|
Comment on this article |
View comments |
Email this Article
|
|
News :: Miscellaneous |
|
Truth-Telling at Treasury Pains Pundits |
Current rating: 0 |
by Mark Weisbrot
Email: weisbrot (nospam) cepr.net (unverified!) |
21 Feb 2001
|
Treasury Secretary Paul O'Neill has run into a
bit of trouble lately by speaking his mind about
international economic policy. |
Treasury Secretary Paul O\'Neill has run into a
bit of trouble lately by speaking his mind about
international economic policy. The responses from
Wall Street and Washington show how difficult it is to
challenge almost any prevailing economic policy-- even
when the evidence against it is overwhelming.
Last week the Secretary roiled financial markets
by stating that \"we are not pursuing, as it is often said, a
policy of a strong dollar.\"
Now here is something that ought to be the
subject of real debate. We racked up the largest trade
deficit in the history of the United States last year. An
overvalued dollar is clearly a huge part of the problem:
it makes our imports cheaper and our exports more
expensive to foreign purchasers.
Supporters of current policy are taking
advantage of widespread economic illiteracy in order to
maintain the status quo. A \"strong dollar\" sure sounds
good -- isn\'t a weak dollar a sign of weakness?
But a strong dollar does not necessarily make
for a strong economy. When we import $370 billion
more than we export -- as we did last year -- we have to
borrow internationally to pay for it. This kind of
borrowing is a lot more serious than the kind that the
federal government did in the 1980\'s and early 90\'s,
when it ran large budget deficits. For one thing, that
was money that we borrowed mostly from ourselves.
This is a foreign debt, and those who hold it cannot be
expected to keep feeding our habit indefinitely.
Even more immediately, last year\'s trade deficit
cost us about 3 million manufacturing jobs in the
United States. Overall unemployment remains low,
since new jobs are created as the economy grows. But
people who lose their jobs in manufacturing still get
hurt: typically they do not find new employment at
comparable pay and benefits.
O\'Neill was right to say that we would not
pursue a \"strong dollar\" policy, although he quickly
retracted his remarks after the dollar fell against the
euro and the yen. It is too early to say whether any
change in policy is in the works, or whether Wall Street
will continue to call the shots.
Wall Street favors a high dollar because cheaper
imports mean slightly lower inflation (which favors
bondholders); and because a high dollar makes overseas
acquisitions cheaper. The big financial interests do not
really care about the effects of a high dollar on the
domestic economy, employment, or an unsustainable
foreign debt.
The Secretary has also gotten grief for remarks
criticizing the International Monetary Fund and its
intervention to \"rescue\" the Russian ruble in 1998. It is
difficult to imagine a more misguided mission ending in
a more complete failure. The IMF spent billions of
dollars -- most of which went right into the hands of
speculators -- in a futile attempt to keep the overvalued
Russian currency from falling. After the ruble
collapsed, the result was not the economic disaster that
the Fund had predicted -- quite the contrary, the
Russian economy responded to the stimulus of a lower
ruble by registering its best growth in more than a
decade.
Yet the Washington Post immediately slapped
O\'Neill in the head for his \"unhelpful hostility to
international financial bailouts.\" In an editorial entitled
\"Mr. O\'Neill\'s Misfire,\" the Post insisted that \"the IMF
does a hard job tolerably well.\"
Such is the sad state of debate over economic
policy in America today -- even the Treasury Secretary
can barely get a hearing to criticize the most abject
failures. This wall of silence may prove costly in the
months to come, as the Fed will be deciding whether to
stimulate our sagging economy by lowering interest
rates -- or whether it will consider inflation (for
example due to a falling dollar) to be the greater
danger.
The Fed has still not taken back the full amount
of interest rate hikes -- begun in June of 1999 -- that
helped bring us the current slowdown. It is only natural
to wonder why not, and you can bet that the thought has
crossed Paul O\'Neill\'s mind. As a former manufacturing
executive he does not share the bond markets\' view that
economic growth should generally be sacrificed to the
fight against inflation, no matter how small or
imaginary the threat.
But don\'t expect the Treasury Secretary to take
on Alan Greenspan any time soon. He\'s in enough
trouble already without being accused of blasphemy.
Mark Weisbrot is co-director of the Center for
Economic and Policy Research in Washington, DC. |
See also:
www.cepr.net
|
|
Strong Dollar Sounds Good but Is Not |
by Russell Rybicki
russrybicki01 (nospam) juno.com (unverified) |
Current rating: 0
23 Feb 2001
|
Great article
I agree with your concerns. When the news reported weakening dollars as a bad thing, this is wrong.
Imagin if 1 British pound is equal to 2 US dollars. Now imagin if we are trying to sell organic colas for a dollar. Since a pound is worth 2 dollars the Brits can buy 2 US orgainc colas with 1 pound for every 1 Brit cola costing 1 pound. This encourages the Brits to buy US colas. The US orgainc cola plant produces more, hire more people, and be able to pay higher wage (though with current corporate culture they would just give profits to shareholders). So why would we want the opposite policy?
Why,... you hit the nail on the head when you talked about this makeing it cheaper for corporations to buy other companies, set up forign factries (ie sweatshops), and make the petheticly cheap wages they pay wven cheaper to the corporation. Which helps corporate profits, but not the US people who need more good jobs here so wages and our standard of living will raise. |
