Dean Baker's Ire Is Aroused...
It's Joseph Kahn of the New York Times, who finds somebody who violates Milton Friedman's first rule:
Beat the Press Archive | The American Prospect: Do Relative Prices Affect Trade With China? Economists usally believe that relative prices matter a great deal. That is why they go into near hysterics when people suggest various forms of government intervention in the market, such as trade tariffs. Yet, when it comes to trade with China, the NYT [Joseph Kahn] found an economist who said that he doesn't think that relative prices matter.
Andy Rothman, a business economist located in Shanghai, asserted that the value of the yuan was not a big factor in the trade deficit that the United States has with China. In other words, if the dollar fell by 20-30 percent against the yuan, and the relative price of Chinese imports to the United States rose by a similar amount, (and the price of U.S. exports to China would fall by a comparable amount), Mr. Rothman believes that there would be little impact on trade.
This is an interesting position, but it would have been useful if the NYT had also presented the view on the trade deficit of an economist who believes that relative prices matter...
What is Milton Friedman's first rule? That demand curves and supply curves are never vertical, and never horizontal. Demand curves slope down. Supply curves slope up. Quantities matter for determining what prices are. Prices matter for determining what quantities are.
