[no subject]

[Doug Henwood <dhenwood@xxxxxxxxx>]

I thought folks might be interested in this little polemic, which will
appear in tomorrow's (Jul 8) Financial Times letters column.

Doug

Doug Henwood [dhenwood@xxxxxxxxx]
Left Business Observer
212-874-4020 (voice)
212-874-3137 (fax)

PS: The sexist "Sir" isn't my choice - it's FT style.

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<quote>

Sir -
   While it was cheering to read an honest diagnosis of the U.S. economy -
rare in these days of celebration of the American way of life - it's
disappointing that Wynne Godley and William Milberg ("Three cheers for a
weak dollar," July 6) concluded that a cheaper dollar is "just what is
needed." Yes, the U.S. suffers from a chronic trade deficit, and yes, the
U.S. is again sinking deeper into cross-border hock. For the first time
since before World War I, the U.S. is no longer a net earner on foreign
inve stments. (I point this out not to celebrate the virtues of overseas
assets, only to note a profound shift in international relations.) But
will depreciating the currency solve the problem?
   Devaluation is the economic equivalent of steroids: it can bulk you up
for a little while, but it's debilitating over the long term. As Keynes
famously noted, admittedly before he was really a Keynesian, debauching a
currency "engages all the hidden fo rces of economic law on the side of
destruction, and does it in a manner which not one man in a million is
able to diagnose." It impoverishes a country on a world scale, and diverts
attention from serious underlying problems like chronically low investmen
t levels, political drift, and social decay. Among the countries with
chronically depreciating currencies are Britain and Argentina; with
appreciating ones, Japan and Germany. Which club would you rather belong
to?
   The answer is not some Volcker II, a dramatic tightening by the Fed;
while that might boost the dollar for a while, it would depress real
investment and further worsen the trade picture, which is the last thing
the U.S. needs. Instead of reviving one o f the less fortunate aspects of
the Keynesian legacy, devaluation, we might revive some of the more
intriguing aspects, namely the repression of finance and the "somewhat
comprehensive socialization of investment." Of course, these are deeply
unfashionable things to say, but who wants to be a slave of fashion?

   	Yours truly
   	Doug Henwood, editor