
Strong U.S. Dollar Means a Stronger Workforce
NEW YORK ( TheStreet) -- Paul Volcker, former Chairman of the Board of Governors of the Federal Reserve, wrote in his 1992 book Changing Fortunes: The World's Money and the Threat to American Leadership, that "The Federal Reserve is responsible for monetary policy pure and simple, no adjectives. Some might like to describe it as domestic monetary policy, but what the Fed does in regulating U.S. money and credit inevitably affects exchange rates, and even the world money supply. Domestic and international, it's a seamless web, so there is an institutional overlap."
Volcker proved his point repeatedly with examples from his tenure at the Fed and his time at the U.S. Treasury Department. This seamlessness is in evidence today as the international flow of capital becomes broader and deeper. Advancements in information technology only add to the ability of capital to flow smoothly and quickly worldwide.
These trends have also impacted other business areas, none more than in the recruitment and retention of workers. Technology has made it increasingly easy for companies to find outstanding employees globally, but that is more likely when the dollar is strong.
Clearly, monetary policy and employment trends are intertwined. The Federal Reserve should maintain a strong dollar at least partly to ensure that U.S. companies have the vital skills they need to achieve long-term growth. Other countries may benefit similarly from a strong dollar.
The present weak dollar contradicts current economic thought. That's because monetary authorities and fiscal authorities are supposed to concentrate on sovereign goals, like achieving high levels of employment and low rates of inflation.
These ideas were conceived at another time and seem out-of-date, given current problems. For the past 55 years, the U.S. government, including the Fed, has tried to keep unemployment as low as possible while maintaining low rates of inflation.
What has it accomplished? Slower economic growth; little or no growth in labor productivity; stagnant wage incomes; low labor force participation, and low capacity utilization in industry.
Because it is the leading, global economic power with the world's primary reserve currency, the U.S. government has been able to follow undisciplined budgetary policies. It has been able to support expansive credit policies with major advances in financial innovation. It has also been able to promote social programs that bring housing, among other things, to people who are increasingly unable financially to qualify for them.
The consequences of following such a path have also led to a decline in the value of the U.S. dollar in foreign exchange markets, which has resulted, in 1971, in a breakdown of the Bretton Woods international financial system created toward the end of World War II. It has also led to a subsequent decline, after 1973, in the value of the dollar by more than one-third.
This decline in the value of the dollar highlighted the profligacy of the U.S. government, but the model set the standard for the world as other countries that followed similar policies, with similar results.
One wonders how much the value of the dollar would have declined if other nations had not followed the lead of the United States. But, the U.S. was the hegemon and that made it okay for others to follow suit. These other nations now suffer similar, or, even worse, results in terms of slow economic growth, stagnant labor productivity, high unemployment and lots of unused industrial capacity.
The U.S. should set the world standard. It should change its focus from trying to boost the economy through short-term, stimulative economic policies. The only real path is the longer one of education and training. These efforts must be lifetime commitments because of the rapidly changing nature of technology and competition. The government should also support the creation of an infrastructure that complements such a society.
To provide the right incentives to achieve faster economic growth, and increase labor productivity, and the use of industrial capacity, the U.S. should also continuously pursue a strong dollar.
A strong dollar forces the private sector to focus on the means of achieving these ends and not rely on the public sector. The pursuit of a weak dollar, a strategy the United States has used over the past fifty years, only provides a crutch that artificially attempts to create a demand for goods and services so as to keep these resources fully employed.
The crutch does not encourage the education and training needed to generate growth and to ensure that the labor force possesses the right skills.
The United States should be the world leader in producing a strong, resilient labor force with an infrastructure and a capital base that fully supports it. It should create the right environment by pursuing a strong dollar, supported by a highly educated, productive work force.
Other nations will have to follow this lead if they are not to lose their most skilled workers. They should keep in mind that workers, as well as capital, flow with increasing ease across borders. Top talent will go where there are the best opportunities. The countries from which they depart will suffer from the loss of skills.
China, Europe and other markets will benefit in the long run from a strong dollar. Paul Volcker sets out the task. In a world that is a "seamless web," the economic leader of this world must set the standard. The United States must lead others into the new economic era.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.








