♠ Posted by Emmanuel in Currencies at 5/19/2015 08:41:00 AM
Much ridicule has been heaped upon the American economy for its moribund nature as of late. Bill Gross, formerly of PIMCO, famously coined the term the "new normal" to denote US and more broadly developed world growth rates that were subpar; generally in the 0-to-low-2-point-something range. Not to be outdone, the IMF has called it the "new mediocre" because (a) that's what it is based on historical trends and (b) all sorts of [market liberalizing] reforms can be undertaken to encourage more impressive growth. Me? Being no slouch in front of the computer keyboard--or at least I'd like to think so as a blogger--I call it the "American Jokeonomy." Its hilarity stems from the US telling the world that its brand of capitalism is the way to economic salvation. However, when the rest of the world looks at it, all we see are stagnation, inequality, and yes, mediocrity.
So all sorts of explanations and remedies have been offered for this phenomenon. The IMF thinks it's a lack of openness:
Countries can realize significant payoffs with product market reforms. If Italy were to reduce its services sector regulations to bring them in line with those of the Netherlands, for example, the average total factor productivity growth gain across all industries could amount to about 0.1 percentage point a year, and about 0.4 percentage point in the services sector.On the other hand, there are also the dyed-in-wool protectionist/isolationists. Of the stark raving mad variety, my favorite is Peter Morici, who favors the US hitting all and sundry trade partners--especially those of the dastardly Asian variety--with all sorts of sanctions over currency manipulation. What's somewhat new in Morici's harangue is that he relates a lack of resolve in confronting currency manipulators with confronting security challenges:
Other Asian nations, including U.S. free trade partner South Korea, have mimicked China’s currency policy and in the bargain, the U.S. international competitiveness and growth appear permanently crippled. Since 2000, the U.S. economy has grown a scant 1.8 percent a year, and one of the biggest challenges facing the next president will be finding the money to maintain an adequate Navy to secure the Pacific while maintaining an essential presence in the Mediterranean and Persian Gulf.Call it the "economic appeasement" theory of American stagnation. Actually, I'd rather like to see what happens if dyed-in-wool protectionists like Morici had a chance. Did it ever occur to Morici that these same "currency manipulators" do so by helping fund the US government by buying its debt? Like most of the fantasists, he clings to this idea that devaluing the dollar is all that it takes to set things right. I, on the other hand, believe it's due to a whole host of factors that a country in decline cannot really arrest.
What is remarkable, though, is how fatalistically Obama has doubled down on the failed Clinton and younger-Bush policies. Prominent economists on the left, right and in between have suggested policies to get the dollar fairly valued against the yuan and other Asia currencies but the president steadfastly rejects even considering those.
One of these days, I suspect we'll get to actually test the Morici theory.