My father predicted Larry Summers resignation as Obama's chief economic advisor after observing Summers' body language when he was interviewed by reporters after coming back from his trip to Beijjing earlier this month. Let's review the situation. Here's what I wrote on September 7:
When Lawrence Summers read the latest unemployment and GDP reports, he probably arrived at the same conclusion that my father, son and I did (Obama Did Create 3 million Jobs -- In China) -- that the rising trade deficit was killing the U.S. economic recovery. So on Saturday, he left for China to persuade the Chinese government to loosen its currency manipulations and other trade manipulations which maximize Chinese exports to the United States while minimizing Chinese imports from the United States.
Summers economic policy has failed and his last-ditch attempt to rescue it in China failed. So he is taking the dignified way out. The White House has a different story. Bloomberg reports:
Robert Gibbs, Obama’s chief spokesman, said today it “is not a surprise, that there will be people who have worked enormously hard over the past few years to make decisions to go back to doing” what they did before joining the administration....
“This is tough, the work that they do,” [President Obama] said in an hour-long town hall discussion on the economy broadcast on CNBC. “They’ve been at it for two years, and they’re going to have a whole range of decisions about family that will factor into this, as well.”...
Obama said yesterday he has “not made any determination about personnel.” He praised Summers and Geithner, as well as the rest of his economic advisers, saying that they “have done an outstanding job.”
Guess that means that Geithner will resign soon. If Obama picks Paul Krugman or Ralph Gomory to replace Summers, that will be a sign that he is planning to get tough with China. The result would be a prosperous economy for the rest of his term. If he picks another free-trade ideologue, that will be bad news for America's children.
Comment by Larry Walker, Jr., 9/22/2010:
You we're (are) definitely right!
Comment by ff2017, 9/22/2010:
Huh? I don't see the connection. It's hard to be prosperous when you have a lot of debt and unfunded liabilities, regardless of how tough we are with China (incidently, holders of a significant amount of said debt as you well know).
Comment by Ben Gee, 9/23/2010:
If Krugman is picked to replace Summers, look for a trade war to develop. There will be no winners. If world trade collapse, the world will go into depression, not recession. Beside the US and China, Japan, S Korea, Taiwan that supply factors of production to China will suffer. Countries the supply raw materials and energy to China will suffer. The whole world will plunge into a deep freeze.
Response to this comment by Rdan, 9/23/2010: And you take then on policy is???
[An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]
Journal of Economic Literature:
[Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....
Atlantic Economic Journal:
In Trading Away Our Future Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]