting the outcome of a coin toss.” Recent years have borne this out: most currency forecasters would actually have done better if they had simply tossed a coin—at least they would have been half right. Yet over the next few years it seems an excellent bet that there will be a large drop in the dollar.

I think readers would be well-advised to take the writers' advice and disbelieve most of what is written in the column. I was skeptical about this too:

The dollar has been the dominant reserve currency for more than 60 years, delivering big economic benefits for America, which can pay for imports and borrow in domestic currency and at low interest costs.

Of course, we are paying for lots of imports and borrowing a lot, and The Economist thinks it's a bad idea. It is odd to call something a benefit and then warn that using it will harm us. Americans don't ordinarily rejoice in our large trade deficit and low savings rate. We see these as problems. If having the world's reserve currency enables us to do these things, shouldn't we see it as a burden? A very poor argument.

This point was also a bit appalling:

Li Ruogu, the deputy governor of the People's Bank of China, said last week that America should put its own house in order—ie, save more—and stop blaming others for its problems. He was right.

What? It's one thing for the boss of what is still to some extent a centrally planned economy to say that "America [i.e. presumably the government] should put its own house in order"-- he doesn't understand economic freedom. But The Economist should know that the savings rate is not a variable the government commands, but the result of hundreds of millions of free private decisions.

I guess you can't expect very intelligent comments from a publication that endorsed John Kerry.

Cafe Hayek's clever, and funny, post on the "blonde current account deficit," is a good antidote to The Economist.


  • As usual, you nailed it. The link to Cafe Hayek was great too.

    By Blogger Alexander, at 9:48 AM  

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