President Trump recently took to Twitter to bemoan the “strong” dollar’s impact on trade and called for quantitative easing as an antidote. This latest push for aggressive monetary devaluation follows previous reports that White House adviser Peter Navarro had presented Trump with a plan to devalue America’s savings and earnings under the misguided belief that this would help us better compete against China.
The ridiculous notion that currency devaluation is a path to prosperity has unfortunately attracted bipartisan support from a group of pseudo-intellectual politicians, including Senators Josh Hawley and Elizabeth Warren. Both have alleged that the “strong” dollar is a deterrent to U.S. growth. But their arguments beg the question: Is the dollar really all that strong in the first place?
What some refer to as the dollar’s “strength” is in fact a reflection of greater weakness in other currencies. In fact, the euro, the yuan, and the U.S. dollar have all declined in value precipitously since June when measured against gold — and it’s no surprise that they fell together, as many countries peg the value of their currencies to the dollar. The dollar has fallen to a marginally lesser degree than the others, but the shrinking dollar is now routinely misconstrued as being excessively “strong” when its purchasing power is clearly going down. Whereas it took $1,200 to buy an ounce of gold on Trump’s inauguration, today, that same ounce of gold would cost $1,475.
Trump’s belief that further devaluation of the dollar will boost exports is ironic because he recently awarded the Presidential Medal of Freedom to a man who, among other things, is celebrated for his academic research showing that devaluation does the exact opposite.
Arthur Laffer’s early work in economics with Robert Mundell, summed up by Jude Wanniski in the Mundell-Laffer hypothesis, obliterated the case for currency devaluation. Wanniski summarized it thus:
Wanniski goes on to quote Mundell on the merits of focusing on a stable dollar by juxtaposing the economies of Great Britain and West Germany after World War II.
“Most of Great Britain’s economic problems over the last 30 years have come about because of London’s fetish with the trade account,” says Mundell. “It is forever trying to increase exports and decrease imports, and in the process of trying to send more goods out and allow fewer in has systematically reduced the efficiency of its economy … West Germany, on the other hand, has accepted a series of major currency appreciations that should have doomed its trade balance. Yet its domestic economy remains vigorous and its trade balance in surplus, and inflation has been very moderate.”
Proponents of devaluation, including Peter Navarro, also need to answer the question of Venezuela. If currency devaluation and, by extension, inflation are truly drivers of growth, then Venezuela’s economy should be growing at an unprecedented rate. What we’ve seen instead is the destruction of the Venezuelan economy and the abandonment of its desecrated currency.
Trump would be wise to reject the arguments put forward by Navarro and other proponents of devaluation. Further eroding American’s savings and wages will only serve to slow his and the world’s economies.
Nathan Williamson is a conservative activist and writer.
