Krugman vs. Persaud on China

Over on VoxEU, Avinash Persaud criticizes “otherwise respectable economists” (he doesn’t name names, but we know who he means) who blame China’s currency peg for contributing to the US current account deficit. “If you listen to the discourse in the US,” he writes, “you would believe that a country cannot run a trade surplus unless it manipulates its exchange rate.”

Krugman responds:

Avinash Persaud:

The current account includes “hot money” inflows that come under the exchange control restrictions and have ballooned since the China bashers created the belief that the renminbi is a one-way appreciation bet.

No, it doesn’t. The BEA explains:

The U.S. current-account deficit—the combined balances on trade in goods and services, income, and net unilateral current transfers …

I don’t mean to be a snob here, but a commentator who lectures us on “mumbo-jumbo” but can’t be bothered to learn the rudiments of balance-of-payments accounting doesn’t deserve a hearing.

On the narrow point, Krugman is clearly right. But the narrow point isn’t really the point. Whether you’re looking at the current account or at the trade balance, as Persaud prefers, there are plenty of countries with floating currencies that have imbalances as large (relative to GDP) and as persistent as China’s. It’s nice for Krugman, really, that Persaud screwed up on the current account definition, since it lets him avoid discussing what would otherwise be a serious problem for him.

So, from someone