When the dollar starts declining like it has been, what does that tell you about this presidential race? It says the whole world has no confidence in our political process and in our economy.
The tendency of most folks is to shrug off the dollar`s steep fall as an arcane economic statistic of little consequence. That`s how Peter Jennings and the other network anchors treat it each night. Why should Americans be concerned if Peter isn`t?
The dollar makes a bad sound bite. It isn`t Murphy Brown, or cultural war, or values, or Hillary`s attitude about kids` being able to sue their parents. It doesn`t even come close to across-the-board tax cuts or taking credit for ending the Cold War, or helping Somalia or the former Yugoslavia.
The dollar is about a rather insignificant thing in the grand list of things important. It`s about the future of our country.
It tells us that our standard of living is sinking. It tells us the old remedies don`t work anymore, old remedies such as cutting taxes for everyone or raising taxes on the wealthy, or dropping interest rates to the lowest levels of this generation. It tells us that this campaign ought to be about the economic emergency facing the country.
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Strangely, everyone is getting distracted, sidetracked into issues that make for delicious discourse and controversy. We journalists feed on these points of conflict as the news of the day and pretty soon begin to let them eclipse what both sides would just as soon avoid.
Which is, plainly, choices. And vision. And reality. The dollar`s decline is blamed on the fact that the Germans, trying to cure a little inflation problem, have raised their interest rates well above U.S. interest rates. They`re sucking in capital like a vacuum cleaner with such a move. You pay well and your currency goes up.
But there are deeper reasons why the dollar is plunging. It is nothing special anymore with the end of the Cold War. The world is less tolerant of our poor economic management. The U.S. has developed no coherent plan for restoring its competitive stature.
We have done nothing to address the fact that our trade picture is still fundamentally out of balance. It got better during the recession, but that`s because people weren`t buying much of anything-imports or domestic goods. With the recovery, America must once again rely on foreign capital to finance its consumptive nature.
Our old bankrollers know this. The Europeans know it, the Japanese know it, and so do the folks who run our currency markets. When the U.S. starts to buy again, they are going to make sure that we are going to pay more. You see, they`ve got problems of their own. They aren`t going to give us their capital, the result of their own hard work, very cheap.
But wait. Aren`t dollar devaluations supposed to make us competitive?
That`s certainly classical economic mantra. If you want to sell more abroad and protect your domestic industry, you simply drop the value of your currency-let it find its true value in the marketplace.
If this is George Bush`s secret agenda for correcting our economic problem, it certainly is a misguided one. Yet it seems to be his plan. He said at the convention the other night that Americans are in a difficult economic transition with the development of the global economy.
When your currency falls like this, it ought to set off loud warning bells. It means that we are letting our standard of living fall, by reducing the price of what we produce to others around the world. We are getting less for our work, and for the fact that we are the world`s most productive economy, to use George Bush`s phrase. To buy the goods of other countries, we will simply have to pay more.
It would be fine if this were to spur an economic revival, which some people in the U.S. government undoubtedly believe to be the case.
Unfortunately, studies indicate that devaluations such as this have less impact in balancing our trade than they once did. The reason is that the U.S. is losing out on too many markets and is terrible at technology application.
And there`s a danger of letting it fall without so much as a peep of concern from Bush, or his treasury secretary, Nicholas Brady. Listen to Michael Porter of Harvard University, in his landmark book, ”The Competitive Advantage of Nations.”
”The more serious problem with devaluation is its effect on the process of upgrading in an economy. The expectation of a lower exchange rate leads firms toward a dependence on price competition and toward competing in price- sensitive segments and industries. Automation and other forms of innovation that improve productivity slow down, and the shift to higher-order competitive advantages is retarded.”
In other words, a dollar devaluation of the order we are seeing now is counterproductive to economic revival. It`s a false solution.
To me, the country is letting this happen because it`s still in denial. It doesn`t want to deal with the long-term imbalance of the federal budget and the power of constitutencies behind it. It is not interested in investment and taking the steps to make U.S. industry truly competitive.
The dollar is falling because America is still living in the past.