20 January 16th, 2008.

The idea of rescuing the sputtering US economy by very significantly augmenting its exports is, in essence, the idea of making the rest of the world wear the US burden. It is immoral. In 1930, something similar was tried. It was thought that rising US customs sky high would open a larger part of the US market to US producers, as it would become much more difficult for foreign exporters to sell in the US. Instead of absorbing US overproduction, it ignited the Great Depression, because other countries retaliated in kind, by rising their customs thus closing their own markets to US exporters. The senators in Washington who had engineered this new economic policy of punishing foreign exporters, had overlooked that the USA was the world's greatest exporter, and thus had a lot to lose too. The reciprocal closure of markets made economic production collapse worldwide.

This time, 77 years later, the USA, instead of rising US customs, has debased its currency. It's a different trick, but the effect is exactly the same: making foreign products prohibitively expensive in the USA, closing the giant US economy to the rest of the world. The hope of many US policy makers is the same: that a positive imbalance of US exports would be created. This neglects many factors, such as the fact a lot of "US" production is actually from overseas.

Moreover, unfortunately for naive US policy makers, foreigners do not feel a greater urge to rescue the USA anymore in 2008 than they did in 1930. Importing too much from the USA is perceived by citizens (let alone politicians) of foreign countries as giving in to US imperialism. Besides, other countries have a right to an economy too. Thus, the USA can't be saved by exports. It is not just immoral, other countries will not allow it to happen. More fundamentally, a momentary fix of the US economy through exports would not address its fundamental sociocultural character, which, clearly, leaves much to be desired (contemplate for example the compensations of US CEOs, which sometimes amount to hundreds of times more than those of their European equivalents). The USA will have to solve its socioeconomic problems the hard way: by changing its culture.

Technical Post Scriptum:

1) We know the US Dollar was voluntarily debased, because there was no intervention to prevent its fall in the new century (in a currency intervention, central banks conspire to hurt the speculators who bet against a currency). Intervention used to be routine in preceding decades.
2) The Smoot-Hawley Tariff Act threatened to pass in 1929, and was a contributing psychological factor in the first stock market crash. Indeed, thinking investors realized that Smoot-Hawley would have catastrophic consequences for the world economy. The crash of 1929 delayed its passing; the financial markets initially recovered, but, finally, the Smoot-Hawley Act was signed into law on June 17, 1930, and raised US customs on over 20,000 imported goods to record levels (the average rate of duties on imports for 1921-1925 was 25.9%, but under the new tariff it jumped to 50% in 1931-1935). Many countries retaliated, and were more hit than the US. American exports plunged to about a third of their total prior value (before S-H). Agricultural commodities were hit, leading to failure and runs on small agricultural banks. Then, accelerating bank failures, the Fed failed to ease. The financial markets kept on collapsing, and nearly disappeared (some going down 90%).

Patrice Ayme.