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<h3>Robert Reich is Correct, the NYT's Incompetent Book
Reviewer Is Wrong</h3>
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<td class="createdate" valign="top"> Sunday, 26 September 2010
19:54 </td>
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<p>The New York Times assigned former Washington Post
reporter Sebastian Mallaby <a class="blank"
target="_blank"
href="http://www.nytimes.com/2010/09/26/books/review/Mallaby-t.html?ref=business">to
review</a> Robert Reich's new book, <em>Aftershock: The
Next Economy and America's Future</em>. It is
unfortunate that they couldn't found someone familiar who
knew some economics for this task.</p>
<p>Near the beginning of the review, Mallaby tells readers:</p>
<p>"Reich insists instead that American consumers, and
particularly the middle class, have been buying too
little. For years, the United States has consumed more
than it has produced; the excess demand has sucked in
products from abroad, which is why the nation has run a
trade deficit. The idea that the economy has suffered from
a lack of demand is, shall we say, eccentric."</p>
<p>Actually, there are few economists who would say that the
United States had excess demand throughout most of the
last decade, so Robert Reich is exactly right on this
point and Sebastian Mallaby is completely wrong. The trade
deficit was the result of an over-valued dollar.</p>
<p>This is actually very basic economics. The value of the
dollar determines the relative price of foreign and
domestic goods. If the dollar is sufficiently over-valued
then the United States could be running a trade deficit
even when demand is grossly inadequate -- as is the case
at present. The high dollar makes imports very cheap for
people in the United States, which causes us to consume
large amounts of imports. It also makes U.S. exports
expensive to people living in other countries, which means
that we will have weak exports. It is remarkably that
Mallaby is apparently unfamiliar with this basic logic and
that his mistake was apparently not caught by the editor.<br>
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