August 01, 2012
The NYT had a truly bizarre piece that at least implicitly portrayed Japan unfavorably compared with the United States for having an over-valued currency. The second paragraph tells readers:
“In an echo of a debate that raged in the United States in the 1980s, the government faces growing criticism for doing almost nothing to rein in the yen, despite alarm that the record-high currency is dealing crippling blows to the country’s once all-important export machine.”
The article then goes on to tell readers that Japan’s large number of retirees benefit from a high yen, which means cheap imports. However the high yen hurts young people by making manufacturing less competitive, and thereby reducing employment.
The reason that this piece is so bizarre is that these criticisms would be much more obviously directed at the United States than Japan. The United States has an 8.2 percent unemployment rate. Japan’s unemployment rate is 4.3 percent. Japan has a current account surplus of more than 2.0 percent of GDP; the United States has a deficit of close to 4.0 percent of GDP. If there is a country that could obviously benefit from a lower valued currency it would seem to be the United States.
Remarkably, while the value of the currency is apparently a hotly debated issue in Japan (at least according to the NYT), it is rarely mentioned in the United States. This could be due to the fact that more powerful interests than retired workers support an over-valued dollar in the United States.
The financial sector typically supports an over-valued currency since it reduces the risk of inflation and it makes them bigger actors overseas. Also, major retailers like Wal-Mart have established extensive supply networks overseas that rely on being able to buy goods cheaply. Most major manufacturers have also established subsidiaries in China and other countries with low wages.
These powerful interest groups would strongly resist any effort to lower the value of the dollar and thereby make U.S. goods more competitive in world markets. This could explain why the value of the currency is debated in Japan, while the NYT tells us that it is only a matter of historical concern (the 1980s) in the United States.
One fun tidbit in this piece is that it tells us that in the midst of the crisis, Japan became a “haven for investors”:
“After the crisis began, raising doubts about the soundness of American and European banks and the ability of governments to stand behind them, the tide of money reversed. Japan, with its huge security cushion of domestic savers, suddenly became a haven for investors, driving the yen up.”
That’s right, a country with a debt to GDP ratio of more than 230 percent is a haven for investors. Doesn’t that make you worry about those big deficits that Obama is running up?
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