One reason that economics is considered the dismal science was illustrated by today’s announcement by the Department of Transportation that Americans had put 3.7 percent fewer miles on their vehicles in the first half of this year. Good news, right? Proof that Americans respond to market forces – a euphemism for higher prices -- right? Add to that the visible proof that many Americans are trading down from SUVs to more fuel efficient cars, and you get the sense that the good news is unalloyed.
Unfortunately, it’s not so simple. The downside of the good news is that the national highway trust fund is being depleted faster than revenues can replenish it. The trust fund, remember, is funded by the federal gasoline tax. Fewer miles driven means less revenue for the Feds. So, instead of being able to expand and accelerate spending on transportation infrastructure, Americans’ perfectly rational response to higher gas prices may actually put a crimp in plans to rebuild our crumbling highways and collapsing bridges.
This suggests to me a corollary to the rule that there is no free lunch: piecemeal economics can address only one problem at a time and, in so doing, often makes other matters worse.
A weaker dollar is another mixed blessing. Sure, it promotes exports from and foreign investment in the United States, as our commentary on the Ikea plant in Danville acknowledged. Cheerleaders for the current globalization model trumpet our rising exports as if they are, or at least could beocme, the solution to all that ails our eocnomy. But at the same time, a gimpy greenback pushes commodity prices, including importantly petroleum prices, up. That gets us right back to prices at the gas pump and the trust fund problem.
Moreover, a weaker dollar depresses wages and lowers the standard of living of Americans. Again the Danville plant illustrates the point. Or, just ask any tourist unlucky enough to feel the need for breakfast in London, Paris or Toronto with only dollars in his wallet.
Piecemeal economics is like that. Make one thing better; make others worse. America needs a coherent, smart national strategy to address systematically the full set of our fundamental economic weaknesses. A cheap dollar just isn’t the answer.
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American always want to have the cake and eat it too.ReplyDelete
We forced Japan and Germany to float their currencies in the 80's. For the last two years. We lost almost 20% of our dollar value toward Chinese Yuan. I remember for last ten years. Many sectors in U.S. said the Chinese Yuan was 40% undervalued toward the U.S. dollars.
Now, our economy is now doing so well. Who are we going to point the fingers at ?
Our government cannot keep printing our currencies to pay for everything and expect the U.S. dollars to stay strong.
We never learned from our lessons.
I hope someday we can all wake up and start taking responsibilities instead of blaming the whole world for our problems.