The Washington Post has some news you can use–if you’re an international traveler.
Regular readers of my blog Beat the Press know that the over-valuation of the dollar is one of my pet themes. There are two big issues with the over-valuation.
The first is macroeconomic: An over-valued dollar makes US goods and services less competitive internationally. If the dollar is over-valued by 20 percent against other currencies, then it has the same impact as if we were to impose a 20 percent tariff on all our exports and give a 20 percent subsidy on imported goods. Needless to say, this leads to a much larger trade deficit than would be the case if the currency were not over-valued.
The trade deficit creates a gap in demand. The deficit is currently around 3.0 percent of GDP, or $540 billion a year. This is money creating demand in other countries, not in the United States. There is no easy way to make up this shortfall in demand. Investment and consumption will not conveniently rise to fill the gap. We could in principle fill the gap with larger budget deficits, but given religious views about balanced budgets among people in power, that is not going to happen.
This means that an over-valued dollar is likely to lead to major shortfalls in demand and unemployment. Or, to use the term currently popular among econ policy wonks, it leads to “secular stagnation.”
The other issue is distributional: An over-valued dollar hurts the workers who are subject to international competition to the benefit of workers who are largely protected from international competition. Textile workers and autoworkers take it on the chin, while doctors and lawyers, who ensure that trade agreements don’t subject them to international competition, end up benefiting. They get lower-cost imports, without experiencing any downward pressure on their wages. (Businesses like Walmart and GE, who import much of what they sell in the US, are also big beneficiaries.)
The WaPo chimed in with those beneficiaries in a Wonkblog piece telling readers which countries are best to visit to take advantage of the over-valued dollar. Needless to say, probably not many manufacturing workers will take advantage of the information in this piece. However, many doctors, lawyers and congressional staffers (including those of progressive representatives) will find this useful information.
And you wonder why no one ever does anything to make the dollar more competitive.
Economist Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. A version of this post originally appeared on CEPR’s blog Beat the Press (3/5/15).
The reason is simple; the Corporate Lords and Masters do not wish it be valued correctly.
Another reason why the PTB are reluctant to do anything about this is that the trade deficit also creates demand for US Treasury securities (i.e the national debt).
Foreign firms selling goods in the US are paid in dollars which they then convert to local currency. The dollars eventually wind up in the foreign country’s central bank which needs a dollar-denominated asset in which to hold its dollar balances. The only viable option open to them is US Treasuries, since the dollar is no longer convertible to gold, as it was prior to the 1970s. And they need to hold dollars beacuse the dollar is the de facto international currency, even for transactions that don’t involve the US at all. This is how the US is able to run larger budget deficits than it would otherwise be able to get away with, and why Republican scare mongering about the deficit is kind of bullshit.
Michael Hudson describes this phenomenon in “Super Imperialism”.
If it is true that doctors and lawyers use trade agreements to protect themselves from international competition , then the solution seems obvious. Refrain from trade agreements in favor of free trade.
It is very apparent to consumers that the dollar buys little today. When purchasing a pair of a low cost designer jeans they can be $88. Not so long ago they were $49.
Judy, my husband is an RN and just could not understand why, when he makes nearly $30 an hour, we aren’t rolling in money. Richard Wolf, the economist, was on Alternative Radio and pointed out that USA Today, of all publications, calculated that a family of four to live a modest American life needed $130,000 annual income. My husband got his nursing license in 2007 and prices have increased dramatically for everything since then. Our Koch brothers governor has given big tax breaks to the wealthy and our property taxes climb by a large percentage each year. One sometimes wonders what it will take for Americans to stop voting Koch brothers thugs into office.