The Business of America/The Election Dollar
Stelzer, Irwin M.
THE BUSINESS OF AMERICA THE ELECTION DOLLAR by Irwin M. Stelzer olitics and economics are des-1 tined to meet, and clash, in world money markets for the next several months. This conflict arises...
...Lawrence Summers, Feldstein's Harvard colleague and a Dukakis man, agrees...
...Indeed, it is this factor that worries Baker's critics: if he holds the dollar up, even for only a few months, the momentum building in export markets may disappear, and American manufacturers become too discouraged to expand production capacity as planned...
...Its members point out that America's trade deficit of $47 billion in the first four months of this year was $18 billion below the same period last year, primarily due to a boom in exports...
...X101 Indianapolis...
...Finally, a strong dollar will, in the short-run—and that is all that concerns Bushmen at the moment—make America's trade figures look better...
...For, in that case, the Japanese will have paid 1,350 yen for the $10 stock, and received 1,200 yen for the $12 stock...
...If so, a newly elected President Bush will have to cope with the delayed further adjustment of the dollar when he takes office...
...products dearer in Japan—the Japanese fear that a worsening of the U.S...
...Whether they can prevail until November remains to be seen...
...All in all, most observers see a further decline in the dollar as likely...
...A strong dollar, in the Baker-Bush view, accomplishes several political objectives...
...rill orders must be prepaid in U.S...
...Thus the Bundesbank—aided by central banks in Britain, Italy, Switzerland, France, Belgium, Spain, and Austria—has been selling dollars on the open market, in an effort to check its rise...
...Merrill Lynch's Michael Rosenberg expects that decline to resume shortly after the November elections...
...Through his selections and organization, he reveals salient dimensions of Washington's status as 'father' of our country often ignored by contemporary scholars...
...also predict a fourth-quarter sell-off, and expect it to be more severe if Dukakis rather than Bush is elected...
...The National Association of Business Economists is estimating the full-year 1988 figure at $150 billion, and the 1989 level at $125 billion, both below 1987's $170 billion, but still considerable...
...investments overseas...
...The first is that, despite some improvements, the U.S...
...Forrest McDonald, University of Alabama "Professor Allen is to be congratulated for bringing together in a single volume those writings that reflect Washington's role in and contributions to the birth of our republic...
...This improvement in our comparative cost situation has coincided with an improvement in the quality of American manufactures...
...economy should also help increase foreign demand for dollars by making American firms attractive to foreign investors and acquirers...
...Since economics is an inexact science at best, forecasting an art, and exchange rate forecasting demonstrably hazardous to one's financial health, it is to be expected that opinions as to the further course of the dollar vary widely...
...One school feels that the dollar will at least remain at its present level...
...By reducing the fear of inflation and of interest rate inIrwin M. Stelzer, TAS 's monthly business correspondent, is director of the Energy and Environmental Policy Center of the John F Kennedy School Harvard University, and an American correspondent for the London Sunday Times...
...All of this political maneuvering is, of course, not particularly relevant to the long-term performance of the dollar...
...This explains the United States' recent unwillingness to intervene to hold down the dollar, despite pressure to do so from its trading partners...
...This caused our current account deficit—a broader measure than the trade deficit, because it includes investment earnings—to worsen at the beginning of this year...
...For one thing, American labor costs per unit of output are now very competitive...
...to foreigners, and the increased outflow of dividends to foreign owners of U.S...
...Third, a strong dollar helps boost stock and bond prices...
...This conflict arises from the fact that Treasury Secretary James Baker would like to provide George Bush with a stable or rising dollar into November, despite the fact that underlying economic forces dictate a further decline in our currency...
...As they see it, the rising dollar will make oil and other dollar-denominated commodities more expensive, and also raise the prices of manufactured goods imported from America, producing the inflation that Germans so dread...
...So does Rudiger Dornbusch, of MIT : he sees the dollar dropping to 100 yen before the current account is brought into balance...
...In the first quarter of this year we paid out more in interest and dividends than we received from U.S...
...But Baker-Bush politics can, for a while at least, prevail over the underlying economic forces that are pressing on the dollar...
...Please send me a copy of your latest catalogue...
...A strong dollar strengthens his hand...
...Clearly, Bush sees the latter as the lesser evil...
...Washington must now he acknowledged as .man of considerable political insight...
...Price Amount ^ Enclosed is my check or money order made payable to Liberty Fund, Inc...
...equities and other assets...
...bbertYAVSSAlbertyaSS/C5 GEORGE WASHINGTON: A COLLECTION Compiled and Edited by William B. Allen Aril 1989 marks the bicentennial of George Washington's presidency, yet this is the only one-volume compilation of his writings in print...
...Exports have been growing at a 20 percent to 30 percent rate in a world in which total trade growth is only growing at a 5 percent rate," points out C. Fred Bergsten, director of the Institute for International Economics...
...While "quality"—which includes product reliability, durability, servicing and delivery time—is difficult to measure precisely, a recent study by the Federal Reserve 28 THE AMERICAN SPECTATOR SEPTEMBER 1988 Bank of New York developed sufficient data on research and development expenditures, work reorganization, and the like to support a conclusion that the quality of American goods is on the rise...
...So lower-cost foreign goods are seen as an important offset...
...The booming U.S...
...If we keep sending out more dollars, we'llhave to lower their price to get foreigners to take them...
...George Carey, Georgetown University 743 pages...
...In the case of foreign investors, the encouragement is double-barreled: yields on stocks look more attractive, relative to bonds when interest rates are kept down, and the danger of losses due to a fall in the dollar are reduced...
...trade deficit will work to their long-term disadvantage by fueling protectionist sentiment in America...
...If not, rising interest rates, a sagging stock market, and a bit more inflation may be added to the catalogue of Bush's woes...
...While that country's exporters clearly benefit from a rising dollar—Japanese goods would become cheaper in America, and made-in-the-U.S...
...Second, a strong dollar reduces the pressure on the Federal Reserve Board to raise interest rates, either as an anti-inflation measure or to prevent a run on the dollar...
...An economist must add the obligatory "other things being equal...
...This will make our goods more salable overseas, and decrease the relative attractiveness of foreign goods here...
...Hardcover $26.00 Paperback 9.50 Subtotal Indiana residents add 5% sales tax Total Name Address City/State/Zip We pay book rate postage...
...There has been a tremendous recouping of market share by American manufacturers...
...Add to that the growing burden of interest payments on money owed by the U.S...
...It provides a privileged experience, that of reliving with the greatest of Americans his public career, through a judi- . cious and well-annotated selection of his own writings...
...Printed throughout in two colors with 15 illustrations...
...It does a Japanese investor little good to see a stock rise from $10 to $12 per share if, at the same time, the dollar falls from 135 yen to 100 yen...
...Morgan Stanley's Byron Wien, one of the more sensible trend-watchers on Wall Street, has recently raised his estimate of corporate earnings for this year and next...
...They also fear that a resurgence of Japanese exports, combined with booming production for home consumption, will strain their economy sufficiently to touch off an inflationary explosion...
...creases, a strong dollar encourages investors to buy equities...
...First, it keeps down the cost of foreign goods, thereby reducing inflationary pressures...
...Hardcover $26.00 Paperback $ 9.50 0-86597-059-9 0-86597-060-2 Liberty Fund edition, 1988 Please send me: George If"ashington: .1 Collection Liberty Fund edition, 1988 Quan...
...Finally, they want to do what they can to help Baker to help Bush: they know that Michael Dukakis will, if elected, be less likely to resist protectionist union leaders than Bush...
...British brokers James Capel & Co...
...The Germans, who spent a good part of the past year complaining that the falling dollar was wrecking their export industries—this proved not to be the case—now accuse America of lettingthe dollar rise so as to export inflation...
...With exports worth more yen, marks, and pounds, and imports costing fewer dollars, the reported trade deficit will be lower than it would be were the dollar to weaken...
...Harvard's Martin Feldstein, onetime chairman of Reagan's Council of Economic Advisors and now a Bush advisor, has long been suggesting that a dollar in the neighborhood of 100 yen(it is at about 130 yen at this writing) will be required to make our exports cheap enough, and imports expensive enough, to bring our trade into some kind of balance...
...IN 46250 THE AMERICAN SPECTATOR SEPTEMBER 1988 29...
...Not so the Japanese...
...7440 North Shadeland Avenue, Dept...
...dollars...
...Factor in, too, the probability that the recent rise in the dollar contains the seeds of its own reversal: dearer American goods will sell less well overseas, reducing the recent spectacular rate of growth in export sales...
...Since the rise in interest rates immediately preceding the October 19 stock market collapse is widely seen as a main cause of that collapse, Baker would like to avoid a sharp interest-rate boost between now and November...
...Our wages have risen very little in recent years, while productivity has soared (average annual productivity growth in 1983-1987 was triple the rate of the 1970s...
...Even at previously anticipated, lower profit levels, foreigners were stepping up their acquisitions here—a process that requires them to buy dollars, thereby strengthening the currency...
...Please allow approximately 4 weeks for delivery...
...That performance will depend on the relationship between the outflow of dollars from America to pay for imported goods and to pay interest and dividends to foreigners who hold American assets, and the reverse flow of foreign monies coming here...
...Great reading but also more than that...
...And economists in both the Bush and Dukakis camps agree that the dollar not only will fall further, but that it must do so if America is to whittle its trade deficit down to sustainable levels...
...With unemployment at a fourteen-year low, the drought likely to drive food prices up, and many industries producing at close to capacity, Bush's men fear that inflation might accelerate just as the voters go to the polls...
...trade deficit remains high...
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...But against these developments must be laid several less cheery facts...
...Foreigners, they reason, will fear that costly Democratic social programs will increase the federal deficit, thereby weakening confidence in the dollar...
...And the prospect for further export growth—although perhaps not at recent rates—seems good...
Vol. 21 • September 1988 • No. 9
