I keep hearing the only way we’re going to get jobs back any time soon is with a weak dollar.
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.