Dollar disorientation (or why the sky is not falling)

Proponents of good and bad policy changes are once again trying to hitch their wagons to the dollar. The editor of ConservativeBattleline, Don Devine, writes that "entitlements [Social Security and Medicare] must be restrained if confidence is to be restored in the dollar." Does he think the euro is up because Europe is shrinking the welfare state? Conservative columnist Bruce Bartlett likewise found the dollar a handy new rationale for his year-old prediction of "a significant tax increase." Mr. Devine was impressed that Japan's prime minister "bluntly told Bush he must deal with American twin deficits in government spending and trade to stabilize the currency." He failed to notice the irony of a Japanese official lecturing an American about budget deficits. The U.S. budget deficit is 3.7 percent of gross domestic product, the same as Germany's and France's. Japan's budget deficit exceeded 6 percent of GDP for the past five years and is now above 7 percent. If budget deficits explained trade deficits or interest rates, Japan would have the largest trade deficit and highest interest rates. Mr. Bartlett's thesis that a smaller budget deficit would strengthen the dollar by shrinking the current account deficit is false. The U.S. dollar has declined as much against the Australian dollar as against the euro, yet Australia's current account deficit is larger than ours. Besides, current account deficits are unrelated to budget deficits here or there. The U.S. current account deficit was 0.8 percent of GDP in 1992, when the budget deficit was 4.7 percent of GDP. After the budget moved into surplus, the current account ballooned to 2.3 percent of GDP in1998, 3.1 percent in 1999 and 4.2 percent in 2000.

what are you talking about? as far as i know the market is pretty much open.

I'm sorry but you are naive.

a) It is almost impossible for any American company to set-up a business that just imports stuff into France (even boutiques). There is no "law" against it, but you will simply not receive the required permits unless there is French co-ownership, employment guarantees and/or guarantees of using French suppliers.

b) Germany is easier, but I suspect any large importer of manufactured goods competitive with German products will face a lot of similar pressures as in France;

c) EU countries offer enormous subsidies to attract certain manufacturing sectors (like chip production) that are in danger of going extinct in Europe or because they figure it's better for the government to pay 50% of someone's employment cost than 100% of their unemployment benefits;

d) The Japanese and the Chinese play the same games;

There is virtually no other industrialized country that as as open a market as the US.

if you want to complain about subsidies you should also take into account the whole taxation.
governments here like to tax a lot and then give back the money. that makes them look like they do something for the economy. so if you take real costs + taxation + social security madness + general bureaucratic madness - subsidiaries you still end up with costs that are a lot higher than in any sane economy.

sure there are some more subsidiaries for eastern Germany, but if the us should ever unite with a country full of insane socialists who think the state should solve absolutely every problem they could possibly run into, that is about 50 years behind in industrial development and that is about 1/3 - 1/2 of the size of the current us, i promise you, we wont complain.

also, there were quite a few cases about us-subsideries in the last years that you lost at the WTO, like those tax-free exports for example.

Structural subsidies: this is hard to answer, but generally I would say no, we don't have structural transfers in the sense that a whole region of the US or state is given tax preferences or direct subsidies by the federal government. We do have some tax breaks for economically depressed areas, but these are usually limited to very specific areas (like inner cities) and are tax reductions made by state and local governmenst that don't amount to more than a few percent of operating costs. There are also (of course) specific projects that individual congressmen or senators can get funded if they have sufficient clout.

The US has been found guilty of impermissible subsidies by the WTO, but that's because we are so open about them. We don't go the route of the informal harassment of foreign businesses by using claims about permits/quality/hygiene/GMO etc. that you find elsewhere. If we have a ban or tariff or export subsidy, it's usually called something like a "ban" or "tariff" or "subsidy" right there in the legislation.

Contrast this with Europe, where Airbus does not have a formal export subsidy, but receives billions of Euros in tax breaks, an endless (and never to be repaid) line of low-interest credit, bribes paid for by the French government to other governments, and "defense" contracts that cost stupendous amounts of money for very little output (like the European airlifter).

Some of what you say about subsidies via tax-breaks for certain corporations goes on here as well. But I suspect because the overall tax burden is less, it goes on to a lesser degree in terms of dollar amounts here.

in the end it doesn't make much of a difference. as long as the companies don't get more money than they pay as taxation i don't have much of a problem with the whole idea (except that it obviously would be cheaper not to take away the people's money in the first place, but thats another story).

Structural subsidies: this is hard to answer, but generally I would say no, we don't have structural transfers in the sense that a whole region of the US or state is given tax preferences or direct subsidies by the federal government. We do have some tax breaks for economically depressed areas, but these are usually limited to very specific areas (like inner cities) and are tax reductions made by state and local governments that don't amount to more than a few percent of operating costs. There are also (of course) specific projects that individual congressmen or senators can get funded if they have sufficient clout.

well, we have them, but ofc, we need them to compensate for the whole social security network. otherwise, if a city here once would reach a certain level of unemployment, it would be impossible for them to invest in infrastructure or whatever to attract new business. they would be simply bankrupted just by paying for the social security system.

The US has been found guilty of impermissible subsidies by the WTO, but that's because we are so open about them. We don't go the route of the informal harassment of foreign businesses by using claims about permits/quality/hygiene/GMO etc. that you find elsewhere. If we have a ban or tariff or export subsidy, it's usually called something like a "ban" or "tariff" or "subsidy" right there in the legislation.

again, if there are any standards within the EU they apply for everyone, probably even more, because for European companies that also includes all those regulations and general bureaucratic madness for the whole production process.

Contrast this with Europe, where Airbus does not have a formal export subsidy, but receives billions of Euros in tax breaks, an endless (and never to be repaid) line of low-interest credit, bribes paid for by the French government to other governments, and "defense" contracts that cost stupendous amounts of money for very little output (like the European airlifter).

i don't know enough about the whole airbus-situation to comment on it, but i got the impression they did pretty good in the last years.

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