Words matter. These are the best Martin Feldstein Quotes, and they’re great for sharing with your friends.
The good news is that a competitive dollar in the global market and a strong dollar at home are compatible in both the long run and during the transition to a more competitive dollar.
Even if the dollar does decline during the coming months, the delays in the response of exports and imports to the more competitive dollar will mean that the increase in aggregate demand from this source may not happen for a year or more.
Unless the trade deficit shrinks, the combination of the trade deficit and the interest and dividend payments to foreigners will grow ever more rapidly.
Domestic inflation reflects domestic monetary policy.
The more competitive value of the dollar turned around the trade deficit.
But the primary reason for wanting the dollar to become more competitive in the near future is that we may need an increase in exports this year and in 2007 to sustain the economy’s current pace of expansion.
First, I think the science of monetary economics has clearly gotten better.
In short, both experience and economic theory imply that the US could now t to a more competitive dollar without experiencing either increased inflation or decreased economic growth.
We are particularly poor at the open economy issues.
But then in April of 1985 the dollar began a sharp decline. The dollar’s trade weighted value fell 23 percent in just 12 months and by a total of 37 percent by the beginning of 1988.
Inflation is lower and more stable and the real business cycle fluctuations are more modest.
The price of imported oil in the US doubled between summer 2003 and summer 2005, reducing consumers’ purchasing power by more than 1 per cent of gross domestic product.
An increase in the relative price of products from the low wage manufacturers in Asia and Latin America will also make those products less attractive to American consumers.
We pay some price when necessary to bring down inflation but that price is temporary and is not large relative to the permanent gain from reduced inflation.
Thirty years ago, many economists argued that inflation was a kind of minor inconvenience and that the cost of reducing inflation was too high a price to pay. No one would make those arguments today.
But because we in the United States finance our current account deficit by borrowing in our own currency, we can move to a more competitive dollar without the adverse effects that followed currency declines in other countries.
I think that over the last few decades, we have seen better economic outcomes than in the past.
My theme this evening is that America needs a competitive dollar.
