How not to correct global imbalances

In the New York Times, Paul Krugman, an influential liberal economist, opened the new year with a critique of China's currency policy for "predatory mercantilism". If Beijing would not allow the renminbi to appreciate, he warned, "the very mild protectionism (China is) currently complaining about will be the start of something much bigger".

Only a day or two later, an article in the Guardian, the British daily, criticized China's currency policy and went even further, arguing that "(China's) emergence on to the world stage brought with it a key reason for the global economic meltdown between 2007 and 2009."

If one were to take at face value such arguments, one would have to believe that the entire global crisis has had nothing to do with the failure of laissez-faire capitalism, the absence of adequate regulation in the financial sector, the rise of the "shadow economy", the low interest rates, the housing bubbles, the subprime crisis and the credit squeeze in the United States and Western Europe.