Posted on 01/18/2017 5:19:10 AM PST by expat_panama
Imagine a short person spending his days cursing the “strong” inch for it “robbing” him of impressive height? Better yet, please contemplate a compulsive eater who blames his substantial weight on a pound that is too “weak.”
Wise minds would mock the unhinged individuals who would rage at the foot ruler, inch, pound, and scale for revealing reality. Such people would logically be the object of our ridicule and scorn, or maybe just pity. Scales, rulers, inches and pounds are measures. Nothing else. They don’t weaken or strengthen us. They just are.
What’s important about them is that if the inch were “weakened” as it were to half its original length, and the pound were “strengthened” to double its present weight, neither would alter reality. The person of diminutive stature would still be small even if a newly defined inch rendered this person 10 feet tall. Just the same, a “strong” pound won’t suddenly loosen clothes that used to be tight.
So while we would properly laugh at people inclined to curse reality, economists and politicians who blame economic performance on a “strong” dollar are viewed as wise. Who cares that the economically prosperous U.S. had a strong, stable dollar for almost all of its first 200 years of existence; to believe the President-elect and most economists, devaluation is the sale-inducing path to prosperity according to modern thinkers operating free of reason. Our new president says the dollar is “too strong,” that “Our companies can’t compete” because “our currency is too strong.” See above and laugh. Or cry.
Back to reality, the obvious problem with the much-beloved devaluation scenario is that when we individuals trade, it’s products for products. That’s the sole reason we produce in the first place; to get what we don’t have. To import. Money just facilitates our getting. Nothing else. Yet to our new president and countless economists, prosperity is all about “exporting” things. No, prosperity is all about importing things.
Think about it. Do any of you readers get up and go to work each day just for dollars? Is your sole purpose to “export” your labor? Not by a mile. You export so that you can import. That’s the only reason you work. Some of you might save the proceeds of your work for a later date, or to pass on to husbands, wives, children and grandchildren, but even then it remains the truth that you’re saving so that someone else can import, or get. It’s all so basic, right?
Not to our incoming president, and all manner of economists on the left and right. They cheer on dollar devaluation because it supposedly renders the goods and services we produce cheaper; thus easier to export. Ok, but we earn dollars. If the dollar is devalued as Trump et al desire, and we get back cheaper dollars in return for our toil, then the sole purpose of our work is taken from us. It’s taxed away by devaluation. We get cheapened dollars that buy less in return for our work. Devaluation robs us.
Yet Trump thinks the dollar is “too strong.” Ok, but if it’s cheapened we have a reduced incentive to produce in the first place. Why work for dollars that don’t buy very much? Also, if we’re not buying from others, how can they buy from us? These minor little details are never asked by a political class so intent on devaluing the money we earn.
Of course, that’s only part of the story. There are other realities to consider.
It’s said that companies with an eye on exporting (meaning, they have an eye on importing) benefit from a weak currency. But a weak dollar can’t alter reality any more than can a shrunken inch or expanded pound change what’s true. “Money is a veil,” to quote the late, great Robert Bartley, longtime editorial page editor of the Wall Street Journal.
This is important because when companies produce goods for sale, they “import” inputs from across the street and around the world. This matters simply because a devalued dollar logically drives up the price of everything necessary to produce marketable goods. Indeed, does any mildly sentient being believe that Treasury can shrink the purchasing power of the dollar without those who produce for dollars asking for more of them in return for what they’re selling? Only to economists and politicians untouched by reality does devaluation cheapen exports! What a laugh.
What about shipping? Trump and his crowd are made giddy by the word “export,” export of goods “manufactured” in the states really makes them giddy despite the reality that rich countries generally design goods while enlisting poorer countries in the low-value work of manufacture. But shipping costs a lot of money. And it becomes quite a bit more expensive in dollars when the dollar is being weakened. Figure that in the 70s and 00s the dollar was severely devalued, and the prices of oil, airplane fuel and all other transportation commodities soared.
And then there’s labor. Trump and his protectionist friends love labor-intensive industry, they in particular get frisky when the labor is based in the United States, but last this writer checked these workers earn dollars in return for their toil. And if Trump is to be believed, these dollar-earning everymen were his base of support in the most recent election. Do these average people realize that Trump wants to devalue the dollars they work for each day? Where’s the media coverage of this? Trump, the alleged populist, is out to devalue the dollars earned by common people who frequently lack the hedging knowledge to mitigate government’s theft of their earnings. Some would call it a scandal.
While the president-elect talks a good game about the importance of economic growth, talking down the dollar measure amounts to fakery. To believe it works is as silly as a real estate developer believing he can command more for his properties by devaluing the square foot. This is not the stuff of a serious country.
John Tamny is editor of RealClearMarkets, Political Economy editor at Forbes, a Senior Fellow in Economics at Reason Foundation, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He's the author of Who Needs the Fed?: What Taylor Swift, Uber and Robots Tell Us About Money, Credit, and Why We Should Abolish America's Central Bank (Encounter Books, 2016), along with Popular Economics: What the Rolling Stones, Downton Abbey, and LeBron James Can Teach You About Economics (Regnery, 2015).
I know in Germany they also charge their country’s VAT on all imported stuff. I think it is around 20% and it is added to the import tax. They add around 30% or so to the price of our cars sold in Germany if you include the VAT.
I am taking the gloves off. Tax imports is not evil. Taxing the fruit of ones labor is evil, very evil. That make you evil in away doesn't it?
I am sorry my last post was for 1rudboy and anyone defending the income tax and not supporting tariffs..
Thanks. Let me know if you ever find a post of mine defending the income tax. I’ve been here over a decade.
With marketing, importing, warehousing and retailing not even in the top 10.
Ok if you could would you replace the income tax with various consumption taxes, with tariffs being one of them?
Since the international labor arbitrage that you foolishly advocate has depressed wages to the point that a $14.00 hour job with any benefits at all became a desirable and somewhat scarce thing in wide swathe of the country.
You lie, when you accuse me of higher taxes.
I am always in favor of smaller government, which is the main cause of higher taxes.
But.....
Someone has to pay for the military.
Some one has to pay for the vets.
Someone has to pay for the public infrastructure.
Someone has to pay for the old and infirm and handicapped.
Someone has to pay for police, law and order.
Nothing is free. Taxes are the price we pay for civilization. But we can debate about which taxes are preferable. Income tax, sales tax, wealth tax, transaction tax, property tax, etc. are available options. At the end of day, someone will have to pay the tax in one form or another.
OK, and thanks for the clarification.
Maybe I am wrong. Can you acknowledge that income taxes are evil and tariffs are not? Not all taxation is the same.
I see the clown car has unloaded. Since I can’t get an answer about how much the federal government should raise my taxes to protect someone else’s job, what target-level should the government place on that job’s wages? I think I deserve to know, if only for budgeting purposes. Everyone is looking for a handout, it appears.
Odd how you're always first on the scene for that. I bet you're the first to smell a fart, too, lol.
There is no telling what a good starting point is because the USA has had its ass hanging out so long,bleeding wealth, jobs and technical know how, nobody knows what a proper import duty rate schedule should be anymore. The rates have been stuck a 1% for 30 years. The new Sec. Of Commerce needs to get a grip ASAP.
Not in this current system.
There is no such thing as a “free market”. It is a hypothetical construct, a base from which one can theorize economic ideas.
In reality, countries create a variety of barriers to the advantage of their economy.
We are taking the hits and not hitting back.
I hadn’t thought about that.
Perhaps we should have an import VAT.
billyboy15 value of the dollar... ...bring mfg back home to America.
Everyone says that lowering foreign exchange rates to make dollars cheaper will make it easier for the American public to sell all the American made goods, and they're wrong.
Yeah, I know it seems to make sense that when one foreigner wants to buy something made in US that if he gets more $$ for his funny money then he can buy more US goods that day. Sounds great for that one foreigner on that one day but we need to remember what were talking about is the American public and all goods. The minute the first foreigner buys goods he also buys American bonds, designs, and he puts the change in the bank. All that foreign money that got changed into dollars has to be used overseas and the only way that can be done is by buying foreign stuff.
In real life, exchange rates do not affect trade for the nation --no matter how well off that first foreigner on the first day cleans up. Hey guys, if it would make any difference we can actually look at the hard numbers on record for trade v. exchange rates and y'all can see for yourselves that the dollar's strength has no affect whatsoever on trade.
Let me know if hard numbers would make any difference to your views.
If you pay your neighbor’s kid to mow your lawn, that is a “free market” transaction.
You cannot possibly be attempting to claim that exchange rates have no effect upon trade. That’s just bizarre. Are you talking your own book as an offshore manufacturer? If so, you’re being rather disingenuous.
That wasn’t an answer to my question, either. Boy oh boy do you “conservative” libs get squirrely when folks ask how much your proposals will cost.
This article ignores several factors that greatly impact the valuation of currency one nation vs. another and the effect of exchange rates in any given instance.
1. Safety-The globally recognized “safest” currency in the world is (and has been for decades) the US dollar. This is why oil is denominated in dollars. It is also generally deemed a safe currency due the relative size of our economy versus other world economies together with relative political stability.
2. Interest rates-Given the safety of the US dollar, the main ingredient in determining exchange rates between the dollar and other currencies around the world is interest rate levels. In the case of the dollar, increases in rates tend to strengthen its value. It’s simply supply and demand. If rates of return increase for a given currency (all other factors being equal) money tends to move into that currency given the safety/stability mentioned above. The demand for the currency with a higher return is increased and at the same time demand for other currencies is likewise lessened through the conversion necessary to have the correct denomination. For example, pesos to dollars.
Over the past year this is precisely what has caused the dollar to strengthen (beside upheaval from Brexit and EU.) The Fed is the primary reason for this. Not only has the Fed raised the benchmark rate twice in the last year, it has continually expressed an inclination to continue on this path. This is part of the reason the stock market pauses ahead the regular Fed meetings except for banks and financial stocks which have experienced significant increases in value.
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