POLITICS: Pleased Noises
Fund, John H.
ECONOMICS New Voodoo Economics RE WORLD ECONOMY IS OUT OF WHACK," says David Wessel on the front page of the Wall Street Journal. "There's a financial grinch...
...42 THE AMERICAN SPECTATOR February 2005 0 BVIOUSLY, THE ECONOMY DID NOT COLLAPSE in the 1980s or 1990s, despite large trade and budget deficits...
...Despite polls showing a clear majority are leery of amending the Constitution, Ms...
...If, by some strange coincidence, every foreigner who has a trade surplus with the U.S...
...He tells people that a group in California pushing the amendment on a website called www.amendforarnold.com and 44 THE AMERICAN SPECTATOR February 2005 running TV ads is a "distraction" from his plans to clean up California...
...The Los Angeles Times began a front page news article on his frenetic activity by saying, "More and more, Governor Arnold Schwarzenegger is acting as if he wants to be president...
...To BRIAN S . W E S B ll R Y what to do with their earnings from exports...
...I have told him he would make a great secretary of state," one friend reports...
...None of this evidence seems to dampen the dire warnings of the economic doomsayers...
...citizens should celebrate...
...February 2005 THE AMERICAN SPECTATOR 45 The Shi'ia have enough votes to dominate the govern men t FOUNDING l.•'1 iii KS iS :l draitlati2atioil oldie Constitutional Convention of 1787...
...When the dollar declines, U.S...
...interest rates are above zero, it would be irrational to hold dollars in a non-interest bearing form...
...If surpluses truly are the Holy Grail, why did the economy have so many problems...
...The campaign to vault Arnie into the White House has already created its own backlash: a Texas-based talk show host named Alex Jones has started a website to compile negative information about the man...
...In fact, the tax cuts moved the U.S...
...Because China pegs its currency to the dollar, its inflation rate is also accelerating (its CPI is up 6 percent in the past year...
...It must be the mid-1980s all over again...
...To ignore this is to assume that for every credit there is not an off-setting debit...
...All of this smacks of the Keynesian notion that the economy is a machine that can be managed by a few turns of the right screws...
...The crowd went wild...
...have just-tom c e ~•'~ ey can either bup ces or • r: ' m back into the U.S...
...The value of the dollar is also falling versus gold, oil, and other key commodities...
...If pessimists are intent on boosting saving in the U.S., the appropriate tool is to reduce tax penal-ties on savings...
...In the 1980s, the tax cuts supposedly led to over-consumption and since we needed foreigners to finance the budget deficit, the trade deficit grew...
...The most likely scenario is that Congress may someday vote on the issue and send it out to the states for ratification, in the full expectation that at least 13 states will harbor enough nativist sentiment to pre-vent ratification (which requires the support of three-fourth of the states to pass...
...For every debit there must be a credit...
...Adam Smith talked of an "invisible hand...
...Right now, some 12.8 million American citizens are constitutionally barred from the nation's highest office because they were born elsewhere without at least one U.S...
...They know that he has succeeded in every-thing he has put his mind to...
...The Austrians love him," U.S...
...February 2005 THE AMERICAN SPECTATOR 43 POLITICS JOHN H. FUND Pleased Noises VIENNA, AUSTRIA VEN THOUGH ARNOLD SCHWARZENEGGER IS easily the most famous Austrian now living, the reserved people of this Alpine country tend not to bring his name up with visiting Americans...
...In an honest moment, some of those who advocate these positions might even let slip that they want tax hikes to slow consumption...
...I JOHN H. FUND "Who better to negotiate on our behalf than someone with a tough guy image and mum recognition higher than most OfthC h)reign leaders he would meet with?'" Schwarzenegger may not be conducting an active campaign for the amendment, but he is clearly taking every chance to remind people of his interest in striding on bigger political stages...
...American consumers and businesses send dollars overseas for imports, while foreigners are making a conscious decision to invest those dollars back into the U.S...
...And many seem to forget that the stock market collapsed in 2000 and the recession began in early 2001, despite a federal budget surplus and rising net national savings...
...Indeed, Arnold even has a nascent Austrian infrastructure for his political ventures...
...John H. Fund, The American Spectator's Politics columnis4 is author of Stealing Elections: How Voter Fraud Threatens Our Democracy (Encounter Books...
...During Ronald Reagan's presidency the same arguments were heard over and over, and in the same shrill tones...
...Truth be told, all of this talk of doom is just a way to get the government more involved in managing the economy, taking away freedom from individuals...
...They would still earn dollars by selling goods to U.S...
...These are but a few of the public panic attacks making headlines these days...
...He has visited heads of state in Jordan and Israel, rallied American troops in Germany, met with 95-year-old Holocaust survivor Simon Wiesenthal in Vienna last summer, and is planning trips to China and Europe this year...
...His brothers, Reinhard and Gunther, are also rabid Arniephiles, and they report from a recent visit to Schwarzenegger's home town of Thal that there is now a constant stream of fans from all over the world visiting his boyhood home...
...All of this talk about how our country is at the mercy of foreigners and that the dollar is falling because of the trade deficit is pure voodoo...
...The real reason the dollar is falling is that the Federal Reserve is supplying more dollars to the world than the world demands...
...Indeed, the California governor managed to steal the show at a U.S...
...There is nothing wrong with buying goods that you, your city, or your country do not produce...
...The thought process behind these shrill warnings is straightforward...
...The recipe to fix this problem is a devalued dollar to make imports more expensive and a tax hike to reduce the deficit...
...f , p II must come back into the >.,,e-y asam dollars outside of The rear is that the F dying unto i to convert them into •• t+'s'ency...
...China should revalue its currency upward, but not to appease U.S...
...But Arnold always has a Plan B for his life...
...Today, Arnie has new adversaries: those who would stand in the way of the required constitutional amendment that would allow him to run for president...
...There's a financial grinch lurking," says William Niekirk of the Chicago Tribune...
...None of these policies are good for growth...
...The world is a closed system...
...It sounds like the apocalypse...
...As long as U.S...
...The circumstances were similar to today's Iraq a country in chaos—yet the problems were the same how to give power to the majority while protecting the rights of minorities...
...Foreigners make rational decisions about would disappear overnight...
...And they will continue to do so as long as the Fed holds short-term interest rates artificially low...
...wfi'baceive dollars as p t for V.S...
...The value of the dollar is a function of monetary policy, not trade deficits, statements by the treasury secretary, or foreign investment decisions...
...Trade deficits are the result of millions of individual decisions made by consumers and businesses...
...Worse: foreigners are financing all of this profligate waste...
...citizen as a parent...
...For now, Schwarzenegger is wisely downplaying his interest in the proposed amendment...
...saving does not rise...
...But when it is mentioned, their faces brighten and they talk about "bur Arnie...
...Consumers buy goods made in China because they cost less...
...consumers, but now they would be forced to buy goods and services from America The trade deficit assume that a perfectly rational decision for the individual is somehow an irrational decision for the nation is socialistic...
...In Austria, none of this surprises people...
...Japanese corporations and the Chinese central bank do not store dollars on pallets in a warehouse...
...The Habsburgs may have left power nearly a century ago, but Arnold and his wife Maria are treated in the media as the country's new royalty...
...They see a world that is about to spin out of control if U.S...
...consumers are living beyond their means...
...She notes that Michigan Governor Jennifer Gran-holm, a politically attractive Democrat, is also barred from White House service because she was born in Canada "She is definitely interested in running for president, and the amendment is something that suits her," says Ken Cockrell, an at-large member of Detroit's city council...
...Consumer and producer price indices, even after removing oil and food, have accelerated...
...It is almost inevitable that the rigors of actually wrestling California's huge budget deficit to the ground will deflate his 70 per-cent approval numbers...
...Sorry, wrong speech...
...In my lifetime we will have gone from the Greatest Generation to the Profligate Generation to the Bankrupt Generation," says Thomas Friedman in the New York Times...
...Whether or not this shrinks the trade deficit is anyone's guess...
...Of course, the boomlet in Arniemania is likely to wane as the reality of all the hard work required to pass a constitutional amendment sets in among his most passionate admirers...
...If China were to continue to hold its currency peg, inflation would eventually erode its low-cost advantage...
...When the friend broached the idea to the governor recently, he chewed on his cigar and didn't have much to say...
...Tax hikes obviously reduce the incentives to invest and inflation undermines business decision-making...
...The Governator couldn't help but smile...
...On a trade mission to Japan last November, Schwarzenegger left a meeting with Prime Minister Junichiro Koizumi, who promptly called him "more popular than Bush...
...But to panic about them is dangerous...
...If they tra: `~ s' ^::~ rrency, the new holder faces the same two • 1 i The reason for this is simple...
...Morgenthaler-Jones says the amendment could garner bipartisan support...
...The owner is very patient and my brother Gerald is famous enough that he knew of his association with Arnold," says Reinhard...
...Dana Rohrabacher, a friend of Arnold's who served as a co-chair of his Orange County campaign for governor, says the idea may gather strength when Americans learn how many talented people in both parties are barred from running (they include Labor Secretary Elaine Chao and two secretaries of state, Henry Kissinger and Madeleine Albright...
...decided to stop investing in the U.S., they would face a huge dilemma...
...purchasing power on world markets is reduced and the American share of total world output falls...
...A Euro stamp honoring him on his birthday last July sold out its print run of 600,000 in short order...
...Hundreds of guests dropped their knives and forks to cheer him when he appeared on a giant television screen during a CNN recap of the results...
...from a stagflationary malaise in the late 1970s to the dominant economic force in the world (and unsurpassed technological leader...
...Yale Law School professor Akhil Amar predicts that if a vote were actually taken in Congress "it would be very hard to vote against it without looking small or mean or bigoted...
...It should do so to stop importing inflation from the U.S...
...But then Arnold looked off into the distance and made pleased noises...
...Ambassador Lyons Brown told me...
...And manipulating currency values, monetary policy, or taxes to alter these decisions is a recipe for disaster...
...Find out how you can help to distril tile this play throughout the Arab world...
...lobbyists...
...Gerald Neugschwandtner, a graduate student in politics, flew to Los Angeles in 2003 to serve as the candidate's liaison with foreign media during the recall campaign for governor...
...representative at the funeral of Austria's president...
...But he has said he supports the amendment and has given Liussa Morgenthaler-Jones, a Silicon Valley business executive, a photo to use on T-shirts promoting the idea "He made pleased noises when I told him about the idea in August," she says...
...President Bush cut taxes in the middle of a war, federal budget deficits are soaring, and U.S...
...He plans to return to California to work as a political consultant when he completes his studies...
...He was mobbed by crowds when he returned to the country earlier that month as the official US...
...Out of whack," or not, the trade deficit is a result of individual decisions...
...The less than shy California governor blandly admits that "Austria has always treated me like a head of state," even when he was just a movie actor known for blowing up cinematic adversaries...
...We are publishing a specia Arabic edition of this exciting new play by American Spectator writer William Fc.icker...
...It should be analyzed like a bal7' ° ``-Ire e1...
...California Rep...
...But the economy does not work this way...
...Chicago runs a trade deficit with the rest of Illinois...
...THE SAME RATIONAL DECISION-MAKING alSO takes place on the other side of the transaction...
...T BADE AND BUDGET DEFICITS are not things that U.S...
...Stephen Roach, economist at Morgan Stanley, has nicknamed foreign investors "the global enablers...
...Trade increases our standard of living...
...Last April, he opened an international travel show in Los Angeles by saying, "I thank you very much for changing the Constitution, and I accept your nomination to run for president" After a long pause, he joked to the audience, "Oh, wrong delegation...
...Inflating the economy to reduce the value of the dollar, increasing taxes to slow consumption and reduce the deficit, or to become protectionist in order to stem the flow of imports are all damaging to the economy...
...Who better to negotiate on our behalf than someone with a tough guy image and name recognition higher than most of the foreign leaders he would meet with...
...They invest them, immediately, even if that means leaving them in a dollar-denominated bank account...
...was destined for ruin...
...TNDEED, HIS TRAVEL SCHEDULE will soon rival that of some foreign leaders...
...Wow...
...The twin deficits were supposedly a sign that the U.S...
...Attempting to fight it using ham-handed, mercantilist macroeconomic tools is wrong...
...And this is where so many analysts make a mistake...
...Brian Wesbury, The American Spectator's economics editor, is chief economist at Griffin, Kubik, Stephen & Thompson, Inc., a Chicago-based investment bank...
...He recently received recognition at an Austrian Chamber of Commerce meeting for his political efforts in California...
...Simply put," writes David Wessel, "the U.S.—either voluntarily or forced by the markets and the rest of the world—has to save more and buy less, particularly from other countries...
...ECONOMICS B R I A N S . W E S B U R Y New Voodoo Economics RE WORLD ECONOMY IS OUT OF WHACK," says David Wessel on the front page of the Wall Street Journal...
...embassy breakfast the morning after the November election...
...Once we realize that the world economy is a closed system, the trade deficit and the resulting capital inflows become more understandable...
...Unless you own a grocery store, every reader of this magazine runs a trade deficit with the local food purveyor...
...Fell the story of America' But then so did the Virginians...
...Robert Reischauer, president of the Urban Institute and former director of the Congressional Budget Office, compared America to "a rich family that is selling off its furniture and silverware, and still living in the big house, while taking vacations every year...
Vol. 38 • February 2005 • No. 1
