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Home Publications Blogs Beat the Press Morning Edition Says Debt Standoff Will Boost Employment and Create Jobs

Morning Edition Says Debt Standoff Will Boost Employment and Create Jobs

Friday, 18 October 2013 04:32

Actually, it didn't explicitly say this, but that was the implication of comments from Adam Posen, the head of the Peterson Institute for International Economics. In a top of the hour news segment (sorry, no link), Posen said that the standoff will accelerate the pace at which countries throughout East Asia begin to trade in Chinese yuan instead of dollars. This will reduce demand for dollars, thereby lowering the value of the dollar.

A lower valued dollar will make U.S. exports more competitive in foreign markets. It will also make domestically produced goods more competitive in the United States leading to fewer imports. This will lead to a lower trade deficit, more growth, and jobs.

If we can reduce the trade deficit by one percentage point of GDP (@$165 billion), this would lead to close to 2 million additional jobs. With fiscal policy likely becoming more contractionary as a result of the deficit fighting craze, a lower valued dollar is the only plausible path to increased growth and more jobs in the foreseeable future.

Comments (8)Add Comment
written by Chris E., October 18, 2013 4:57
The Peterson slugs are having a rough week.

The "Fix The Debt" corporate lobby tried to hold a Twitter Q&A and was completely occupied by anti-austerity advocates pushing back:


People are starting to wake up and they won't take such absurd talking points at face value.
The End Game: The Grand Betrayal
written by Last Mover, October 18, 2013 5:43

Give them credit. Tehadi Terrorists understood that shutting down the government would weaken the dollar and shift the world's reserve currency to the yuan.

That was the plan all along wasn't it, to stop lending money to China and put a brake on government spending while accelerating exports to China at the same time.

Please don't mock the Peterson Institute Dean Baker. It knows whose its friends are, the Tehadi operatives, even when they appear to act against their own interest and that of the Institute by weakening the dollar.

Remember, these are same groups who hand in hand, sponsor the Grand Betrayal as the Grand Bargain. They understand exactly what they are doing by contradicting each other at the international level in order to stay on the same page at the domestic level.

After all, as the Tehadis pick themselves up after the slapdown and boast they will still take down Obamacare at any cost (read another default threat), the Peterson Institute cooly distances itself from the crazies, announcing it had nothing to do with fueling their mania in the first place.

As long as the end game results in debt reduction one way or the other, the rest doesn't matter and that includes a weaker global dollar.

The Grand Betrayal is unfolding as planned. After teetering back from the brink of default, Obama announces we cannot have a village if we destroy it to save it, after which he will proceed to destroy the village slowly by way of a thousand cuts to "excess entitlement spending".

Let the Grand Betrayal begin.
Another Plausible Path to Growth
written by robertsalzberg, October 18, 2013 6:59
Tax reform could also lead to a few percentage points of growth. We have around $1.2 trillion in tax expenditures annually. The current House will never pass revenue raising tax reform so the consensus opinion is comprehensive tax reform is impossible because Democrats want to raise some revenue by closing loopholes.

But imagine if Democrats embraced Republican plans for revenue neutral tax reform? Much if not most of tax expenditures are really spending programs in disguise but are also generally very inefficient and are festooned with monopoly rents. Why not fund new infrastructure and education spending through the tax code? Between exemptions and refundable tax credits, it would be a breeze. A bonus prize would be exposing the depth of the absurdity of the Republican position that refuses to increase net taxes.

Imagine a refundable tax credit to states, cities and counties from the feds that pays 5 times whatever interest that is being charged on loans for new infrastructure spending. We'd be paying people a lot to borrow money. We could balance the revenue with closing loopholes like the carried interest loophole or better yet, balance it with a new financial transactions tax. Presto, revenue neutral tax reform that hugely increases government spending.
Addendum to previous comment
written by robertsalzberg, October 18, 2013 7:17
I realize that a financial transactions tax would increase taxes and would need to be balanced with closing loopholes but with $1.2 trillion to work with there's plenty of room.
Fear not Dean, Yellen is all for inflation (re: lower dollar)
written by pete, October 18, 2013 9:35
As per Akerloff/Yellen, inflation brings down real wages, increasing output and employment. I am sure she will try to ramp inflation up / bring the dollar down. Incredible with 20% real unemployment, that dockworkers in Bal'more and transit workeres in SF are able to strike for HIGHER wages. Shades of the disastrous wage increases of 1937.
Krugman Using Baker's Stuff
written by robertsalzberg, October 18, 2013 11:56
Krugman closes his post about effects of China dumping dollars with:

"As Dean Baker once put it, China has an empty water pistol pointed at our head."

What a great metaphor. I'd love to see the original post....

Original Baker vs. Krugman post where water pistol metaphor appeared
written by robertsalzberg, October 18, 2013 12:00
The incredibles
written by Squeezed Turnip, October 19, 2013 8:22
Pete, what's incredible is that you still don't understand the difference between 4% inflation and 7%. A 2% margin of error from target is tolerable, especially given that the .1% can afford to give back some of their swollen share of real productivity gains of the past 30 years.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.