Winning the Race to the Bottom

Being poor is the worst kind of competitive advantage to have, and only two kinds of people pursue that advantage as a matter of national policy. The first kind is tyrants, such as the ones in Beijing, who for years artificially lowered the standard of living of the Chinese people on the theory that the Communist bosses could play a long game in which economic development would happen on their terms and under their control, without much real economic power accruing outside of the state. Keeping people unnecessarily poor in order to consolidate the party’s political power and to maintain a firm nationalist whip hand over politically sensitive industries is a monstrous policy but one that has its admirers in managerial nationalists in the United States both left and right.

This policy also appeals to a second kind of people: idiots.

Americans are so selfish that we even envy foreigners their poverty. Americans — President Trump and his advisers are hardly alone in this — look at the situation of Argentina, Brazil, China, India, etc., and say to themselves: “That’s not fair! We need some of that, too!” We believe, without quite putting it that way or understanding what we are advocating, that we would be better off if we were more like the poor, low-wage, backward countries with troubled currencies. And so President Trump has taken a break from labeling other countries’ “currency manipulators” to demand that the Federal Reserve engage in a new policy of more robust currency manipulation. Fed chairman Jerome Powell, to his credit, so far has refused to comply. Devaluing the U.S. dollar would make American consumers and businesses poorer. It would be equivalent to a tax on savings far hungrier than the one Elizabeth Warren contemplates. It would ruin businesses that import components and raw materials: We already have seen this ironically manifested in the ruination of a few domestic steel businesses by the Trump administration’s tax on imported steel, which was enacted without anybody apparently giving a second’s thought to the fact that many U.S. steel companies make a lot of their money processing imported scrap. The tariffs are a tax on one class of goods; devaluing the dollar is a tax on everything, especially on savings and investment.