Tags: Economist Dean Baker Devalue the Dollar to Create Jobs

Economist Dean Baker: Devalue the Dollar to Create Jobs

Thursday, 16 February 2012 08:11 AM

The United States is perfectly capable of solving its jobs problem by actively choosing to devalue the U.S. dollar against foreign currencies. A 10 percent hit would create 5 million manufacturing jobs, argues Dean Baker, economist and co-director of the Center for Economic and Policy Research in Washington, D.C., in a newly published paper.

“The major imbalance in the United States economy at present is the large trade deficit,” Baker writes. “This implies either large budget deficits and/or negative private savings. The only plausible route for reducing the trade deficit is lowering the value of the dollar.”

A 10 percent drop in value, engineered by the government via the financial system, would largely eliminate the U.S. trade deficit, Baker calculates.

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“A reduction of this magnitude in the real value of the dollar would lead to a boom in manufacturing, potentially increasing output in the sector by more than 40 percent and creating more than 5 million manufacturing jobs,” he writes. “This increase in output and employment would likely have a substantial impact on the labor market, likely boosting the relative wages of non-college-educated workers.”

Such a route would be surer than try to out-compete the world, Baker contends. U.S. productivity is already very high. The problem is our currency, he writes. “As a practical matter, a lower-valued dollar is the only plausible mechanism for getting the trade deficit closer to balanced,” he says.

Expect jobless rates to stay high for years to come, warns former Treasury Secretary Hank Paulson.

The unemployment rate fell to 8.3 percent in January from 8.5 percent in December. Economists put the “natural” U.S. unemployment rate at close to 5 percent. Nearly 13 million Americans remain of work.

"I am encouraged by the recent economic news. But I think it's going to be a long slog. And I think it's going to be years before we get our unemployment to an acceptable rate," Paulson told CNBC.

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Thursday, 16 February 2012 08:11 AM
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