Page 15 - Forbes - USA (February 2018)

FACT & COMMENT
“With all thy getting, get understanding”

DON’T WRECK

THE NEW BOOM

BY STEVE FORBES, EDITOR-IN-CHIEF

TWO BIG THINGS threaten the improv- and election-winning prosperity. Nixon
ing U.S. economy: a weak dollar and trade did win his second term, but the net
protectionism. Both routinely seduce poli- result was a debilitating decade of gas
cymakers, and both always result in bitter lines, inflation and economic stagna-
aftermaths with terrible political conse- tion. An economy that was in the throes
quences. Yet some in the Trump administra- of its most serious crisis since the Great
tion are playing with both—and with fire. Depression contributed to the condi-
t The dollar. Great nations do not have tions that ran Nixon out of office. Jimmy
weak currencies. Nonetheless, with a Carter pursued similar policies later in
surety born of ignorance, Treasury secre- that decade. Both Carter and Nixon were
tary Steven Mnuchin has bluntly stated his economic losers.
desire for a weak dollar. In 1987 Treasury secretary James
Thankfully, President Trump immediately contradicted Baker pushed for a weak dollar to—you guessed it—sell
him. But the fact that Mnuchin and his department want to more U.S. products abroad and “mend our trade deficit.”
undermine the value of our currency is troubling. Mnuchin That October he told Germany: “Either inflate your mark
has bought into the alluring fallacy that trashing the green- [the German currency at the time], or we’ll devalue the dol-
back will help sell more of our stuff overseas, thereby lar.” He vowed to “drive the dollar down.” Combined with
strengthening the U.S. economy. Such false and toxic no- Congress pushing through protectionist measures that could
tions obviously mean the poor fellow has completely forgot- prompt a trade war, Baker’s moves triggered a ghastly stock
ten real-world experiences. market crash. Thankfully, the Reagan administration backed
This is an incontrovertible fact: No country has ever de- off, and the markets recovered.
valued its way to greatness and enduring prosperity. Ever. Unfortunately, in the early 2000s the U.S. was back at it.
Ask Brazil, Argentina and Zimbabwe. Check out what President George W. Bush’s Treasury chiefs thought that a
happened to the Roman Empire when its Mnuchin equiva- slow-motion devaluation of the greenback would stimulate
lents undermined the empire’s currency. more growth. The weakening of the dollar—as it always
Mnuchin needs to take a stroll down memory lane. does—triggered a fake housing and commodities boom, as
In the summer of 1971, President Richard Nixon was markets flee to hard assets when money becomes unstable.
fretting that the country wasn’t recovering fast enough from We all know how that ended.
the 1969–1970 recession and that this sluggishness might Secretary Mnuchin, sadly, has learned nothing from all this.
jeopardize his reelection in 1972. Moreover, the world was on What Nixon, Connally, Mnuchin and their ilk never
the so-called Bretton Woods gold standard, and the U.S. gold grasp is that money isn’t wealth. It measures value, in the
supply was shrinking, which was raising alarm bells in the same way a clock measures time or a scale measures weight.
financial markets. The Federal Reserve was printing too many Imagine the difficulties in cooking if the standards for mea-
dollars—trying to stimulate the economy—with the obvious suring cups and spoons changed each day. The same is true
consequence that foreign governments were getting rid of for money: Volatility makes commerce and investing more
their losing-value dollars by trading them in for our gold. uncertain, and economic progress is hurt.
Tragically, Nixon was beguiled by his Treasury chief, Money has no intrinsic value. It is a system based on trust.
John Connally, into “closing the gold window,” thereby ef- In that sense it’s like a ticket to an event. The ticket in and of
fectively ending the gold standard and engineering a major itself is worthless, but it’s a claim on a real service.
devaluation of the greenback. Devaluing the dollar is similar to cheating with weights
The idea was that this would generate a trade surplus and measures: You pay for a pound of cheese but get 12

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