The New Republic

I hope Marty's being ironic with that headline, because while the rising dollar makes vacationing in Europe a little bit cheaper for upper-class Americans, it makes American exports more expensive and threatens the jobs of Americans who can't afford to visit Europe every year. On the whole, a strong dollar is bad news for the American economy right now. As someone who can afford to visit Europe regularly, I'll happily pay a little extra at my favorite inns in Edinburgh or Český Krumlov or Texel or Killarney in order to help my working-class countrymen export more American-made goods.

- rhubarbs

May 7, 2010 at 12:38pm

"I hope Marty's being ironic" with the entire post. But... But..."The fact is that Europe is not one continent," But... But...where is the insult to all things Italy? must be the trace of Neanderthal DNA in all Europeans born west of the Ural Mountains :)

- K2K

May 7, 2010 at 12:54pm

rhubarbs is correct. The fact that for political/security reasons the dollar remains a haven prevents our trade deficit from reversing, shrinking domestic demand, and limiting the growth of our economy (as well as producing shocks that have rendered millions structurally unemployed). This is not the sole reason, but it is a big one. Greece can withdraw from the currency union without withdrawing from the EU. Not all EU nations, most notably the UK, are in the currency union now. The Euro will survive but it may not be appropriate for all the current members.

- roidubouloi

May 7, 2010 at 12:58pm

The ignorance throughout this post is conveniently exemplified by its closing sentences: -- For the moment, Greece is still in the European Union. But we don’t know how long it will before it simply won’t qualify. Why should we trust the opinions of someone who doesn't understand the difference between the European Union and the EuroZone. But then why should we listen to the opinions of one who writes the following bigotry: -- But it also has burdened itself with legal and illegal Muslim immigrants who are not only changing the European character of the country but who do not, given the choice, prefer to work.

- ndmackenzie

May 7, 2010 at 1:05pm

"For the moment, Greece is still in the European Union. But we don’t know how long it will before it simply won’t qualify." How true, however, it's also true that GB's economy too is in deep trouble. How long before that country is forced to change course. economically? Posters like ndmuckenzie get their news from the Guardian which has been reporting as accurately about this election as it usually reports from the Middle East. "Do you think The Guardian missed another potential scenario? D’Oh." "I am hearing rumours that a deal has been done – Cameron/Clegg. Let’s see. Silly Guardian. They helped this happen. It won’t be forgotten." http://hurryupharry.org/2010/05/07/bad-prediction-good-prediction-ge2010/

- jdyer

May 7, 2010 at 1:59pm

I think the Greeks can live with a bit of crumbling. What has brought them to this pass is the thing everyone avoided thinking about when the Euro was being set up -- if a nation has no sovereign control over its fiscal policy anymore, and a crisis occurs, it can't take the classic maneuvers that countries applied to manage the economic crises of the past. One solution would be a multi-layer Euro with different values, but that would be simply going back to sovereign currencies without admitting it.

- ironyroad

May 7, 2010 at 2:06pm

K2K, yeah, fascinating stuff that, some snippets: the team concluded that about 1 percent to 4 percent of the genome of non-Africans today is derived from Neanderthals. The Leipzig scientists assert that the interbreeding did not occur in Europe but in the Middle East and at a much earlier period, some 100,000 to 60,000 years ago, before the modern human populations of Europe and East Asia split. There is much less archaeological evidence for an overlap between modern humans and Neanderthals at this time and place. The Leipzig group’s interbreeding theory would undercut the present belief that all human populations today draw from the same gene pool that existed a mere 50,000 years ago. “What we falsify here is the strong out-of-Africa hypothesis that everyone comes from the same population,” Dr. Paabo said. In his and Dr. Reich’s view, Neanderthals interbred only with non-Africans, the people who left Africa, which would mean that non-Africans drew from a second gene pool not available to Africans.

- blackton

May 7, 2010 at 2:39pm

But...where is the insult to all things Italy? Silly question, it is obvious where all the interbreeding with neanderthals took place, it was in Italy. I have a close Italian friend, very hirsute who I often mistake for a neanderthal. Ok, before I get killed, I have my share of (northern) Italian blood, DeLorenzos are my kin.

- blackton

May 7, 2010 at 2:48pm

by the way, Greece is not crumbling (ok, except for the archaeological ruins but blame time and weather for that). This is all much ado about nothing, the beaches shall attract their tourists, the ruins theirs. "The fact is that Europe is not one continent" um...yes, it is. There are 7. Europe, Asia, North and South America, Antarctica, Africa, and Australia. There is a thing called Continental drift see and... I simply don't get Marty's schadenfreude over others misfortunes. By the way, Nashville is underwater, there is an oil slick the size of New Jersey (only, in fairness to it, a better place to live), the Chinese are clamping down on their housing market, you know, there is a lot of absolute shit out there without my caring about a country that is about the size of a Walmart superstore and about the same size economy.

- blackton

May 7, 2010 at 2:58pm

jackson, a poster there said it well: Because the Guardian is run by delusional chatterati with no particular feel for any part of the United Kingdom, other than North London? Clegg and Cameron are going to do a deal, they are both a couple of posh public school boys with their secret rituals and handshakes, not letting decent hardworking people in, stupid stonecutters, how I hate them.

- blackton

May 7, 2010 at 3:02pm

Actually, the ignorance of the post begins with its title. Wealthy !@#$%^&* like Peretz may benefit from a stronger dollar, but the economy as a whole does not at this time (read and understand Krugman and other Keynesian economists). Peretz is an intellectual embarrassment to tnr and an impediment to its financial well being.

- drofnats1

May 7, 2010 at 3:03pm

and because it is a friday: ...I see. Well, of course, this is just the sort of blinkered philistine pig-ignorance I've come to expect from you non-creative garbage. You sit there on your loathsome spotty behinds squeezing blackheads, not caring a tinker's cuss for the struggling artist. You excrement, you whining hypocritical toadies with your colour TV sets and your Tony Jacklin golf clubs and your bleeding masonic secret handshakes. You wouldn't let me join, would you, you blackballing bastards. Well I wouldn't become a Freemason now if you went down on your lousy stinking knees and begged me. Client 2: We're sorry you feel that way, but we did want a block of flats, nice though the abattoir is. Mr. Wiggin: Oh sod the abattoir, that's not important. (He dashes forward and kneels in front of them) But if any of you could put in a word for me I'd love to be a mason. Masonry opens doors. I'd be very quiet, I was a bit on edge just now but if I were a mason I'd sit at the back and not get in anyone's way. Client 1: (politely) Thank you. Mr. Wiggin: ...I've got a second-hand apron. Client 2: Thank you. (Mr. Wiggin hurries to the door but stops...) Mr. Wiggin: I nearly got in at Hendon. Client 1: Thank you.

- blackton

May 7, 2010 at 3:05pm

blackton, "I simply don't get Marty's schadenfreude over others misfortunes." yeah, while thinking we should at least thank him for letting us use his comment space during Day 3 of my annual dandelion genocide, figure he forgot to take his profits in April, and blames Greece and the Brits for his paper loss this week. I thought it was a slip on a keyboard that was the trigger yesterday, trader to be charged with terror as I am sure watching 1,000 point drop in one minute caused a few heart attacks. Hope Helen Mirren plays the Queen again if the only adult left in Great Britain has to untie the Gordian knot of British politics. see The Examiner on: British-election-results-in-hung-Parliament-Queen-may-exercise-rare-consitutional-powers as soon as the Neanderthal DNA story found it's way to the Middle East, I got confused. thought the Basques have that gene pool. happy Friday indeed. the sky will fall tomorrow, um, manana with a tilda over the first n :)

- K2K

May 7, 2010 at 5:43pm

I was worried from the headline that Peretz would have to write an entire Spine post without getting to include some kind of unkind comment about Muslims, but fortunately he pulled through in paragraph 4. Hooray!

- frippo

May 7, 2010 at 7:32pm

"Muslim immigrants who are not only changing the European character of the country but who do not, given the choice, prefer to work." This is one instance when I would welcome some background material in support of this statement's veracity. Some self restraint might be in order, Mr. Peretz. You begin to appear like your typical antisemite who can never speak of any subject whatsoever without taking a potshot at Jews, Israel or Zionists. I don't like it and it makes it difficult to take anything you may have to say even when it is valuable.

- noga1

May 7, 2010 at 7:45pm

Good gracious, Mr Peretz is using his hatred of Muslims in his economic analysis. The hypocrisy and double standards of this man is boundless.

- OscarPeck

May 8, 2010 at 12:51am

So, a strong dollar is catastrophic for the economy. I'm old enough to remember when "made in the U.S.A." was the international gold standard of manufacturing quality. And now, we can't sell our goods and services on the world's markets without manipulating currency exchange to our advantage, according to some on this thread. I guess we've priced out credit default swaps beyond what foreigners can afford.

- NR114746

May 8, 2010 at 1:48am

Don't be too disappointed, NR. A strong currency is fine so long as you can maintain your trade roughly in balance. Otherwise it is not. It is not a slap at American manufacturing that we cannot compete. Others have learned to use technology invented here, as we should expect, and they can pay wages 1/10 the rates here. If we don't want to bring the wages of American workers down to the level of "Chindia" (a phrase used by a very prominent leftist labor economist at a lecture I attended a couple of weeks ago), then something else has to happen. A fall in our currency would do the job, but for political reasons, and because of our ability to absorb investment, it won't drop far enough or fast enough. The problem with Peretz is that he doesn't understand the problem.

- roidubouloi

May 8, 2010 at 3:15pm

Did that "prominent leftist labor economist" try to explain why Germany, with the highest labor wage rates in the world, is consistently an export powerhouse, with a trade surplus that is the envy of China?

- K2K

May 8, 2010 at 6:15pm

K2K: "as soon as the Neanderthal DNA story found it's way to the Middle East, I got confused. thought the Basques have that gene pool." What is so elegant about that comment is that one could end up in a padded cell trying to work out who the butt of the joke is.

- ironyroad

May 8, 2010 at 7:05pm

irony: I can NOT put in writing on the internet what I was thinking about the German discovery of Neanderthal DNA in modern humans. that is because my DNA: Russian-with-a-dose-of-Mongol, mixed with a dash of the 17th century Swede who raped his way through Finland into Poland is layered over the love child of King Solomon and the Queen of Sheba; often turns the written words expressing what I am thinking into a Winston Churchill quote: "Russia is a riddle wrapped in a mystery inside an enigma."

- K2K

May 8, 2010 at 10:04pm

German industry, post-war, was built to be export led, as a matter of government policy with US encouragement. It was felt to be an important means of stabilizing Germany and tying it to the west. Despite that, our trade deficit with China is in the range of 4-5 times that, without it being in explicit goal of American government policy. China can sell us mass-consumer goods at cheap prices. The Germans, with high labor rates, are confined to the higher end of the market.

- roidubouloi

May 8, 2010 at 11:16pm

4-5 times that of Germany

- roidubouloi

May 8, 2010 at 11:16pm

K2K - while not as pithy as Roi's response, I can share some of my observations. As Roi noted, Germany specializes in high quality, high end export goods, whereas the US manufacturing sector covers the whole gamut. It is obviously the mid-to-lower tier manufacturing sector (which just happens to provide a lot of employment in this country) that is marginal and hence waxes and wanes with the USD. Its always worth remembering that the US is *still* the worlds leading manufacturer, and still has a considerable lead of #2 China. In short, Germany's success seems to come down to two points: significant government intervention in the economy with a clear pragmatic goal (sufficient growth to sustain the current arrangement) and some more nebulous social norms. To wit: * There is a significant "social contract" arrangement in Germany whereby it is very difficult to fire workers, especially older workers in favor of the young. This harnesses the power of the market to find productive employment for more people. And when the private sector cannot do this, the Germans recognise that their citizens are not economic units that don't have mortgages, children in school etc and can just move to more productive sectors. The government helps out here with retraining and targeted incentives to bring new work in (while the Germans are becoming more geographically mobile, they lag far behind the US). * From this is can be observed that Germany protects the rights and interests of its citizens with as much vim and vigor as it protects the rights and interests of institutions and employers (imagine that!), with the aforementioned benefit. * There is what can only be described as a very protective fence (through Government policy) around the Mittelstand, or small & medium business sector, which provides about 2/3 of all employment (more than in the US). * And finally there is a consistently strong standard of education around the country. The German school system also uses what would be called "tracking" in the US, where students are differentiated out according to some measure of the ability and separated and actually quite a young age into different school systems. The pros and cons of this are debatable, but there is little doubt in my mind that the best and the brightest in the US are not been served by the well-intentioned efforts to ensure those at the bottom are not being abandoned. All of this leads to significantly higher stability in the employment, which coupled with a government run socialised health care system (on top of which those who can and wish to purchase private insurance are free to do so), provides significantly higher levels of economic security and stability. Apparently that has some definite intangible benefits. On the social side, one of the most remarkable things I observed (at least in the areas I lived in) was that it was utterly unacceptable to be career unemployed. In contrast to my experiences in Australia, the UK and the US, it is most definitely not better to be unemployed than say, a lawyer. It is better to not be seen if you are living on social welfare for an extended period of time. You will be shunned in pretty much all social venues. Reading of the various post-mortems of why Wal-Mart failed in Germany also provide plenty of entertaining anecdotes and observations that make it clear that the German workforce, from senior management to the Wal-Mart shop floor level, are clearly not drones despite the stereotypes. My favorite money quote: “American management methods are often primitive,” said Aldi’s former CEO Dieter Brandes in the weekly magazine Stern. “It’s all about budgets, not customers. When the figures look bad, no one looks for the roots of the problem; they just replace the CEO.” (http://www.atlantic-times.com/archive_detail.php?recordID=615) This is not to say that everything is perfect in Deutschland. * There are significant problems with how the Turkish immigrant population is treated. * While the automotive manufacturing sector survived globalisation, other heavy industries (such as ship building) did not, which has led to a strong manufacturing sector in the south, a strong financial sector concentrated around Frankfurt and then more depressed areas as you head north from there. * While I liked living there and could do so again, I'll freely admit that I prefer to live in the US at the current point in time. That's also the stated preference of many Germans who come and live in the US for some period of time. And it mostly comes down to one of the reasons why Walmart failed - everywhere in Germany is either built upon, or as about to be built upon. No big super stores outside of incorporated village boundaries to lower your taxes, and few even modest sized houses.

- Nari224

May 9, 2010 at 9:04am

Nari: thanks for sharing. I am not going to debate the myth of "uncompetitive" American wage rates, despite my 25 years in what used to be American manufacturing, direct witness to the monetization of industrial assets at the expense of jobs at formerly profitable manufacturing enterprises. If more Americans knew the true percentage of unit labor cost as percent of sales price, there would be riots across this country. If America had more engineers, and far fewer lawyers and MBA, we would not be a nation in decline. Manufacturing matters. Kind of interesting to read revisionist history of Germany's post-war export-led economy...

- K2K

May 9, 2010 at 11:32am

K2K - I'm certainly interested in your observations if you have the time to share them. However for low-to-mid range manufacturing, if I can buy the same plant equipment and install it in the US, Germany or Mexico, it's a no brainer which is going to be cheaper to do. As to more engineers and fewer lawyers & MBAs - hear hear. I am currently involved in the efforts to staff up a program with a non-trivial number of software engineers and testers (>10) domestically in the US (with additional staff offshore). And about every 5th applicant that is even up for consideration is a native-born American. Everyone else is from India, India, China, Australia (!) and, India. And these are good paying jobs that have lasted through the last two downturns.

- Nari224

May 9, 2010 at 11:50am

«But Portugal is really a backward polity with a backward economy. Compared to Spain, it is in the 15th century without the explorer ships and international trade. Its population works at farming.» This line should be taken as an example of Mr. Peretz's accuracy on all subjects. This is a Harvard Professor after all! Unfortunately I cannot give him due credit since I am too busy at the farm, digging and planting seeds. Just a side note to inform that, according to the 2000 census, 4% of the Portuguese population worked at the primary sector (40% at the secondary sector and 56% at the tertiary sector).

- Ideaot

May 9, 2010 at 12:55pm

«Spain, on the other hand, has an advanced industrial economy. But it also has burdened itself with legal and illegal Muslim immigrants who are not only changing the European character of the country but who do not, given the choice, prefer to work. But the migration is not limited to Maghreb Arabs and other Africans.» This comment is NOT -- absolutely NOT -- racist! On the contrary: it is universalist in character and tone!

- Ideaot

May 9, 2010 at 1:02pm

Nari: I appreciate your invitation, but this is not the platform for me to go into detail about the myth of American unit labor costs. Louis Uchitelle did a nice job in this 2005 article, "Globalization: It's Not Just Wages" of why Whirlpool imports front loading washing machines from their factory in Germany: http://www.nytimes.com/2005/06/17/business/worldbusiness/17whirlpool.html?pagewanted=all From my perspective: the post-1973 oil embargo high inflation led to Volcker's Fed raising interest rates so high that the MBAs realized that financial services was the better alternative to manufacturing. Higher ROI, no unions, no EPA, and thus the leveraged buyout was born. It still breaks my heart to think of all the excellent manufacturing plants and companies that were drowned in debt between 1978 and 2001, when I stopped being in the position of direct witness, and the shark hunt turned to the monetization of housing. It got worse under Clinton, as the Democrats became the party for Wall Street without considering the impact of quarter to quarter earnings pressures, and the mantra of 'shareholder value'. There is also a bad habit among the elite, of looking down on people who work with their hands, and that includes engineers. Not everything is digital.

- K2K

May 9, 2010 at 7:52pm

I have no brief for the financial sector. It is out of control and a threat to our economy. However, the idea that finance, or the desire of students to get MBAs and go to Wall Street rather than into industry, is what has brought US manufacturing low is just silly. Nice morality tale, nothing whatever to do with reality. Finance is not responsible for the inability of an industry to generate adequate profits in a world-competitive environment. Trade policy and the lack of industrial policy -- that is, some means of protecting, training, and re-training workers other than allowing them to resist technical change as the only possibility for self-preservation -- are the proximate causes.

- roidubouloi

May 10, 2010 at 9:55am

I keep seeing this notion that a strong dollar is bad because it makes exports more expensive repeated, but it's not the case. The reason we have such huge trade deficits is that we have more or less encouraged companies to offshore manufacturing for the last several decades in order to increase profits, thus not only eviscerating our manufacturing sector but also failing to give companies incentives to move up the value chain. The Germans and Japanese did precisely the opposite, which is why they still have large trade surpluses with us even though the euro and yen are still stronger than the dollar. That's also why the Plaza Accord -- where we did to the Germans and Japanese what we're now trying to do to the Chinese, i.e. badger them into allowing their currencies to rise -- didn't work, and our trade deficits with those countries have only increased in the years since. The strength of weakness of the dollar may affect certain manufacturers' quarterly earnings, but one thing that depreciating the dollar won't do is significantly revive U.S. manufacturing. If we're serious about that, then we need an industrial policy that both alters the mix of goods we produce and increases their quality so that our goods will sell regardless of the dollar's value. This is already the case with some industries, particularly pharmaceuticals/biotech and aerospace.

- ajd_nyc

May 11, 2010 at 12:37pm