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May 23, 2007


Justin Rietz

"Of course, the essential point is that we have to get the right mix between these two objectives"

There's the rub. This policy of balancing requires that some "elite" group (i.e. a cadre of government officials and economists) steps in and moderates the economy. Such a group, no matter how skilled, cannot effectively predict and manage something as dynamic as a national economy that represents the thoughts and actions of millions, if not billions, of people. Unintended consequence abound. Either some segment of the population is unjustly burdened (the rural poor in China) or the market kicks back against imbalances and crisis occurs (Asian currency crisis).

Slow, solid growth will beat engineered booms in the long run every time. The irony is that the "slow" path, by creating a solid economic foundation and building confidence in the inherent strength of an economy, may end up being faster than government-fostered booms.

If being more like "us" means that my children will have larger real incomes, longer life spans, a higher quality of life, and more freedom from government constraints, I would like to be more like us too...


The growth stemming from the undervalued exchange rate is likley because undervalued exchange rates, in a sense, force people to save.


Professor Rodrik,

I do agree with your position.

Just some comment/question:

Why do you say that the global macro imbalance raises the spectrum of financial turbulence? Actually U.S. current account deficit is matched by Asian (mainly China) reserves. These are the potential speculators against the US$, but in the short-medium run it sounds implausible that China speculate against US$ since it would reduce its export competitiveness. I guess investment fund would speculate neither against the dollar nor against economic giants with so many reserves.
I agree about potential trade frictions.

I saw your graphs about China and India, that’s true for other countries! A competitive real exchange rate not only foster growth, but it makes it more sustainable in terms of national macro balance and production structure diversification. This point is terrifically clear by looking at Argentina’s current growth and at that of the ‘90s.

We passed from the ‘90s where hard currency peg was advocated (or imposed) to recent claims for pure floating. Global macro imbalance is a matter of industrialized countries (mainly US).
If sometimes it happens that developing countries are gaining something from globalization is it fair to blame them?

I pick up your first choice too.

Great Blog! I found it out recently. Very good and balanced debates, Thanx!

Daniel Dreymann

Justin wrote:

If being more like "us" means that my children will have larger real incomes, longer life spans, a higher quality of life, and more freedom from government constraints, I would like to be more like us too...

OK, but I'm not sure how that's gonna happen if you keep posting stuff during work hours;-)

Daniel (Justin's boss)

PS: just kidding, I like your posts.

Justin Rietz

Ahhh, perhaps you failed to notice that dates on the comments are central time, not pacific. So my post was actually at 9:09am while I was driving 70mph on the freeway headed to work ;-)

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