Dan Drezner has a lenghty post concerning a debate he’s having with Matthew Yglesias and Brad DeLong. It surrounds the US request for China to “immediately introduce a flexible currency” which the FT reports is “a marked shift in tactics after several years of patient diplomacy aimed at nudging China towards allowing the renminbi to float”.
Brad’s assertion is that political scientists think that “getting serious” about something is dispatching an ambassador — as opposed to the economists who want to fix the problem. Actually, to a political scientist — more specifically, one who studies international relations — you “get serious” about an issue like the currency when you engage in tactical issue linkage to change other government’s policies in such a way as to change the balance of returns and risks facing those buying and selling in foreign exchange markets. If one can arrange for other countries to bear a greater portion of the costs of adjustment from the current set of macroeconomic imbalances, then political scientists will predict that governments will prefer this policy option ten times out of ten — even if the long-term economic picture would be improved by listening to economists. [Yes, but doesn’t this still leave the U.S. with some long-term macroeconomic problems?–ed. I believe it was an economist who pointed out what happens in the long run.]
This leads to Matthew’s appropriate question about leverage — what does the U.S. have to offer? What is the tactical issue linkage that could be put in play here?