Some eco­nomic ques­tions for the next pres­i­dent

The Washington Times Weekly - - Commentary - Tony Blank­ley

Prince Otto von Bis­marck is cred­ited with the sneer­ing re­mark that “there is a spe­cial prov­i­dence that pro­tects id­iots, drunk­ards, chil­dren and the United States of Amer­ica.” Of course, that was in the age of pres­i­dents Ruther­ford B. Hayes, James Garfield and Ch­ester A. Arthur. So, Bis­marck, the great­est states­man of his age, was en­ti­tled to look down on the qual­ity of Amer­i­can lead­er­ship.

One won­ders what old “Blood and Iron” would say to­day if he was look­ing at the mag­nif­i­cent tri­umvi­rate of Hil­lary Clin­ton, Barack Obama and John McCain. (At least Curly, Moe and Joe were funny when they stuck their fin­gers into each other’s eyes.) Ev­ery sev­eral weeks I write a col­umn sug­gest­ing what this pres­i­den­tial elec­tion might look like if we had se­ri­ous can­di­dates and a press corps that treats the pres­i­dency as an im­por­tant of­fice in which vi­tal de­ci­sions would be made by its in­cum­bent. I in­vari­ably get flooded with e-mails telling me, ba­si­cally: “Blank­ley, don’t hold your breath.”

None­the­less, I shall per­sist — but con­tinue to breathe. Some se­ri­ous ques­tions should be posed to the can­di­dates at a mo­ment when the world shud­ders on its eco­nomic axis with in­fla­tion show­ing its ugly head, oil at over $115 a bar­rel, grain at his­toric highs, the worst (still un­re­solved) fi­nan­cial cri­sis since the Great De­pres­sion, a dol­lar cri­sis, grain short­ages lead­ing to ri­ots in third world cities, the prospect of an Amer­i­can re­ces­sion that might pull the world’s economies into its vor­tex and a dan­ger­ous po­lit­i­cal trend away from healthy in­ter­na­tional trad­ing prac­tices.

Here are five ques­tions for the three can­di­dates. In sev­eral of th­ese ques­tions, the im­por­tant, if in­for­mal, re­la­tion­ship be­tween the pres­i­dent and the Fed­eral Re­serve chair­man will be crit­i­cal. They of­ten have in­for­mal lunches where co­or­di­nated mone­tary and fis­cal poli­cies are worked out. Some pres­i­dents don’t avail them­selves of that op­por­tu­nity.

First, will you ac­tively seek to co­or­di­nate with the Fed chair? Sec­ond, how do you judge the in­fla­tion threat and what will you do about it when you be­come pres­i­dent in eight months? While cur­rently lim­ited largely to com­modi­ties (in­clud­ing oil, food and ba­sic in­dus­trial and con­struc­tion ma­te­ri­als), should mone­tary pol­icy be used to try to drive down the prices of ev­ery­thing else at the cost of slow growth or even sus­tained re­ces­sion? Or do you wait and hope that the com­modi­ties in­fla­tion doesn’t taint the rest of the econ­omy and cre­ate a vir­u­lently in­fla­tion­ary fire that will be even harder to put down? How will your as­sess­ment of the in­fla­tion dan­ger af­fect your other poli­cies (health care, in­fra­struc­ture, etc. )? Will you sub­or­di­nate var­i­ous ex­pen­sive pro­grams if deficit spend­ing to achieve them would ex­ac­er­bate the in­fla­tion?

Third, are you for a strong dol­lar or will you con­tinue Mr. Bush’s pol­icy of let­ting the dol­lar sink? Some pres­i­dents think that a weak dol­lar helps trade and we should do lit­tle to sup­port the dol­lar. But to­day, for the first time in liv­ing me­mory there is a risk that the dol­lar, if it con­tin­ues to slide, would be re­placed by the Euro as the global store of value. The United States ben­e­fits from the dol­lar’s unique role in the world. It has per­mit­ted us to have in­flu­ence in many ways, such as dis­rupt­ing fi­nan­cial flows to ad­ver­saries like Iran and North Korea. With in­ter­na­tional con­tracts de­nom­i­nated in dol­lars we gain un­fair ad­van­tage over all other cur­ren­cies. Are you pre­pared to pro­tect the dol­lar and drive its value up (again, work­ing closely with the Fed chair­man) or not?

Fourth, and flow­ing from the pre­vi­ous ques­tion: As noted by Benn Steil (di­rec­tor of in­ter­na­tional eco­nomics at the Coun­cil on For­eign Re­la­tions) to pro­tect the dol­lar’s value, we can­not let the Fed­eral Re­serve, by it­self, try to solve the fi­nan­cial crises by flood­ing the mar­ket with dol­lars. If we are to strengthen the dol­lar, then we need the pres­i­dent and Congress to di­rectly fund “on the books,” the hun­dreds of bil­lions of dol­lars the Fed is cre­at­ing to help at risk fi­nan­cial in­sti­tu­tions.

Of course, if you pro­tect the dol­lar and fight in­fla­tion you won’t have money for new spend­ing pro­grams. Mr. and Mrs. pres­i­den­tial can­di­dates, please tell us now — be­fore we vote — what your pri­or­ity will be in this painfully dif­fi­cult de­ci­sion.

Fifth ques­tion: Not­with­stand­ing the po­lit­i­cal use­ful­ness of bad­mouthing NAFTA and the Colom­bian trade pact, are you com­mit­ted to re­tain­ing and build­ing the pub­lic con­sen­sus for a lib­er­al­ized and glob­ally in­te­grated econ­omy, or will you lead, or ac­qui­esce in, Amer­ica giv­ing up on free trade — keep­ing in mind that if Amer­ica stops fight­ing for free trade the world will go pro­tec­tion­ist in a hurry? For all its draw­backs, Amer­ica is 10 per­cent richer each year as a re­sult of our par­tic­i­pa­tion in world trade. Com­pound a 10 per­cent cut in our wealth each year, and pretty soon, we will be a much poorer peo­ple.

In fu­ture col­umns, I will look at the tax­a­tion and reg­u­la­tion poli­cies of the three can­di­dates. But it would be nice to get an­swers to th­ese first five ques­tions.

Tony Blank­ley is ex­ec­u­tive vice pres­i­dent for global pub­lic af­fairs at Edel­man In­ter­na­tional.

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