Democrat Economic Plan: "It's All China's Fault"

Apparently, this is the best the Congressional Democrats can do as they continue to try everything to get the economy growing, except anything which actually works.  The Democrats' acts of economic futility include multiple rounds of Keynesian "stimulus" and the ongoing debasing of the value of the dollar.  There are also the Democrats' hopes, all reason and history to the contrary, that ObamaCare,  the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the expiration of the Bush tax cuts will somehow get the economy back on track.

The Democrats' latest act of futility is to blame China for everything wrong with the U.S. economy:

• The Chinese trade surplus with the U.S. is somehow a "problem."
• China "manipulates" its currency, the yuan, to keep it "undervalued."
• China is somehow "stealing" U.S jobs through "outsourcing." 

The Democrats' answers are more protectionism and for China to raise the value of the yuan to whatever value (currently unspecified) which the Democrats find acceptable.  The economic relationship between the U.S. and China is one of the most important in the world which affects many other countries as well.  Perhaps Nancy Pelosi, Harry Reid, and the rest of the Democrats can explain what they hope to accomplish by putting the US-China relationship at risk.

What is scary here is how little the Democrats apparently know about the U.S. economy and how to get it growing.  When choosing the candidates who get your vote, find out whether they support the Democrats' economic mythology which could lead to a repeat of the Great Depression, or if they support taking actions which are demonstrated to get the economy growing.

Trade Deficits and The Dollar

According to both Democrats' and Republicans' economic mythology, trade deficits are a "problem" which can be solved by debasing the value of the dollar.  According to this mythology, a lower dollar value will  make  U.S. exports cheaper for foreign buyers and foreign imports to the US more expensive.  In theory, this will result in more U.S. exports, fewer foreign imports, and no more trade deficit problem.

One problem with this "theory" is that it has nothing to do with how the U.S. dollar value and trade balance actually work in the real world.  Linda Goldberg and Eleanor Wiske Dillon at The Federal Reserve Bank of New York wrote "Why a Dollar Depreciation May Not Close the U.S. Trade Deficit" in 2007 which demonstrates how the real world works.  See the press release and the full article.

Another problem with debasing the dollar for economic advantage is other countries are watching.  When the U.S. debases the dollar, other countries are faced with a choice of whether to debase their currencies or put their own economic growth at risk.  Typically, countries choose to debase their own currencies to maintain a stable value to the dollar.  There are no winners in this game.  Consumers in all countries lose through higher prices, inflation, and reduced overall international trade.   


Debasing the Dollar:  Real Currency Manipulation
The debasing of the dollar by the U.S. government is a long-term policy which predates the current administration.  The best indication of this is the price of gold since most currencies are engaged in a "race to the bottom."  The chart from Kitco provides a history of the value of gold and key currencies (scroll down and click the "10 Year" button at the bottom of the chart).  Here is how to read the chart:

• The red line in the chart shows the dollar price of gold at various times.
• The blue line shows the price of gold as a composite of the Euro, Japanese Yen, UK Pound, Canadian Dollar, Swedish Krona, and Swiss Franc.
• The upward trend (increase in the gold price) of both the red and blue lines shows the decline in value of all major currencies.
• The gap between the red and blue lines shows the greater debasing of the dollar relative to the other currencies.

The last item above would suggest the U.S. is manipulating the dollar, while China is trying to keep its economy stable amid the flood of dollars from the U.S.  Perhaps Congressional Democrats can explain why they support U.S. manipulation of the dollar, and China is somehow wrong to try to keep its economy stable.


Protectionism and "Outsourcing":  Is China a Better Place to Invest?
Lately, various Congressional Democrats have tried to sell their protectionist agenda by talking about  how U.S. jobs are being "stolen" by other countries through outsourcing.  A good question for the Democrats and others who support this agenda is why are U.S. businesses investing and creating jobs in other countries?  Is it because other countries, China, for example, are better places to invest?  Perhaps the Democrats and their allies should focus on how to make the U.S. a more desirable place to invest.

Protectionism never works.  Countries who are targets of U.S. protectionism will retaliate and have already.  Protectionism also enables businesses and people to avoid or delay the actions needed to stay competitive.  A good example of where protectionism leads is the Smoot-Hawley tariffs in the 1930s which created all sorts of tariffs to "protect" U.S. workers and businesses.  Predictably, the targeted countries  retaliated with tariffs of their own, and the result was a massive decrease in international trade and a surge of unemployment in, among other places, the U.S.  The Smoot-Hawley tariffs put the "Great" in the Great Depression, needlessly increasing its length and severity.

Perhaps the Congressional Democrats can explain why they want to risk a repeat of the Great Depression by retaliating with protectionism and potentially starting a trade war with China