It’s getting even worse.

[HT: DeLong]

‘Competitiveness’ rears its ugly head by Samuel Brittan, FT:

“Competitiveness” originally had a clear meaning but has now been taken up by politicians and business leaders as an all-purpose slogan… Unfortunately this debatable concept is now too generally accepted in the political world for such repudiation to be feasible. Originally some economists and officials mentally substituted the word “performance”, but now themselves talk of competitiveness, presumably thinking: if you can’t beat ’em, join ’em… What is misleading is the transfer to whole economies of concepts relevant to individual businesses or regions…

Here we come to the rub of the matter. The competitiveness analysis applies where there is a single currency. If we still had the mark and the lira we could leave the foreign exchange market to sort it out. The exchange rate is a safety valve which allows a country employing it to make up its own mind on its inflation goals and level of business support without worrying about the balance of payments.

The vogue for competitiveness arose in a fixed exchange world. Then if UK products were too expensive, or in other ways unattractive, jobs would be cut and foreign exchange reserves might be lost by the British government, which would then have to embark on one of its notorious stop-go episodes. Edward Heath’s decision in 1972 to float sterling, however reluctantly he made it, should have changed all that. Yet even the British Treasury found it difficult to adapt.

Previous installments:
Competitiveness, argh!” (11 Aug 2007)
Competitiveness, again (29 May 2007)
Obsession with “competitiveness” lives on (30 Aug 2006)
Paul Krugman – Pop Internationalism (29 Aug 2006)

Only a suppliers’ advocate would refer to sugar as “among the worst performing commodities this year” due to its low price. Consumers will consider sugar to be one of the year’s best commodities. Americans would too, if they were able to enjoy the low prices.

Only a suppliers’ advocate would refer to sugar as “among the worst performing commodities this year” due to its low price. Consumers will consider sugar to be one of the year’s best commodities. Americans would too, if they were able to enjoy the low prices.

Only a suppliers’ advocate would refer to sugar as “among the worst performing commodities this year” due to its low price. Consumers will consider sugar to be one of the year’s best commodities. Americans would too, if they were able to enjoy the low prices.

Menzie Chinn posts summaries of papers from a NBER conference on Chinese trade. The economists are top-notch and the topics are fascinating. A weekend’s worth of reading, and it’s only Tuesday.

Will someone tell me what the heck “competitiveness” means?

The President seems to think it means the level of innovation:

Today I’m going to sign into law a bill that supports many of the key elements of the American Competitiveness Initiative. This legislation supports our efforts to double funding for basic research in physical sciences. This legislation authorizes most of the education programs I called for in the initiative I laid out at the State of the Union.

Stephen Bainbridge accepts this definition and then returns the focus to international competitiveness:

All well and good, but what about the barriers to competitiveness the government has created during Bush’s tenure in office?… the Sarbanes-Oxley Act… as the Paulson Committee and the Schumer-Bloomberg report have documented, “New York financial markets, stifled by stringent regulations, and high litigation risks, are in danger of losing businesses and high-skilled workers to overseas competitors, relegating New York to regional market status and adversely impacting the U.S. economy.”

What’s good for New York is good for America, huh?

Cato’s Dan Mitchell seems to think “competitive” means “prosperous” or “growing”:

[F]ormer Soviet colonies are abandoning [Marx’s] concept of discriminatory taxation and instead adopting simple and fair flat tax regimes. A Czech article discusses the flat tax revolution, which is proceeding in spite of complaints from Western Europe’s uncompetitive welfare states.

Given that I’ve never seen Mitchell criticize a tax cut and he specializes in international tax competition, I have a feeling he thinks that every nation would be better off with lower taxes. But competitions are zero-sum games; that’s why analysts obsess over rankings. To be “more competitive” means that your relative tax rate is lower, not merely that your absolute tax rate is low.

This analytical framework is nonsense. You’ll never see competitiveness in an economics textbook.

Previous installments in this never-ending series:
Competitiveness, again (29 May 2007)
Obsession with “competitiveness” lives on (30 Aug 2006)
Paul Krugman – Pop Internationalism (29 Aug 2006)

Parts of Christopher Hayes’ latest article don’t sit well with me, but this paragraph is an apt assessment of public opinion and punditry:

The myth of the NAFTA Superhighway persists and grows because it taps into deeply felt anxieties about the dizzying dislocations of twenty-first-century global capitalism: a nativist suspicion of Mexico’s designs on US sovereignty, a longing for national identity, the fear of terrorism and porous borders, a growing distrust of the privatizing agenda of a government happy to sell off the people’s assets to the highest bidder and a contempt for the postnational agenda of Davos-style neoliberalism. Indeed, the image of the highway, with its Chinese goods whizzing across the border borne by Mexican truckers on a privatized, foreign-operated road, is almost mundane in its plausibility. If there was a NAFTA highway, you could bet that Tom Friedman would be for it–what could be more flattening than miles of concrete paved across the continent?–and Lou Dobbs would be zealously opposed. In fact, Dobbs has devoted a segment of his show to the highway, its nonexistence notwithstanding.

Sure, this new NBER paper abstract on tariff cuts triggering new investment in productivity improvements caught my eye, but that was primarily due to the typo: “Exporting and investing to raise productivity are complimentary activities.”

Oops.

This working paper (pdf) on China’s contribution to global trade imbalances by Wing Thye Woo & Geng Xiao of Brookings is interesting. They are skeptical of calls to revalue the yuan.

I think this calculation is a bit heroic (i.e. not easily derived from available evidence):

Based on a partial review of the literature, my assessment is that the pressure that is preventing US wages (especially wages of unskilled labor) from rising in line of GDP growth can be roughly decomposed among the various factors as follows:

• 70-80 percent of the downward wage pressures is from labor-substituting technological innovations, and wage-weakening institutional changes;

• 5-10 percent of the downward wage pressure is from inward immigration; and

• 15-20 percent of the downward pressure is from import competition and relocation of manufacturing activities abroad.

This story, on the other hand, is plausible:

But this move would only hurt China and not “save” the world. Ceteris paribus, in the aftermath of the 40 percent yuan appreciation, foreign companies producing in China for the G7 markets would move their operations to other Asian economies (e.g. Vietnam and Thailand) and export from there, and G7 importers would start importing the same goods from other Asian countries instead. In the absence of a collective appreciation of all Asian currencies, the yuan appreciation will only re-configure the geographical distribution of the global imbalances and not eliminate them.

Of course, is ceteris paribus appropriate or would the general equilbrium story differ?

[HT: All Roads Lead to China]