General
The Dollar Is Too Strong for America’s Own Good
The economist Richard Koo built pianos in Hong Kong for his father-in-law for a year and a half between college and graduate school. Now he is the chief economist of Nomura Research Institute in Japan. He told me that his experience in business …
The economist Richard Koo built pianos in Hong Kong for his father-in-law for a year and a half between college and graduate school. Now he is the chief economist of Nomura Research Institute in Japan.
He told me that his experience in business helped sensitize him to the commercial importance of currency exchange rates, which are how much one nation’s currency is worth in terms of others’.
If a nation’s currency rises against others’, the goods it exports become more expensive for foreign buyers, and the goods it imports become cheaper, displacing domestically made products.
“You try to cut costs. One day you open the newspaper and see all of your efforts of months and months are down the drain. You have to be in a job like that to feel the pain” of exchange rate fluctuations, “and sometimes the joy,” Koo said. “Maybe that’s one reason I never completed my Ph.D.” he added. “I was always arguing back against my professor, saying, ‘That’s not the way the world works.’”
Koo argues that the dollar is chronically overvalued to the detriment of the U.S. economy, especially the manufacturing sector. He says the damage to manufacturers — and factory jobs — caused by the dollar’s strength helps account for the backlash against free trade in the United States. His proposed solution is a new international accord to lower the dollar’s value, similar to the Plaza Accord of 1985 that was struck in New York’s Plaza Hotel by the United States, Japan, West Germany, Britain and France.
The Coalition for a Prosperous America, which is made up mainly of small and medium-sized manufacturers, calculates that last month the yuan was 24 percent undervalued against the dollar, the yen was 32 percent undervalued and the euro was 19 percent undervalued. “If we realigned the dollar to a competitive level, there would be a boom in U.S. manufacturing production and the entire U.S. economy, including job numbers, and household incomes would benefit,” Jeff Ferry, the organization’s chief economist, wrote to me by email.
