An article by Stanford economics professor Robert J. McKinnon on the WSJ page on Thursday the 20th does a good job of dispelling the myth that China is “manipulating” its currency. When the U.S. Federal Reserve exerts monetary controls on the dollar to affect its “liquidity” (and by extension its value), this is called “inflation targeting”. When the U.S. treasury secretary “talks down” the dollar to make U.S. exports cheaper, this is called “trade deficit targeting”. But when China fixes the yuan to the dollar (thus turning its monetary policy over to the Federal Reserve), that’s called “manipulation”?

In truth, no currency actually floats, and it’s the job of central bankers, including our own, to seek currency stability. Also, why should China repeat the remedy the U.S. pushed on Japan in the 1980′s that caused a 15-year recession without affecting its trade surplus with the U.S.?

But while dispelling one myth, Prof. McKinnon added legitimacy to four others.

First, he views America’s “huge and growing trade deficit . . . about 7% of U.S. GDP” is a result of a low savings rate in the U.S. relative to China. (He points out that the larger deficit we have with oil and gas producing nations is a separate issue, and then conveniently drops it.) This argument serves to point out that criticisms of “unfair competition” from Chinese manufacturers masks the real reason for the imbalance.

So there’s a link between our low savings rate and our large trade deficit. So far so good. But which is the cause and which is the effect? Because of low Chinese manufacturing costs (and improved shipping efficiencies), American consumers of modest income are now able to purchase goods which were once out of their reach, or which they once had to save up for. Couldn’t the availability of cheaper goods be a driver of consumption over savings? And what about the relative cost of savings (also known as “taxes”) over credit and consumption? Prof. McKinnon only touches on these drivers in an unsatisfactory way.

So we have to accept the assertion that the trade deficit is too large and the savings rate is too small. This implies that government policies must be sought to reverse these indicators. The problem with this approach is that it focuses on symptoms, which may be nothing more than indicators of the health of our economy relative to others, which may thus lead to “solutions” with adverse or unintended consequences.

Example: Prof. McKinnon recognizes that the “savings transfer” that feeds our deficit would cause a “credit crunch” if it were to contract or cease, thereby causing an economic downturn. Fair enough. So why does he propose policies to reduce this transfer? Also, why would it be in China’s interest to stop investing in our economy to help us to buy their goods, any more than it would be in their interest to reduce the value of their currency?

As we tread from the clarity of the professor’s initial explanations to the murkiness of his later arguments, let’s pause. Let’s just assume for a moment that the U.S. economy would benefit if (a) Americans would save more, consume less, and borrow less; and (b) it would be better if Americans invested in more in American securities than foreigners, especially the Chinese.

Please note that Prof. McKinnon does not explicitly state either of these conditions goals, but their implication for the rest of his article is huge; and by not stating them he relieves himself of the responsibility for proving them as desirable, which would be nearly impossible. So instead he leaps directly to the remedies he has in mind to achieve these goals. Having already ruled out monetary adjustments as artificial and ineffective, what do you suppose he recommends? Making tax cuts, especially capital gains, permanent to encourage domestic investment? Addressing the structural problems in health care and Social Security? Fiscal restraint in all levels of government? Rising interest rates to control inflation and strengthen the dollar?

None of the above. Rather, he urges that “strenuous efforts must be made to reduce the U.S. federal fiscal deficit, which at 3% to 4% of GDP, is a terrific drain on national saving. Tax revenues have fallen to an unduly low level by international standards.” This is to increase savings in the government sector; to increase savings in the household sector, he recommends some kind of “forced” pension plan above and beyond Social Security.

These are the other three myths that Prof. McKinnon wants us to believe as fact: that the federal deficit drains national savings; that Americans are undertaxed; and that Americans are not rational spenders of their own earnings.

These views, of course, raise more questions than they answer. For example, why focus on the size of the deficit (which incidentally is about at the historical average in terms of percent of GDP) and ignore the amount of federal spending as a percentage of GDP, a much more significant figure? What are “international standards” of tax revenues, especially since U.S. tax revenues are now at an all time high? Why are higher taxes less harmful to the long-term health of economy than fiscal discipline, or even deficits? Are the majority of Americans incapable of making rational decisions with their earnings that they must be “forced” into savings by a government which has already “forced” them to contribute to a Social Security scheme that is rapidly heading for insolvency?

The words between the lines are very clear: U.S. taxes aren’t too high, they’re too low; and they must be raised high enough to both close the budget deficit and create a new national pension plan. Please. We could instantly increase the household savings rate by many billions of dollars if the Social Security surplus were placed into private accounts owned by those who contribute via FICA. But Prof. McKinnon isn’t recommending that, he’s recommending solutions that have already been tried and have failed.

But that’s assuming that the current situation needs correction and is not self-correcting, providing government stays out of the way rather than create distortions with ill-considered, populist, or Keynesian monetary, fiscal, trade, and tax policies. I’d like to hear more economics professors from prestigious universities deal with those aspects.

Yesterday, Oprah hosted Beth Shulman, a former VP of the United Food and Commercial Workers Union who was promoting her book about families living on the minimum wage. The apparent theme was to examine the minimum wage from a human rather than economic perspective, as if such could influence popular attitudes and perceptions. (This is a highly dishonest debating technique, because it requires one to assume that truth is relative, and that reason may be substituted by emotion. This is “The law of gravity may have uses, but it’s unfair to those who suffer falls” argument.)

Ms Shulman had a lot of “facts” that many may have been unaware of, but not just about the mimimum wage, but “low-wage” jobs in general (apparently, not only are hourly wages too low, but health benefits are too meager or non-existant for many). She revealed how many people were “living” on low wages, their demographics (not just teens — would you be surprised? I wasn’t — see below), and so forth.

But these facts, even if accepted as 100% accurate and not misleading (for example, individuals receiving government assistance such as SSI and food stamps aren’t living on wages alone), how can they lead to her conclusions?

Her conclusions, predictably, are for government to mandate not only higher wages but health care benefits for all. Everyone nods and the audience claps. Another problem solved if only the heartless government could pass a few more laws. But if only the solution were that simple, we could do more than just require employers to pay higher wages and give more benefits. We could, for example, mandate a “super minimum wage” for heads of households. Or require businesses to open a free health clinic and day care center at the job site. I can think of lots of things.

But Oprah’s guests or audience didn’t include anyone with a minimal understanding of economics or knowledge of experiences with past government efforts in mandating the price of labor, or the “discussion” (actually a one-sided propagandasm) would have been more interesting.

I’ll cite just one example. One of the “misconceptions” stated was that most minimum wage earners aren’t teens, but older persons, some of whom with college degrees. But this is consistent with studies that show that the first casualties of a minimim wage hike are the least experienced and least-skilled. Don’t teens fall into that category? And the problem of the unskilled and inexperienced unemployed can be solved how? By another increase?

Nobody is helped when the government sets wages, least of whom are entry-level workers who haven’t had the opportunity to obtain work experience and skills, and small business employers who are forced to hire illegal aliens to stay in business.

The term “unauthorized leak” is a redundancy. The definition of “leak” in the context of secrecy is the unauthorized disclosure of information. Why do college-trained journalists continue to misuse the language this way? (Another redundancy I read a lot is “illegal violation”. Is here such thing as a “legal violation”?)

Similarly, there can be no such thing as an “authorized leak”. An “authorized disclosure” cannot simultaneously be unauthorized.

Now go back and read the text of the reports on the Scooter Libby testimony and count how many times the word “leak” is misused in the report. Also note that Fitzgerald does not use the word “leak” in the context that the reporters do.