For a change, try a stronger US $
Obviously we need better coordination in the US between our fiscal and monetary policies, but we must first recognize that we are stuck in the wrong paradigm: wealth reshuffling is not wealth generation. No amount of reshuffling resulting from adjusted taxes, reduced spending and Fed’s quantitative easing will produce sustainable economic growth, unless also accompanied by business or industrial initiatives stimulating wealth generation. The latter is about creativity and productivity, not about administrative or financial skill.
Also, it is not about whether we should empower more the public or the private sectors, but about discovering again that America prospered most when both sectors were in harmony 50 years ago. It is not an “either/or” proposition, but a “collaborative/together” approach that worked well in the past, and must be embraced again, to revitalize this country’s economy.
For the skeptics who don’t think it can be done, look no farther than the G20 economies after the Great Recession. What do the ones that bounced back first, like Brazil and South Korea, have most in common? It is a collaborative public/private economic model that works. The trick for the USA is to ensure that growth in the public sector will not outpace growth in the private sector. This is a politically contentious issue that should be addressed right from the beginning.
But, who should be in charge of making it happen in America?
Clearly it is the role of the President, the chief executive of the nation, and that of his team. Delegating the economic revival responsibility to the Fed alone, is overly naïve or delusional. Economic growth entails a lot more than monetary policy, although the latter can clearly help.
What can the President do then to eliminate the dissonant public policy practices of the past?
The trick is in finding a unifying, easily understood and willingly shared goal to guide our lawmakers while avoiding the paralysis of “gridlock politics” and “ideological dissonance”.
I propose focusing on a stronger dollar. If all policies, monetary and industrial, were attuned to help increase the value of the dollar, there would be no political bickering on the purpose and the interpretation of the goal. It is readily measurable and highly visible for all to see. Besides, the foreign exchange market would serve as an unbiased and responsive referee.
First in line is the Fed whose mandate needs to also encompass the stability and strength for the currency. Intentions alone don’t suffice anymore; results are needed rather urgently. Besides, how can domestic inflation stay contained with the dollar falling uncontrollably?
Then, the US public debt which has outpaced the rest of the world (see chart sourced from ECB) must be brought again under “adult supervision”. It is high time we realize that deferring the inevitable is not a cure: both strategic spending cuts and selective tax hikes will be needed to curb and reduce the US public debt. Hoping that only one of them will suffice is delusional.
Lastly, and most importantly, is the public/private collaboration for economic growth and revival. Without that, America will be misguided that it can again be a viable global competitor.
There should be no illusions here: a “strong dollar policy” will create winners and losers among companies that depend on trade. But all policies involve trade-offs, by definition. Yet, the rationale behind the shift should be to encourage America to focus its competitive zeal not on the low-price but on the high-value of its exports, like in high-tech, aerospace and software. A cheap dollar extracts less value from USA’s leading R&D and treasured innovations, not more.
Orchestrating toward a stronger and a more stable dollar promises not only better harmony across evolving economic and industrial programs, but also the possibility to accelerate the tempo, as required, in the effective promotion of innovation, entrepreneurship and competitiveness: the most vital elements behind job creation and national invigoration.
Moris Simson, former high-tech executive who now heads a strategy consultancy, is a fellow of the IC² Institute at the University of Texas