It is, therefore, clear that bringing something back home is not always good or desirable. And so it is with jobs. The trouble is with the word in my title “Back”. Having a strong job market does not necessarily mean bringing the jobs back. A strong job market and a healthy economy is a very desirable thing and it is possible that bringing jobs back might not be the best way to accomplish that.
I recently read an article that explained that the US dollar’s role as a reserve currency is our main employment problem. If the dollar was no longer the world’s key reserve currency then jobs would come roaring back. How silly can you get?
The rationale is something like this. Countries sit on a bunch of dollars. They are nice to have around in the case that their government ruins their economy and destroys the value of their own currency. This desire to have dollars, therefore, leads to countries buying more dollars and raising the price of the dollar. The latter induces people to buy fewer American goods and more Chinese, Cuban, Estonian, and Vietnamese goods. If only they held fewer dollars, the value of the dollar would fall and the world would orgy on American-made goods. American workers would have so many jobs that they would dance their way through life like Zorba on the beach.
Okay I got a little sarcastic. Sorry. But it really is a silly theory. Does the reserve currency story have some truth? Of course. But that does not mean it is very important in the overall picture of exchange rates and where people like to buy their goods and services. Take exchange rates first. Reserves are but one of many things that impact the demand for US dollars. The value of the dollar seesaws by the minute and by the month because of many key determinants.
For example, global investors love to earn money and they look around for places to invest. When America’s economy seems strong or when the Fed policy leads to juicier bond or stock returns – folks all over the world sell their own currencies and buy dollars so they can buy US assets and get richer. Interesting that good news in US financial markets that raises the value of the dollar might be very important when it comes to hurting exports of US goods and services. Solution – mess up the US economy so it looks weak – that will help US exports of goods and services. I would not recommend this.
The second point is to think more broadly about why people trade goods across countries. Is the exchange rate the only thing impacting trade? Of course not. When we make decisions about sourcing goods we worry about such things as quality and price and those two things depend on many factors. What technology is employed? What design is used? How expensive is the labor? What is the shipping cost? How much do firms have to pay in the way of taxes or how are their costs affected by government regulations? How much does water and energy cost? And the list goes on.
Like many good stories, this one about bringing jobs back to America is more complicated than some people make out. The reserve currency gambit is silly because it takes one out of hundreds of factors and pretends it is prominent. There is a simple way to look at all this. Americans average somewhere around $60,000 income per year. To make American workers worth that amount in a sustainable way, it makes no sense to compete with Vietnam on low-skilled manufacturing or with any country that has an ability to make a particular good or service better and cheaper than we can make it.
Does that mean we give up? No. It means we use our considerable resources to make the things we are the best at. It won’t be easy but we already do it all the time. Our prowess in digital is amazing. We have new companies popping up like JD at a tailgate party. We will need a smart and determined set of policies that support that effort. We need to think how we reshape government resources and incentives so they support an effort to be the very best at producing things that can generate good pay for many employees.
We also need to continue to press cases against cheaters. It is one thing for the Rams to be tougher and smarter than Patriots – but if New England cheats, then the Rams still might not win. If China or any other country cheats -- then it is harder for the rest of us to make gains.