Posted on 01/18/2017 5:19:10 AM PST by expat_panama
Imagine a short person spending his days cursing the “strong” inch for it “robbing” him of impressive height? Better yet, please contemplate a compulsive eater who blames his substantial weight on a pound that is too “weak.”
Wise minds would mock the unhinged individuals who would rage at the foot ruler, inch, pound, and scale for revealing reality. Such people would logically be the object of our ridicule and scorn, or maybe just pity. Scales, rulers, inches and pounds are measures. Nothing else. They don’t weaken or strengthen us. They just are.
What’s important about them is that if the inch were “weakened” as it were to half its original length, and the pound were “strengthened” to double its present weight, neither would alter reality. The person of diminutive stature would still be small even if a newly defined inch rendered this person 10 feet tall. Just the same, a “strong” pound won’t suddenly loosen clothes that used to be tight.
So while we would properly laugh at people inclined to curse reality, economists and politicians who blame economic performance on a “strong” dollar are viewed as wise. Who cares that the economically prosperous U.S. had a strong, stable dollar for almost all of its first 200 years of existence; to believe the President-elect and most economists, devaluation is the sale-inducing path to prosperity according to modern thinkers operating free of reason. Our new president says the dollar is “too strong,” that “Our companies can’t compete” because “our currency is too strong.” See above and laugh. Or cry.
Back to reality, the obvious problem with the much-beloved devaluation scenario is that when we individuals trade, it’s products for products. That’s the sole reason we produce in the first place; to get what we don’t have. To import. Money just facilitates our getting. Nothing else. Yet to our new president and countless economists, prosperity is all about “exporting” things. No, prosperity is all about importing things.
Think about it. Do any of you readers get up and go to work each day just for dollars? Is your sole purpose to “export” your labor? Not by a mile. You export so that you can import. That’s the only reason you work. Some of you might save the proceeds of your work for a later date, or to pass on to husbands, wives, children and grandchildren, but even then it remains the truth that you’re saving so that someone else can import, or get. It’s all so basic, right?
Not to our incoming president, and all manner of economists on the left and right. They cheer on dollar devaluation because it supposedly renders the goods and services we produce cheaper; thus easier to export. Ok, but we earn dollars. If the dollar is devalued as Trump et al desire, and we get back cheaper dollars in return for our toil, then the sole purpose of our work is taken from us. It’s taxed away by devaluation. We get cheapened dollars that buy less in return for our work. Devaluation robs us.
Yet Trump thinks the dollar is “too strong.” Ok, but if it’s cheapened we have a reduced incentive to produce in the first place. Why work for dollars that don’t buy very much? Also, if we’re not buying from others, how can they buy from us? These minor little details are never asked by a political class so intent on devaluing the money we earn.
Of course, that’s only part of the story. There are other realities to consider.
It’s said that companies with an eye on exporting (meaning, they have an eye on importing) benefit from a weak currency. But a weak dollar can’t alter reality any more than can a shrunken inch or expanded pound change what’s true. “Money is a veil,” to quote the late, great Robert Bartley, longtime editorial page editor of the Wall Street Journal.
This is important because when companies produce goods for sale, they “import” inputs from across the street and around the world. This matters simply because a devalued dollar logically drives up the price of everything necessary to produce marketable goods. Indeed, does any mildly sentient being believe that Treasury can shrink the purchasing power of the dollar without those who produce for dollars asking for more of them in return for what they’re selling? Only to economists and politicians untouched by reality does devaluation cheapen exports! What a laugh.
What about shipping? Trump and his crowd are made giddy by the word “export,” export of goods “manufactured” in the states really makes them giddy despite the reality that rich countries generally design goods while enlisting poorer countries in the low-value work of manufacture. But shipping costs a lot of money. And it becomes quite a bit more expensive in dollars when the dollar is being weakened. Figure that in the 70s and 00s the dollar was severely devalued, and the prices of oil, airplane fuel and all other transportation commodities soared.
And then there’s labor. Trump and his protectionist friends love labor-intensive industry, they in particular get frisky when the labor is based in the United States, but last this writer checked these workers earn dollars in return for their toil. And if Trump is to be believed, these dollar-earning everymen were his base of support in the most recent election. Do these average people realize that Trump wants to devalue the dollars they work for each day? Where’s the media coverage of this? Trump, the alleged populist, is out to devalue the dollars earned by common people who frequently lack the hedging knowledge to mitigate government’s theft of their earnings. Some would call it a scandal.
While the president-elect talks a good game about the importance of economic growth, talking down the dollar measure amounts to fakery. To believe it works is as silly as a real estate developer believing he can command more for his properties by devaluing the square foot. This is not the stuff of a serious country.
John Tamny is editor of RealClearMarkets, Political Economy editor at Forbes, a Senior Fellow in Economics at Reason Foundation, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He's the author of Who Needs the Fed?: What Taylor Swift, Uber and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank (Encounter Books, 2016), along with Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You About Economics (Regnery, 2015).
My hope is that massive reductions in regulations and taxes will overcome the negative effects of a bit of protectionism.
A trade and devaluation war with the rest of the world would crush our economy. Need to make the USA a worthwhile investment place again by eliminating environmental extremism and socialist tax policies.
Yesterday, Fox News reported that the EU charges us a 10% tax to ship cars there, and we charge a 2.5% tax for them to ship cars here.
Which one is stupid?
Oh yeah, but that’s “free trade”. Things have been lopsided too long
You could say that we need a free trade agreement with the EU.
Barbra Streisand. Nothing is crushing USA more than hemorrhaging $800,000,000,000 EVERY YEAR in trade deficits.
That is the chief reason why middle class manufacturing jobs have gone to foreign countries.
What is urgently needed is fair trade, balanced trade. If that requires tariffs, impose tariffs.
I would rather get my middle class manufacturing full time job back, than working in 2 part time jobs with no health insurance and no retirement benefits. I much prefer to pay more for American made stuff with my higher earnings than be forced to buy cheap stuff at Walmart.
There are advantages to a strong currency and advantages to a weak one.
The squealing about Trump saying the dollar is too strong is from offshore manufacturers wanting to continue having their cost advantage over domestically produced goods.
It’s certainly not from domestic companies wanting to increase exports.
The value of the dollar has minimal effect on what we in America pay for goods and services produced and marketed in this country. It is an excellent reason to bring mfg back home to America.
How much do more do you expect me to pay the federal government so that you can find this hypothetical job (that you probably wouldn’t take even if it was offered to you)?
The EU is 7.5% stupider.
Hey I would take any job if I needed one. Your attitude stinks, it is Anti-American and you are a bigot. Other than that I have no problem with you.
It would crush the rest of the world before it would crush the domestic economy. Not saying it's a good thing, but please be realistic. We're by far and away an importing nation. We hold the cards, here. Access to our market has been practically given away, with no consideration regarding access to other markets in return. That's just stupid. It's going to change.
So can you name any positive effects of protectionism or does it only have a downside?
That is irrelevant and out of context to my point.
I rather have higher earnings and pay higher taxes, than have piddly wages and pay smaller taxes.
Like my very successful investor friend says, he rather pay one million in taxes, because that would mean he would be making three million or more income.
We have been in one for 30 years.
Yes, millions more middle class jobs in manufacturing, which in turn creates more tertiary jobs. In case you are not aware, manufacturing is the biggest wealth creator in any country.
Since when does making 14-15 dollars/hour place me in the middle class?
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