Advanced Search
MyIDEAS: Login

The Necessity of a Lower Dollar and the Route There

Contents:

Author Info

  • Dean Baker

Abstract

Debates over economic policy tend to be enormously confused. It is often the case that even high-level officials and well-known economists seem ignorant of basic accounting identities. This leads them to make claims that literally do not add up. This seems to be especially common in the case of debates on trade policy. This paper is intended to clarify some of the key issues. The first part is a simple accounting exercise showing that a large trade deficit implies that a country must either have a large budget deficit, negative private savings, or some combination of the two. Since both large budget deficits and negative private savings are generally viewed as undesirable, this means that a lower trade deficit should be a top policy priority. Furthermore, as a practical matter, a lower-valued dollar is the only plausible mechanism for getting the trade deficit closer to balanced. The second section shows the implications of a lower trade deficit for the economy in terms of the sectors that will expand. While some analysts have implied that in the future the United States will no longer be engaged in manufacturing, this is not a plausible economic scenario. If the United States will continue to consume manufactured goods then it will have to produce the bulk of these goods itself. There is no sector of the economy where exports can reasonably be expected to expand enough to pay for the country’s consumption of manufactured goods. The final section discusses mechanisms for lowering the value of the dollar. In public debates, the value of the dollar is often treated as being beyond the control of the U.S. government. This is not true. The government certainly has the ability to influence the value of the dollar; however it may be necessary to sacrifice other policy goals to achieve a desired exchange rate for the dollar.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.cepr.net/documents/publications/lower-dollar-2012-02.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Center for Economic and Policy Research (CEPR) in its series CEPR Reports and Issue Briefs with number 2012-04.

as in new window
Length: 13 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:epo:papers:2012-04

Contact details of provider:
Postal: 1611 Connecticut Ave, NW Suite 400, Washington, DC 20009
Phone: (202) 293-5380
Fax: (202) 588 1356
Email:
Web page: http://www.cepr.net/
More information through EDIRC

Related research

Keywords: trade; trade deficit; budget; budget deficit; national accounting; dollar; currency;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:epo:papers:2012-04. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.