I keep hearing the only way we're going to get jobs back any time soon is with a weak dollar.
Baloney.
Here's the theory. As the dollar falls relative to foreign currencies, everything we export becomes less expensive to foreign consumers. So they buy more of our stuff, creating more jobs in the U.S. At the same time, everything they make costs us more. So we buy less from them and more from each other. Again, more jobs here at home.
Washington is actively pursuing a weak dollar as a jobs policy. (The dollar just plunged to a six-month low against the euro.)
How? The Fed is keeping long-term interest rates so low global investors are heading elsewhere for high returns, which bids the dollar down. Every time another Fed official hints the Fed will start printing even more money ("quantitative easing" in Fed speak) the dollar takes another dive.
Meanwhile, Congress is ginning up legislation to allow the President to slap tariffs on Chinese imports because China is "artificially" keeping its currency low relative to the dollar.
But using a weak dollar to create American jobs is foolish, for two reasons.
First, no other country wants to lose jobs because its currency becomes too high relative to the dollar. So a weak dollar policy invites currency wars. Everyone loses.
At least a half dozen other countries are now actively pushing down the value of their currencies. Japan recently sold some $20 billion of yen in order to keep the yen down, the biggest ever sell-off in single day.
Last week, Brazil's Finance Minister lashed out at the US, Japan and other rich nations for letting their currencies weaken to spur jobs. Brazil's high interest rates are attracting global investors and pushing up the value of Brazil's currency. This is crippling Brazil's exports and fueling unemployment.
Here's the other problem. Even if we succeed, a weak dollar makes us poorer. Imports are around 18 percent of the US economy, so a dropping dollar is exactly like an extra tax on 18 percent of what we buy.
It's no big accomplishment to create jobs by getting poorer. You want to know how to cut unemployment by half tomorrow? Get rid of the minimum wage and unemployment insurance, and make everyone who needs a job work for a dollar a day.
The Commerce Department just reported that U.S. incomes rose half a percent in August, the biggest jump since last September. That's good news. But it's no trend. Incomes plunged into such a deep hole last year that a half percent rise is still in the hole.
Since the start of the Great Recession, millions of working Americans have had to settle for lower wages in order to keep their jobs. (Here at the University of California, the wage cuts are called "furloughs.")
Or they've lost higher paying jobs and can only find work that pays less.
Or they've lost their benefits. Or their co-pays, deductibles, and premiums have soared. And their employer no longer matches their 401(k) contributions.
Two-tier wage contracts are the newest vogue in labor relations. Older workers stay at their previous wage; new hires get lower wages and smaller benefits.
Even a wage freeze becomes a lower wage over time, as inflation eats into it. For three decades America's median wage has barely budged, adjusted for inflation.
Get it? The goal isn't just more jobs. It's more jobs that pay enough to improve our living standards.
Using a weakening dollar to create more jobs doesn't get us where we want to be.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
A lower dollar and more equitable trade with China would eventually result in more jobs in the US, but that unfortunately would not happen until prices are raised substantially. But this may be a case of no gain without pain.
Everything that's happened in the past 30 years has made the rich richer and the poor poorer. With the Republicans in power, this will continue until the minimum wage drops to $1.75 an hour. At this point, the jobs will come rushing back, and we will have everybody employed. Very, very poor, but employed.
The overall state of the economy is irrelevant. As long as they are working and making money then the economy is good enough for them.
* two SUVs when a single high-mileage vehicle will do;
* four color televisions and three computers, when one of each is sufficient;
* tons of food wasted between the store and the dining table (google it); and
* stacks of credit cards with debt rolliing over at high interest every month.
If Americans would just learn to live within their means, there wouldn't be any trade deficit worth mentioning.
Also, the silly idea that a weaker dollar makes everything we import costs more. So we buy less from overseas and more from each other. More jobs here at home as a result? Nope, sorry, that is not happening either, because we have lost a good deal of our natural resources and abilities to produce much of anything needed. Oil is a good example of that, as well as the raw materials for electronics, such as neodymium and other rare earth elements. And where are our steel plants anymore?
This theory is something that some Wall Street or Washington economist hacked up to get the rest of us to buy off on. It is akin to pouring water in the gas tank of your car, to dilute the gasoline in hopes of making the car go the same distance at cheaper costs. You all know what happens when you put water in the gas tank. The car sputters, and eventually dies, and has the potential of ruining the engine. So, what do you think a watered down dollar would do to our economy? It is really a very stupid idea.
With globalization, might it be time for jobs to be either exported or imported? I know, in the short-term it might create nightmare scenarios for Immigration and law enforcement, but it might be reflective of such international trends. Local economies might even benefit from other cultures and people's ideas.
While all such interventions as keeping interest rates low are going on, American companies, forced by their global uncompetitiveness, are being forced to export jobs abroad to lower production overheads.
It seems the US administration under the Obama administration is more conciliatory than previous regimes. Why not target strategic partnerships abroad, with win-win economic interests being the aim, in order to get more markets abroad and create jobs both in the US and in such partner countries?
Ceasar Augustus established the Pax Romana (historian Edward Gibbons' term), spanning 27 BC to 180 AD, where relative peace replaced military expansion and full time war. It might be time for such an approach, involving more consultancy. After all, the failure of military solutions (Vietnam, Gulf War, Afghanistan-Iraq-Pakistan), has antagonized former allies. A different approach is called for when it comes to economic matters such as trade.
We will only see recovery by a reset of a good many factors, the ultimate demise of our insolvent banks for one. The others are apt to include: A willingness of Americans to only buy American (do this for a month and see how much money you save), The willingness of all of our society, particularly the media, to stop confusing the stock market w/the free market and giving it top billing. (or at least until it reverts back to hard asset investment instead of speed of light paper shuffling)
Another will be when we select leadership willing to honestly deal w/problems, instead of posturing for reelection by telling us American exceptulisim is a painless cureall.
We must address the long overdue reforms in tax policy, trade policy, and immigration.
The income tax is completely arbitrary. So says even Adam Smith.
The people can affect trade policy w/a resistance to purchasing outsourced products. Yes, you will need to do w/out the iwhatever and most of WallyWorld's cheap crap.
And I know all about the huddled masses, but we can't take on all comers.
And it most definitely should not.
There is no economic reason why a company should pay more for labor than it is worth. The US does not need the jobs it "lost" to other countries back. They have little value in the global economy. US made goods cannot be competitive when other countries make them just as good or better for less. US made goods can only exploit US residents in most cases. People in China are not going to pay more for US made spoons. And even the goods that they do buy are rarely imported into China--they are made within the country by US/multinational corporations.
Looking at the acts of the powerful throughout the world, but particularly in the US, one can see that what is actually being carried out by the over-privileged and excessively powerful is a movement to gut our democratic republican form of government, and move the world into a neo-feudal system where the vast majority exist and work for the benefit of a tiny minority. The foreclosure crisis is really simply a means to reduce the number of homeowners and increase the number of tenants in rental housing, which will be no less expensive for a family than a home that builds equity. The gutting of labor, entitling corporations to civil rights, ever more onerous criminal laws, never ending war, opposing health insurance for all, environmental degradation, taking people's homes through foreclosures during a period of low unemployment caused by the financial titans doing the foreclosures...the list goes on. The common thread through all of this is the political and economic disenfranchisement of the great majority.
I was talking to my father the other day about the situation, and I said that Americans are going to be as poor as Mexicans. My Dad said "Mexico isn't poor. One man has all their money."
It does no good to tell Obama to not weaken the dollar.
Reich is wrong because he does not suggest WHAT IS TO BE DONE!
Ideas like a 30 hour work week for all Federal employees is a great idea.
Bob, do you support a 30 hour week?
Arianna, do you endorce a 30 hour week?
We need more good methods to get out of this Depression.
It is going to be a very Black Christmas in 2010.
Youtube: paul8kangas
FDR tried to get a 30 hour week during the depression, but failed. Several million jobs could be created doing this if coupled with a reduction in taxes to make up for lost wages. If more people are working, less taxes would be necessary to get the same revenue. But, our policy makers can't walk and talk at the same time.
This is the evolutionary logic of our use of mass production, computers & robots.
What will it take to create 10 million new jobs this year?
I asked Arianna Huffington what she would do to create millions of new jobs in the next month?
She asked me what I would do? I told her I would do the same thing Henry Ford did. Ford lowered the work week to a 40 hour week in 1926. This created 30% more new jobs in each of his factories. When other corporations saw how smart Ford was, they followed suit. Then the states of Michigan, New York and Illinois did the same.
Then the Federal government did the same.
Within 4 years, US society was all at a 40 hour work week, due to the higher efficiency Ford had created by inventing mass production assembly lines.
This change came just as the Depression hit, so it was a great tool for ending the Depression.
Corporate profits are at an all time high, due to this increased productivity. Spread out the jobs to share the wealth equally.
Youtube: paul8kangas
Youtube: paul8kangas
America is a work-aholic nation.
I get enough resistance pushing for 30.
I know you are just joking, but ... try to actually hold a conversation.
Youtube: paul8kangas
Then everyone would have a job. Plus a few extra.
That is just crazy enough to not work at all.... We should do it. It is not like the costs of business will increase any because of it. That guy is right.
Thirdly, and perhaps most seriously, is that the Chinese would either significantly reduce their holdings of US dollars or stop increasing their holdings. If the Yuan was floated it would become another international reserve currency, as third countries would hold more of their reserves in it, particularly if it starts to price contract in it. All of these would result in the US having to pay significantly higher interest rates to borrow to fund deficits.