Thursday, September 04, 2008

A Nobel Prize Winner Notices Your Book

One might think that such an author would be pleased. But, that's before the Nobelist Palinnihilates* it:
Turmoil in the financial market and insecurity in the labor market--we have plenty of both--bring out good and bad books, like good and bad mushrooms after a rain. In the instance before us it is the financial market that is in turmoil, and this is definitely not a good book. ....Kevin Phillips stays throughout at the superficial level of Chicken Little. Terrible things are happening, and will continue to happen....

...merely an attempt to make adjectives sound like analysis.

....serious thought is not on Phillips's agenda.

....Even the better parts of Phillips's book fail to give a serious account of what has happened in the capital market and the channels through which it affects the modern economy. And those parts are interspersed with passages of surpassing ignorance.

....Phillips criticizes National Income and Product Accounts because they do not prominently display figures on the sharply rising volume of private debt. But this lapse is owed to the fact that the National Income and Product Accounts are about, well, national income and product. They are more like an income statement, and certainly not like a balance sheet. There is no reason, of course, why the Department of Commerce should not inform interested citizens about the standing volume of debt, but there is also no reason why the absence of those figures from the accounts should be treated as a dark conspiracy against the public. The debt figures are readily available in other government documents.

....Then--this is a book about bad money, after all--Phillips turns to the dollar, and a certain amount of confusion descends. Some of it rests on the almost universal bad habit of treating the high exchange value of the dollar--a "strong" dollar--as a matter of national pride. "Defending" the dollar sounds a lot like defending Old Glory. Too many secretaries of the treasury, some of whom must have known better, have adopted that mantra, though they have usually refrained from acting on it. Phillips seems to share this error. At one point he describes China's accumulation of foreign-currency reserves, mostly dollars, as giving it "the wherewithal to defend [its] own currency." In a way, exactly the opposite is true: China acquired the dollars in order to "anti-defend" its currency, that is, to prevent its exchange value from rising; and those same treasury secretaries have been urging the Chinese to allow the renminbi (RMB) to strengthen, which is to say, to allow the dollar to weaken against the RMB. The weaker dollar of recent years has promoted the exports that have lately been keeping the American economy afloat. This is all about exports and imports, not about the rockets' red glare.

(* To smile when you call him that, per Gary Cooper)

No comments: