Snow Job on the Dollar

Treasury Secretary John Snow continues to insist that American policy favors a strong dollar but the markets just aren't buying it. Forbes reports that the dollar is taking a nosedive after the G-7 meeting this weekend in Boca Raton, where it was decided that no additional protections will be put in place to promote stability of the dollar. The New York Times today reports that America appears to have compromised a little over the weekend, permitting the joint statement by the finance ministers and bankers in attendance to assert: "We reaffirm that exchange rates should reflect economic fundamentals. Excess volatility and disorderly movements in exchange rates are undesirable for economic growth." But nevertheless, according to the NYTimes article, America certainly appears to have stepped aside and is encouraging the dollar's drop in hopes that it will stimulate exports.

This is sloppy and outmoded thinking. I am not aware of any solid evidence that supports the supply-side economic theories that form the basis for the current administration's fiscal policies--indeed, I thought the general consensus among academics was that Reagan's experiments failed. In this instance, what a reduction in the dollar means--in practical terms--is that foreign goods are more expensive for the consumer, while American businesses may be more competitive. The whole problem with focusing solely with productivity and growth of business is that much of the gain does not "trickle down" to the employees. Directors benefit, stock owners benefit, but the employee does not see a bump in salary and the consumer does not see a corresponding drop in price. I recognize that stagnant consumer prices (approaching deflation) are partly due to increases in productivity, but most of the benefit from supply-side stimulation goes to the wealthy--and stays there.

Sure, let's give credit where credit is due--Bush has stimulated the GDP and stocks are stong in part due to Bush's policy. But that does not benefit the middle class as much as it benefits the wealthy. Long-term, America will continue to hemorrhage jobs (despite the reported menial increase last month) and the weak dollar will harm consumers. Both these points provide good opportunities to oust Bush this November, if the people get the message. If the people get the message.

Of course, President Bush will stump on his prediction that 2004 shall see an increase of 2.6 million jobs, from around 130 million non-farm workers to 132.7 million by years-end. But Bush showed how good of a predictor he was in 2003, when he claimed that 1.7 million jobs would be added--in fact the economy lost 56,000 last year (for a total of 2.2 million lost since he took office).