Forcing consumerism on China

The Economist had a recent leader on the possibility of a currency war erupting among the global economy's heavy hitters. The column cites three issues that could trigger such a war -- the ongoing problem of China's undervalued currency, quantitative easing in the U.S. and possibly in Europe, and possible protectionist policies in developing nations that would basically be a reaction to the first two issues.

As one way out of this crisis, the column states the following:

What needs to happen is fairly clear. Global demand needs rebalancing, away from indebted rich economies and towards more spending in the emerging world. Structural reforms to boost spending in those surplus economies will help, but their real exchange rates also need to appreciate. And, yes, the Chinese yuan is too low. That is hurting not just the West but also other emerging countries (especially those with floating exchange rates) and indeed China itself, which needs to get more of its growth from domestic consumption.

This issue has been an obsession with The Economist for some time. They are convinced that, if the Chinese were to allow their currency to float, that their citizens would storm their shopping malls to take advantage of the subsequent lower prices of consumer goods. "Balancing" global demand has also been an issue with the Obama administration, as evidenced by this letter it released prior to the G20 summit in Toronto last summer:

A strong and sustainable global recovery needs to be built on balanced global demand. Significant weaknesses exist across G-20 economies. I am concerned by weak private sector demand and continued heavy reliance on exports by some countries with already large external surpluses.

This supposedly benevolent talk, however, is purely self-serving. Moreover, it is unrealistic.

Obama wants to "balance" global demand because Democrats (and many Republicans as well) are convinced that they can convert the U.S. back into an export economy, if only the playing field were supposedly more balanced. In their minds, the Chinese would be buying American goods at a rate approaching that at which Americans buy Chinese goods. Such thinking is hopelessly nostalgic and misguided.

Moreover, the belief that the Chinese and others will turn into ravenous consumers under the right conditions is also rather presumptuous. There are many reasons why Western nations, and the U.S. in particular, are consumerist in nature. Cultural and social conditions play a huge role. There is no guarantee that the same conditions exist elsewhere, and in fact there is plenty of evidence to suggest that they don't.

So, no, the solution here isn't to try and force the Chinese to buy HDTVs and SUVs.