A Xenophobic America
April 28, 2008
If you haven’t read it already, I recommend an Op-Ed article in today’s Financial Times by former U.S. Treasury Secretary and former Harvard President Larry Summers in which he takes free traders to task for misunderstanding what motivates proponents of “fair trade” or even no trade. Trade xenophobics do not believe as they do because they don’t understand the theory of comparative advantage, or because they blame the loss of job sectors on globalization when the real cause is technological progress, or because they don’t realize that trade agreements will require fewer concessions from the United States, where trade barriers are already not steep, than in countries with greater protection. No, the problem is that Americans increasingly doubt whether the success of of the global economy is in the best interest of the United States. Summers argues that a different set of arguments will be required to halt a new momentum away from freer trade, and he is not encouraged by mounting popular support for anti-immigration legislation and calls for shutting out foreign direct investment.
Today’s Wall Street Journal takes on a different aspect of America’s drive toward insularity, which is the Fed’s neglect of the dollar. In cutting its interest rates nearly in half within seven months, U.S. monetary policy goes past dollar neglect into the area of hostility to the dollar. The Fed has pressed onward with increasing stages of loose monetary policy in the face of cumulating dollar depreciation, accelerating money growth, unacceptably high inflation, and appreciating prices for precious metals and other imported commodities. The Fed has a long history of disregarding the dollar in designing monetary policy. It’s parochrial to run policy this way, and it carries increasing risk to the U.S. standard of living, as emerging markets become an increasingly powerful part of the world economy.
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