Don­ald Trump’s dol­lar

A weak dol­lar won’t make Amer­ica great again

The Washington Times Daily - - COMMENTARY - By Stephen Moore and John Tamny

Pres­i­dent Don­ald Trump’s as­ser­tion this week that the “dol­lar is get­ting too strong” led to a sharp de­cline in the value of the green­back. The mar­ket’s re­ac­tion to Mr. Trump was a re­minder that presidents of­ten get the dol­lar they want. This has us wor­ried Mr. Trump and his Trea­sury depart­ment will pur­sue a weaker cur­rency in the mis­taken be­lief that this will boost the econ­omy and his pres­i­dency.

The irony here is that the an­tic­i­pa­tion of many of his other poli­cies, such as his pro­posed tax cuts, dereg­u­la­tion plans, and Oba­macare re­form, have al­ready strength­ened the dol­lar since the elec­tion, be­cause those poli­cies would make the U.S. a more at­trac­tive des­ti­na­tion for in­vest­ment. Mr. Trump was partly right when he noted the irony that his poli­cies are partly responsible for the higher dol­lar that he doesn’t want.

Here’s what he seems not to get: the in­vest­ment here in new fac­to­ries and busi­nesses won’t be as great — and job cre­ation won’t be as ro­bust — if he gets his way and the dol­lar is weak­ened or un­sta­ble. In­vestors want to send their money to places where the cur­ren­cies don’t erode in value and thus re­duce the real re­turn on their in­vest­ments.

For ev­i­dence of this, con­sider his­tory. Strong dol­lar presidents have been eco­nom­i­cally suc­cess­ful and weak dol­lar presidents have been mostly un­suc­cess­ful and un­pop­u­lar. Cor­re­la­tion is not cau­sa­tion, but it is in­struc­tive.

Start with the eco­nomic boom in the 1960s that be­gan with John F. Kennedy. Real growth rates hit 5 and 6 per­cent. Kennedy laid the ground­work by re­ject­ing an emerg­ing and wrong-headed con­sen­sus that a weaker dol­lar free of its golden an­chor would en­hance eco­nomic growth. Kennedy’s dec­la­ra­tion on the dol­lar was bullish and un­equiv­o­cal: “This na­tion will main­tain the dol­lar as good as gold at

Strong dol­lar presidents have been eco­nom­i­cally suc­cess­ful and weak dol­lar presidents have been mostly un­suc­cess­ful and un­pop­u­lar. Cor­re­la­tion is not cau­sa­tion, but it is in­struc­tive.

$35 an ounce, the foun­da­tion stone of the free world’s trade and pay­ments sys­tem.”

Un­der Pres­i­dent Richard Nixon con­fi­dence in the dol­lar eroded. In 1971, Mr. Nixon made dol­lar de­val­u­a­tion ex­plicit when he sev­ered its link to gold. The con­se­quence of this ac­tion was a green­back that went into freefall. This was the start of the great in­fla­tion of the 1970s with surg­ing gold, oil and com­mod­ity prices across the board. Un­der Jimmy Carter the weak dol­lar pol­icy be­came more pro­nounced with Trea­sury Sec­re­tary Michael Blu­men­thal publicly urg­ing a weaker dol­lar. And weak it be­came as in­fla­tion even­tu­ally topped 13 per­cent.

It’s surely no sur­prise that we had three failed pres­i­den­cies in a row: Richard Nixon, Ger­ald Ford and Jimmy Carter. The bat­tered dol­lar meant that real liv­ing stan­dards took a big hit — es­pe­cially for the poor and mid­dle classes — and the stock mar­ket got crushed. Stocks lost more than half their value ad­justed for in­fla­tion in the worst bear mar­ket since the Great De­pres­sion. The price of gold surged from $35 to $875 dur­ing a rather for­get­table eco­nomic decade.

Ron­ald Rea­gan’s poli­cies changed all that. Much his­tor­i­cal credit for the eco­nomic boom of the 1980s is at­trib­uted to the 40th pres­i­dent’s tax cuts and dereg­u­la­tion, but we think that just as im­por­tent was Mr. Rea­gan’s quest to crush in­fla­tion and his fre­quently ex­pressed de­sire for a stronger, more sta­ble dol­lar. Paired with the afore­men­tioned tax cuts and dereg­u­la­tion, the U.S. proved a mag­net for in­vest­ment in the ’80s.

Bill Clin­ton’s pres­i­dency was a re­peat, and ar­guably an en­hance­ment on Mr. Rea­gan’s strong dol­lar. Mr. Clin­ton’s Trea­sury sec­re­tary Robert Rubin never bashed the Ja­panese over the value of the yen, and his cur­rency qui­etude was a strong sig­nal that he meant what he said about a strong dol­lar be­ing in our best in­ter­est.

Un­for­tu­nately, Ge­orge W. Bush re­verted to a weak dol­lar pol­icy when he reached the White House in 2001. Gold, the best mea­sure of a cur­rency’s value, had been largely sta­ble in price in the pros­per­ous ’80s and ’90s only for it to more than triple against the dol­lar. An­other weak dol­lar era be­gan, and with pre­dictable re­sults: sub­par eco­nomic growth and a crash.

The dol­lar’s sharp de­cline con­tin­ued through­out much of Barack Obama’s first term in of­fice, though his ad­min­is­tra­tion even­tu­ally and wisely re­treated from cur­rency brinkman­ship. By 2011 the dol­lar be­gan a long march up­ward, and the gold price be­gan a grad­ual de­cline. The lat­ter gave legs to what had been a steady stock-mar­ket rally. While we dis­agreed with Pres­i­dent Obama on most of his fis­cal and reg­u­la­tory poli­cies, his dol­lar pol­icy was a win­ner.

The weak dol­lar ad­vo­cates in the Trump White House seem to for­get that Amer­i­can work­ers are paid in dol­lars in re­turn for their toil. But if the dol­lar falls as Mr. Trump says he de­sires, the pur­chas­ing power of Amer­i­can pay­checks will shrink with the de­val­u­a­tion. How does it help the 150 mil­lion Amer­i­cans earn­ing a pay­check for the gov­ern­ment to adopt a pol­icy that re­duces each dol­lar’s pur­chas­ing power to, say, 95 cents. This is an ef­fec­tive pay cut for the tens of mil­lions of work­ing class Amer­i­cans who crossed over and voted for Mr. Trump.

If Mr. Trump wants to im­ple­ment poli­cies that boost pros­per­ity, he should fo­cus on tax cuts, dereg­u­la­tion, and a strong and sta­ble dol­lar. Those are the poli­cies that worked for the three most eco­nom­i­cally suc­cess­ful presidents of mod­ern times: JFK, Ron­ald Rea­gan, and Bill Clin­ton. A strong, not a weak, dol­lar makes for a strong and pop­u­lar pres­i­dent.


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