Basic macroeconomics for Republican congressional leaders, part II
As John Irons has already noted, the letter from four leading GOP legislators to the Federal Reserve isn’t just wrong – it’s oh-so-wrong (a jargon-y new economics term).
This post just highlights one of many wrongs – it’s hand-wringing over Fed actions that might “erode the already weakened U.S. dollar.” Weakening the dollar is just what the U.S. economy needs to do to support a real economic recovery. Since the phrase “weak dollar” is a PR disaster, let’s just call it a “competitive dollar,” or even a “lean and mean dollar;” but, whatever you call it, it’s necessary if we want net exports to be a contributor to overall growth rather than a drag.
The figure below shows the contribution of net exports to GDP growth since 2000 – an overvalued dollar has led trade flows to be a consistent drag on growth for pretty much the entire period except for the Great Recession – when spending on everything (including imports) plummeted and led trade to be a stabilizing force.
So, to recap – the GOP Congress is against fiscal support to the economy, is against monetary support, and thinks a lean and mean dollar is a bad thing. That’s three-for-three in arguing against the only policies we have that can create jobs and lower unemployment in the near-term. It’s going to be a very long election season indeed for Americans looking for work.
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