Last week, Mitt Romney committed himself to picking a Federal Reserve Board chairman that will try to keep workers' wages down, likely costing them tens of thousands of dollars over the next decade. You remember reading the front page news stories on this pronouncement?
Of course you didn't read them, because the media largely ignored President Romney's statement about his choice of Fed chairs. And all of them ignored its implications for people's wages and living standards. The media would much rather focus on the ongoing debate over President Obama's birth certificate or, when we are lucky, tax policy decisions that might in the extreme case make $1,000-$2,000 a year in difference to the typical family. The much more important policy decisions that allow people like Mitt Romney to be incredibly wealthy and the rest of the country to be struggling are totally off the media's radar screen.
Romney's statement about the Fed fits in the latter category because he said that he would pick a chair who supports a "strong dollar." The implication is that he wants the Fed to run policies that keep the dollar overvalued relative to other currencies, making US goods uncompetitive in international markets.
The arithmetic on this is fairly simple. If the dollar is 20 percent above its proper value, then it means that prices of goods produced in the United States are effectively 20 percent higher relative to the goods produced in other countries. This strong dollar effectively makes imports 20 percent cheaper relative to goods produced in the United States. That naturally means that we will purchase more goods produced in Mexico, China, and other countries and fewer goods produced in the United States.
On the flip side, this strong dollar means that our exports are 20 percent more expensive to people in other countries than would otherwise be the case. This is equivalent to putting a 20 percent tariff on everything that we export. Needless to say, this will seriously depress our exports to the rest of the world.
The overvalued dollar is by far the main reason that we have a $600 billion dollar (4 percent of GDP) deficit with the rest of the world. This deficit implies a loss of more than six million jobs, the vast majority of which would be in manufacturing.
Imagine how different the labor market would look today if we suddenly had an additional six million jobs, most of which were in manufacturing. Workers would have vastly more bargaining power on the job. Many could move from lower-paying jobs in retail or elsewhere in service sectors to higher paying jobs in manufacturing. Even the workers who remained in the service sector would benefit from having a large number of additional job openings in manufacturing, since employers would know that workers had better paying options and therefore would have to pay higher wages to retain workers.
The arithmetic on this is striking. Productivity is projected to grow by more than 25 percent in the next decade. If workers get their share of productivity growth, this would imply an increase in annual income for the typical family of approximately $12,000 by 2022. On the other hand, with a Fed following Romney's strong dollar policy, workers in 2022 will be lucky if their wages are as high as they are today.
Unfortunately, there is no debate or even discussion of Fed policy and the dollar. Part of the reason is that both parties largely agree on the policy. After all, the strong dollar first became official policy under President Clinton, when Robert Rubin was Treasury secretary.
While the strong dollar may be a loser for most people, it does offer large benefits for people like Mitt Romney, Robert Rubin, and other members of the 1 percent. These people are all heavily involved in global business and their money goes further when buying into China, India, and elsewhere when the dollar is stronger.
In addition, there are retail companies like Walmart that have set up low-cost supply chains in the developing world that depend on an overvalued dollar. Do you think they want to see the price of the goods they purchase overseas rise by 20 percent when measured in dollars? The same applies to manufacturing companies like General Electric, which produce most of what they sell in the United States overseas.
There is even a class dimension to the news coverage of the issue. Leading national reporters (and Congressional staffers) like to take vacations in Europe and other foreign countries. Do you think they want to pay 20 percent more for these trips? That would be like a tax increase and we know how wealthy people feel about tax increases.
All of this means that when it comes to issues that will have a large impact on the living standards of ordinary, working people, there is not even a debate in this election. We will probably be arguing over the status of the Bush tax cuts for the rich for at least another decade; meanwhile, the elites in both parties will be doing everything they can to ensure that most people have no taxable income.