President Obama took his declining dollar to the Asia-Pacific economic conference last month. His big message? Don’t count on American consumers to lead the world from recession to recovery. In the United States, we must save more and spend less.
Huh? This is the same limits-to-growth, central-planning wisdom we hear at home. It’s also tone deaf. Despite a sinking greenback that is wreaking havoc among the Asian economies, and in the face of repeated currency warnings by Asian officials, Obama brought no King Dollar stabilization message to the conference.
I think more saving (and investment) by U.S. citizens is a great idea. But this need not come at the expense of consumption. In a prosperous free economy, people should be able to save, invest, work and spend as much as they like.
Of course, if the president and his team want more saving and investment, they should end the multiple taxation of saving and investment. Unfortunately, our system taxes saving as income, capital gains, dividends and inheritance.
Team Obama also intends to tax wealth more by raising the top personal tax rate from 35 percent to 40 percent. And they apparently don’t object to Nancy Pelosi’s plan to slap another 5.4 percent tax on the incomes and capital gains of successful earners in order to finance a government takeover of healthcare.
Wealth is a crucial form of saving. And the investment that comes from extra saving is used to finance the entrepreneurial start-ups that create the jobs that allow families to spend. However, by creating a zero-sum game between saving and spending, Obama is falling into an austerity trap – one that would hand the American economy a second-place finish in the global race for capital and growth.
At the same time, Obama has no plan to stabilize King Dollar, and the Asian economies don’t like it. China’s top banking regulator said the Federal Reserve’s money-creating binge was the main cause of “massive speculation.”
Similar sentiments came from top officials in Hong Kong, Singapore and Japan.
Because of the slumping dollar, U.S. import prices have jumped 10 percent at an annual rate over the past three months, and nearly 6 percent excluding energy. This is a tax hike on consumers and businesses. It’s reminiscent of the gigantic energy shock of 2008 that was caused by the dollar’s collapse.
The powerful Asian economies actually want to move toward a free-trade currency-cooperation zone – much like the euro zone, fathered by Nobel economist Robert Mundell. This makes more sense in terms of world price stability and free capital flows. But the United States refuses to play.
So Japan, Singapore, South Korea, Taiwan and others are forced to desperately buy sinking dollars in order to protect their export industries. But this only creates inflationary money expansion. The beleaguered U.S. dollar is in effect exporting U.S. inflation overseas.
Then there’s the massive U.S. healthcare takeover plan, which is now estimated at $3 trillion. This additional dollar depressant will tax the patience of China, Japan and other would-be buyers of our massive debt creation.
We cannot spend, tax or devalue our way into prosperity. Nor can we command the respect of other nations by telling them our economy cannot grow as rapidly in the future as it has in the past.
In terms of global leadership, Ronald Reagan would say: “If not us, who? If not now, when?” It’s a pity that President Obama doesn’t share the Gipper’s commitment to American leadership.