Business Beyond the Reef

This is an era in which our politicians specialize in leading us in the wrong directions. You would think we would learn that when a politician says something, the truth is likely 180 degrees opposite. So it goes with the continuing attacks on China for currency manipulation.

I am not saying that China hasn’t done anything egregious. They do practice an obnoxious form of mercantilism and, Lord knows, enough of my posts are critical of China. [I don't know if that has anything to do with my blog and website usually being unavailable in Beijing, of course.]

Politicians will think it is pretty.

Fellow blogger Scott Lincicome (on the blogroll at right) has picked up on an important chart published by ZeroHedge last week. The chart displays real effective exchange rates for the U.S. dollar and China’s yuan since 2005. Now that your eyes have glazed over, the important thing to take from this chart is that since 2005 the United States has assiduously devalued the dollar – at the same time that China has strengthened the yuan. That’s right! Just the opposite of what politicians like Senator Charles Schumer are telling us has happened. In real terms, the U.S. dollar has been devalued by almost 16% while the yuan has strengthened by nearly 38%. Devaluation of the currency is a time-honored response to economic hard times, so I expect this has been a conscious policy of the U.S. Treasury and the Federal Reserve.

The chart uses real effective exchange rates published by the Bank for International Settlements (BIS), which means that the data removes the influence of different rates of inflation in the two countries. Politicians will say this is flimflammery, but economists will tell you it comes closer to the truth than the usual published exchange rates.

The question thus remains: Who is the currency manipulator? China or the United States?

The Occupy Whatevah movements, rightly, have people thinking about income distribution. The 99% versus 1% thing. So I thought I would take a look at Gini coefficients. Gini coefficients are a way of measuring how even or skewed the distribution of income is across countries.  You can see the coefficients in the CIA Factbook.

How bad is the United States? Pretty bad. Way, way too much of our income goes into the hands of relatively few people. Out of 136 countries for which Gini coefficients have been computed (most everybody in the world), 97 of them come out with a flatter, broader, more even distribution of income than does the United States. Sweden comes in #1, followed closely by Hungary, Norway, the Czech Republic and Malta. Our first really major competitor, Germany, comes in at #11.

Lower rankings mean greater inequality of income.

The United States falls right in between Bulgaria and Cameroon, just a bit behind Iran. Always good company to be in. Places like Cambodia and Nigeria place better than we do. Gini coefficients are not perfect indicators and there are good reasons why some societies have more uneven income distributions, but this is embarrassing.

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I spoke at a meeting of the APEC Business Advisory Council yesterday about what small businesses need to succeed in international business. Went well, but I haven’t had time to put my thoughts together about it for a post. Maybe next week.

I am chairing a meeting of the Hawaii Pacific Export Council with new Secretary of Commerce John Bryson early this morning, then joining in for the groundbreaking of a new wing of Honolulu’s Foreign Trade Zone with Secretary Bryson and Governor Abercrombie. Then its back to APEC meetings in Waikiki.

Traveling today, but here’s a quick one for you. I found this post in a Debating Europe conversation about whether or not we need a US-EU free trade agreement:

Fair trade, as defined by people who actually do something: an agreed-to price by two individuals for the transaction of goods and services.

Fair trade, as defined by the detached social observer living in nanny-state comfort: anything that they want that will explain away what they don’t understand about economics.

Vegas: it's not just casinos

On my way to Las Vegas for the National Conference of District Export Councils. I know, sounds boring, but it isn’t. Good trade speakers from all over. I hope to report some good stuff. If you are in Vegas, look for me at Caesar’s Palace. I’m speaking Friday about using social networking in international business.