YUAN KICKS DOLLAR BUTT BY REJECTING "FREE MARKET"

Yet our President, a guy whose marks in Economics 101 are too embarrassing to publish here, ran out to hail the fact that buying Chinese money will now cost more dollars.

The White House line to the media, swallowed whole, is that by making Chinese money (yuan) more expensive to buy with dollars, Americans will buy fewer computers and toys from China -- and US employment will rise.

This will happen when we find Saddam's Weapons of Mass Destruction.

Economics Lesson #1: You can't change the value of goods by changing the value of the currency on the price tag. As my comrade Art Laffer wrote me, "If cheap currency makes your products more competitive, all automobiles would be made in Russia." Driven a Lada lately?

Economics Lesson #2: Don't take economics lessons from George Bush. Or Milton Friedman. Or Thomas Friedman. What that means, class, is don't believe the big, hot pile of hype that China's zooming economy is the result of that Red nation's adopting free market economic policies.

If China is now a capitalist free-market state, then I'm Mariah Carey. China's economy has soared because it stubbornly refused the Free – and Friedman-Market mumbo-jumbo that government should stop controlling, owning and regulating industry.

China's announcement that it would raise the cost of the yuan covered over a more important notice that China would bar foreign control of its steel sector. China's leaders have built a powerhouse steel industry larger than ours by directing the funding, output, location and ownership of all factories. And rather than "freeing" the industry through opening their borders to foreign competition, the Chinese, for steel and every other product, have shut their borders tight to foreigners except as it suits China’s own needs.

China won't join NAFTA or CAFTA or any of those free-trade clubs. In China, Chinese industry comes first. And it's still, Mssrs. Friedman, the Peoples’ republic. Those Wal-Mart fashion designs called, chillingly, "New Order," are made in factories owned by the PLA, the Chinese Peoples' Liberation Army. {mosgoogle right}

In an interview just before he won the Nobel Prize in economics, Joe Stiglitz explained to me that China's huge financial surge -- a stunning 9.5% jump in GDP this year -- began with the government's funding and nurturing rural cooperatives, fledgling industry protected behind high, high trade barriers.

It is true that China's growth got a boost from ending the bloodsoaked self-flagellating madness of Mao's Cultural Revolution. And China, when it chooses, makes use of markets and market pricing to distribute resources. However, Chinese markets are as free as my kids: they can do whatever they want unless I say they can't.

Yes, China is adopting elements of "capitalism." And that's the ugly part: real estate speculation in Shanghai making millionaires of Communist party boss relatives and bank shenanigans worthy of a Neil Bush.

It is not the Guangdong skyscrapers and speculative bubble which allows China to sell us $162 billion more goods a year than we sell them. It is that China's government, by rejecting free-market fundamentalism, can easily conquer American markets where protection is now deemed passé.

And that is why the yuan has kicked the dollar's butt.

America’s only response is to have Alan Greenspan push up real interest rates so we can buy back our own dollars the Chinese won in the export game. The domestic result: US wages drifting down to Mexican maquiladora levels.

Am I praising China? Forget about it. This is one evil dictatorship which jails union organizers and beats, shackles and tortures those who don't kowtow to the wishes of Chairman Rob -- Wal-Mart chief Robson Walton. (Funny how Mr. Bush never mentions the D-word, Democracy, to our Chinese suppliers.)

Class dismissed.

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Greg Palast, winner of the Financial Times David Thomas Prize for his writings on regulation, is author of the New York Times bestseller, The Best Democracy Money Can Buy. Read and watch his interview with Nobelist Joseph Stiglitz for BBC Television at www.GregPalast.com.

Read other column by Greg Palast

In case you haven't the least idea what the heck it means for China to "float" its currency, let me put it in the language we economists use: China's float don't mean squat.

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