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Home Publications Blogs Beat the Press The Washington Post Is Unhappy About Plans to Reduce the Value of the Dollar

The Washington Post Is Unhappy About Plans to Reduce the Value of the Dollar

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Monday, 03 October 2011 04:08

Those who know economics recognize the trade deficit is the basic imbalance facing the economy today. If the U.S had balanced trade it would create in the neighborhood of 4 million manufacturing jobs.

Also, by getting trade closer to balance, the country would no longer be a net borrower. By definition, countries that are net borrowers must either have budget deficits or negative private savings, as the U.S. did at the peak of the housing bubble.

This is why it is so peculiar that the Washington Post is so strongly opposed to measures to reduce the value of the dollar against the yuan. The Post constantly rants about the budget deficit being too large. However, unless the trade deficit is reduced, then the Post's dream of lower budget deficits could only translate into reduce private sector savings.

This means that people would be borrowing and accumulating nothing to support themselves in retirement. That is the implication of the Post's position, there is no way around this.

The Post's argument that the value of the yuan won't affect trade much does not hold water. Even if many of the jobs that are already lost may not come back, a higher yuan would sharply reduce the rate at which we are losing new jobs.

Furthermore, other countries would likely raise the value of their currencies against the dollar, following the yuan. This is what happened when China raised the value of the yuan in 2005. This will lead to an improved trade balance with other countries as well. Relative prices are by far the most important factor in determining trade flows. These are in turn a direct function of the exchange rate.

The Post also mentions pending trade agreements as an alternative mechanism for balancing trade. (It inaccurately described these deals as "free-trade" agreements. These agreements increase many forms of protectionism, like patents and copyrights. The Post is misleading its readers to back its position by calling these pacts "free-trade" agreements.) In fact, the sorts of trade agreements now being considered have generally been associated with larger trade deficits, not smaller trade deficits. 

Comments (3)Add Comment
Ceteris Paribus is Another Zero Sum Myth
written by izzatzo, October 03, 2011 6:36
However, unless the trade deficit is reduced, then the Post's dream of lower budget deficits could only translate into reduce private sector savings.


Any economist knows the ceteris paribus assumptions necessary to reach this conclusion are founded in socialism. It's like saying private sector spending would have to replace public sector spending all other things equal.

Stupid liberals.
Yes, depreciation could help create manufacturing jobs but...
written by Jon Greenbaum, October 04, 2011 8:51
Dean Baker,

Proponents of a strong dollar say that it helps keep prices of oil low for the U.S. And if oil prices go up then we'll have enough inflation to trigger more unemployment.

Is that correct?
Trade-off
written by Jeff Z, October 05, 2011 9:59
John Greenbaum,

Ask yourself this. Would I rather live in a country where almost everyone is productively employed and gas prices are higher, or would I rather live in country where gas is cheap, and nobody is working?

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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.

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