Robert Murphy has an article on the Mises Institute website today called Currency Wars.  Murphy is one of the best, if not the best, economists that I know of.  He understands Austrian economics as well as anyone (he wrote a study guide for Human Action), but he also knows how to write and speak in language that almost anyone can understand.

He correctly points out that when a government/central bank inflates its currency, it can have a beneficial effect for exporters of that country.  Of course, as good economists, we have to look at the unseen consequences and see that it makes things more expensive for everyone.

Since Bernanke announced QE2, there has been criticism from foreign governments.  Some, like China, should be concerned because of the large amount of U.S. bonds that the country owns.  The more the Fed inflates, the more worthless the bonds will become.  The problem is, many foreign governments are criticizing Fed policy because they think they too will have to engage in inflation.  It is because they say it will hurt their exporting business.

Once again, these foreign politicians are not looking at the benefits of Fed inflation.  It’s true that it may hurt exporters in their country, but it will also help importers with cheaper goods.  Whether the Fed’s policy hurts or helps another countries citizens on net, it doesn’t mean the other countries should partake in the same destructive policy.  They will only be further hurting their own citizens by making things more expensive and misallocating resources.

This whole subject reminds me of the discussions about Japan in the past.  People would be in a panic because Japan (although it wasn’t literally the country but mostly private businesses) was selling cheap cars and electronics to Americans.  They thought if the Japanese government subsidized this at all, that it was hurting the U.S.  They never stopped to think that the Japanese government was subsidizing Americans at the expense of Japanese citizens.

My response was that if the Japanese (government or companies) started giving away free televisions and cars to Americans, would this be bad for Americans?  I’ll take inexpensive products all day long.  Better yet, I’ll take them free if someone else wants to build them and transport them to me without accepting payment.

Ignorance in economics runs rampant throughout the world.  It is hard to believe, but Americans are actually better educated in economics than the average person elsewhere.  This is a generalization of course, but just look at the situations in other countries.  You don’t see tea parties in most other places or at least not on the scale you see in the U.S.  There are Keynesians throughout the world and it seems that the U.S. is actually the best hope sometimes.

The U.S. government is the biggest empire ever and the Fed is doing horrible things, but I’ll still place my bets on the American people.  More people are becoming educated in economics and monetary policy, especially with the internet.  The Fed will cause a lot of problems in the near future, beyond what has already happened, but its days may be numbered.