Business & Economics

Why it’s foolish to weaken the dollar to create jobs

Robert Reich

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.

Cross-posted from Robert Reich’s blog.


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Comments to "Why it’s foolish to weaken the dollar to create jobs":
    • Rajesh Vinaykyaa

      weakening dollar not only will have an adverse on US status as major power but will also have very less impact on creating jobs. better think of how products which can have a US tag with no outside can be produced, products with competitive price and how this can create jobs.

      [Report abuse]

    • Carl Williams

      thats what i though Gary you don’t even know what Gold was in 1971.Now don’t be going on Google and masquerading like you know what the world was like when tricky Dick was stomping all over the constitution

      [Report abuse]

    • Carl Williams

      You Rocked me!our current monetary system will not allow conservation,
      at long last I have given up all hope.The planetary carry capacity of people
      is 500,000,000 with what resources we have not yet exploited.Considering the Human capacity for inhumanity,we are a pathetic species,and perhaps the only cancerous organism that will not live in harmony with the Biosphere.Our epitaph should surely be extinction.Other species might evolve with a kinder heart and spirit.

      [Report abuse]

    • Carl Williams

      I agree with every point you make,population is the real problem,stop growing food with oil and see what the net result of that is.Five fifths of the world could not be fed,think of the lead time it would take to go back to a agrarian world wide culture.Sound money,going back to the Brenton Woods act would be one way to end the ponzi game,but how could that much Gold and Silver be found to satisfy our dept.I have been reading thoughts in regard to defaulting on the gargantuan dept owed to everyone, and some think the major holders of the dept would go to WAR over such a outrageous disregard for treaty,contract,rule of law etc.What this game is really about is the convincing of the American people to pick up the tab for the ponzi scheme that made Big bucks for the fat Cats at the FED the BIG Banks,Goldman Sachs,and all the CEO’S that crashed it all down,and gave themselves BIG bonuses for failure ,after all in the end the talking heads in the propaganda based media will convince you it is the only way to save the World.[lets not leave out the Congress and the House]they have a real good PR Propaganda network of their own.However I would be willing to bet the two most reviled words the people don’t want to hear will be said in a very different way,cause were so stupid we won’t be able to tell.

      [Report abuse]

    • Carl Bear

      Our monetary system assembles a ponzi scheme, since interest payments force us to produce more than we consume. Only population and wealth growth can fill the gap, but it will require more and more resources. Therefore by always filling this gap we will destroy our planet in the end. Growth is terrorism against earth. We won’t survive another 100 years of 5% economic growth. Adding every year the same percentage means exponential expansion. In 100 years we need 130 times the resources we use today. We will deplete all resources from water to energy. Green technology is not the solution, since our monetary system forces us to produce more than we consume. Our current monetary system will not allow conservation, it forces not only consumption, but increased consumption, it forces growth, growth and growth. Conservation shift things only, the overlying function is exponential growth. You can do so many things from stimulus to New Deal, from bailouts to tax credits, from currency devaluation to taxing the rich, it won’t solve the fundamental problem of mankind. What we need is getting sound money, getting rid of this crazy ponzi scheme.

      [Report abuse]

    • Carl Bear

      Our monetary system assembles a ponzi scheme, since interest payments force us more to produce more than we consume. Only population and wealth grow can fill the gap, but it will require more and more resources. Therefore by always filling this gap we will destroy our planet in the end. Growth is terrorism against earth. We won’t survive another 100 years of 5% economic growth. Adding every year the same percentage means exponential expansion. In 100 years we need 130 times the resources we use today. We will deplete all resources from water to energy. Green technology is not the solution, since our monetary system forces us to produce more than we consume. Our current monetary system will not allow conservation, it forces not only consumption, but increased consumption, it forces growth, growth and growth. Conservation shift things only, the overlying function is exponential growth. You can do so many things from stimulus to New Deal, from bailouts to tax credits, from currency devaluation to taxing the rich, it won’t solve the fundamental problem of mankind. What we need is getting sound money, getting rid of this crazy ponzi scheme.

      [Report abuse]

    • Carl Williams

      Kellie:
      Taxation who,industry?no, wealthy no,they just stole thirteen trillion.Who then the Americans paying @ the 32% tax rate,they make up 80%
      of the wage earners but only earn 3.7 percent of the total wages for all the
      statistics being tracked.The very wealthy that plundered the market are not putting the money they nefariously swindled back into play because,they do not want to pay the dept owed for the subprime swindle,which drove down real estate values world wide causing the crash however their pitch men were the ones that talked everyone into the big get rich scheme.Who then will be the next payers of the dept the criminals who bilk us be? you who make up 3.7% of all wages paid,and they will find a way to make you pay, that is the American way of curing problems.

      [Report abuse]

    • Carl Williams

      I can’t find a good argument for a week dollar.Does it make our goods cheaper to foreign markets?It is my opinion that America does not manufacture a wide enough mix of product to make the dollar week for that reason.”try to find a product with made in America on it, dubious.A week dollar could lead it being attack as the reserve currency,which could lead to unforeseen consequences world wide.One I can see evolving if American currency loses its status as the world reserve number one most stable bench mark currency ,is global currency Wars, tariffs,protectionism,loss of investment in the future of America.Also,Americans would not travel which could harm the worlds travel industry.There is talk of keeping interest rates low,thats a two headed snake,low rates no money will flow here,treasury bill sales are slumping as a result of poor economic planing, it is very important that the dollar remain the reserve currency of the world.

      [Report abuse]

    • Carl Williams

      I can’t find a good argument for a week dollar.Does it make our goods cheaper to foreign markets?It is my opinion that America does not manufacture a wide enough mix of product to make the dollar week for that reason.”try to find a product with made in America on it, dubious.A week dollar could lead it being attack as the reserve currency,which could lead to unforeseen consequences world wide.One I can see evolving if American currency loses its status as the world reserve number one most stable bench mark currency ,is global currency Wars, tariffs,protectionism,loss of investment in the future of America.Also,Americans would not travel which could harm the worlds travel industry.There is talk of keeping interest rates low,thats a two headed snake,low rates no money will flow here,tresury

      [Report abuse]

    • Gestion des risques

      Weakening the dollar is definitely not a good policy to settle a more stable international economic environment and sustainable development. This will lastly result in decreasing the purchasing power of European and Asian countries whose exports are mainly invoiced in dollar.

      [Report abuse]

    • Carl Williams

      Professor Reich:
      I have asked this many times on the many posts,what is a living wage indexed against inflation from 1975? 75 dollars per hr.with a tax rate @ 32% ? you have the answer I know you do,why are you holding back?

      [Report abuse]

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