I am curious to hear your input on the ongoing saga of our ever falling dollar. I hear a couple of liberal profs. on my campus painting doom and gloom over this and I would like to see if anyone has a different take on this story.

Trade and spending deficits are to blame for the declining dollar.

Until America's wages, taxes, and regulations come into harmony with the rest of the world's, America will continue to suffer a competitive disadvantage in trade. Under free trade, the high American standard of living must fall for American businesses to become competitive.

Additionally, our trading partners cheat by using protections, making American exports that much more expensive and less competitive.

Under free trade, factors of production are redistributed to the poorer and more protected states from the wealthier, more open states.

If the global economy ever finally harmonises, it will theoretically be much more productive b/c of increases in economy of scale and specialisation. Only then will we even theoretically benefit as a whole from free trade.

Protectionism does make imported goods more expensive, obviously, but so would cutting domestic wages, taxes, and regulations. In the long run, protectionism is better for the American economy if one believes in a system of nation-states, as a conservative I do. For libertarians and globalists though, free trade is the policy of choice.

American Economic Alert has some great articles. Economy in Crisis is another worthwhile site.

Some liberals* don't like free trade b/c it makes their beloved domestic wealth redistributions a competitive disadvantage. Also, it lowers the wages of union workers. Ironically the massive mass immigration they endorse also lowers wages (by increasing the supply of labour).

*however, others like Marx favoured free trade b/c of the unified global result.

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I have heard from some guests on Cavuto on Business that while the dollar is dropping that it is not a major problem for our economy as assets such as gold will offset the decline of the dollar. I find it interesting how some on the Left cry over the outsourcing of jobs, when it is in the company's best interest to do so, because they may not be able to turn a profit due to the higher wages they must pay their union workers. The other problem with the Left in addition to those you mentioned is that they think too short term, and too much with a Keynesian attitude. In economics the long term is measured in many years, not months. In addition, our unemployment figures are fairly close to full employment as one must take into consideration structural and frictional unemployment. While the dollar may be a short term concern, I do not think that it is something to cry "wolf" over yet.

The dollar is expected to fall by free trade theory. The well being of the average American will fall (except those whose jobs cannot be outsourced, those who are particularly skilled and would have a job under any circumstance, and those who have invested in successful transnational businesses), but the material well-being of the average global (incl. American) worker will be better.

Remember though that conservatives do favour protectionism b/c they prefer US sovereignty. There is a growing protectionist movement on the right as well as the (heh, national socialist?) left.

As much as I agree with libertarians on the size of the American federal government and foreign policy, I disagree with y'all on trade and immigration.

I see free trade as ironically leading to Marx's dream of global socialism. Even if some anarcho-capitalist utopia was possible though, I'd still prefer a system of nation-states that allow self-determination.

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If you're not a globalist, consider this:

Most of the world protects its industry with border adjusted Valued Added Taxes (VAT). The US is the only member of Organisation for Economic Co-operation and Development (OECD) that hasn't adopted the tax. The average level is 17.7 percent. These taxes are leveled on goods imported from the US, but not on goods exported to the US.

The WTO approves of VAT b/c they are indirect taxes.

The average US tariff is currently 1.7 percent; the average for OECD members is 4 percent.

How can we compete?


Protections make imported consumer goods more expensive in the short-term, but they promote investment in the US and a stronger economy for the long-term. They could actually apply to the ideal of user fees: American consumers pay for environmental damage that affects the US and for the added security risk of importing the goods. A particularly powerful or belligerent nation might pose a greater security threat than another, and certain products would be more costly to securely import than others. So, costs would vary. If each tax was applied respectively to environmental cleanup and defense/security, we would have a near user fee ideal.

Switching all federal taxes (except for personal FICA taxes) to a 20% Business Transfer Tax is a solution suggested by David A. Hartman in an article published recently in Chronicles Magazine. The "border adjusted" part of the tax is similar to a direct tariff tax.

Hartman also mentioned the Retail Sales Tax and that it's politically difficult to tax necessities: "housing, healthcare, food, legal fees, and even healthcare are exempt from state retail taxes and the same humanitarian zeal might afflict the RST." So the tax burden would be shifted onto fewer sales. Nevertheless, the sales tax is indirect and could be made border adjusted under the WTO.

These are two radically different solutions from what most liberal profs. propose, I'm sure.

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