Treasury Secretary John Snow—remember him? Tall, bald, still in the Bush Cabinet?—is not usually the most scintillating public speaker. But during his recent tour of Europe, he sounded like he was reading from a script penned by a writer with a flair for the absurd. Someone like Charlie Kaufman, the writer behind Being John Malkovich. *
(Scene 1: A week after the election. I stumble through a tiny door in a corridor outside my office and find myself ... inside John Snow's head. "OK, now that Ashcroft's gone, maybe the press will pay attention to me. I better remember to shave. The re-election of President Bush is causing the dollar to fall. Investors the world over interpreting it as a sign that what J. Bradford DeLong calls the "clown show" of fiscal policy will continue. Hey, if he thinks I'm a clown, just wait until Glenn Hubbard is nominated to replace Greenspan on the Federal Reserve Board. Man. Where was I? Oh, yeah: Our allies in Europe—the guys who buy so many of our stocks and bonds—need some reassuring that we're not just gonna let the dollar continue to drop. Better go give some speeches over there. Do my thing. I know—I'll say that we're in favor of a strong dollar. That'll help! Stay on message. What? The pound has risen to $1.85 against the dollar? S***. Better call the scheduler and have her cancel the trip to Harrod's. Don't forget to smile.)
If you want to understand why the world worries about the Bush economic team, just check out the speech Snow gave last Wednesday at London's Royal Institute of International Affairs, where the treasury secretary seemed to be trying to boost the dollar. Snow laid out the administration's plans to combat the budget and trade deficits that have hastened the dollar's decline. In the speech—essentially the economic portion of Bush's stump speech—the self-professed"life-long deficit hawk" Snow spoke (without giggling) of the "strict budget" that Bush submitted to Congress, which doesn't include tens of billions for Iraq. Snow reiterated the absolute impossibility of raising taxes—ever. "There are only two sensible ways to reduce a budget deficit: grow the economy and control spending," he said.Snow also argued that the trade deficit could be closed if only Euro-land and Japan would stimulate their economies, China would let its currency float against the dollar, and Americans would save more.
Buried among Snow's bromides was a massive contradiction about the dollar. The United States is in favor of a strong dollar, Snow said, because it's in favor of a strong dollar. Always has been. Always will. America is strong and so must its dollar be. But the United States, which favors free markets, also insists that the value of the dollar be set through competitive markets. In other words the United States wants a strong dollar in principle, but it also wants the dollar to weaken against the propped-up Chinese yuan, so that the trade gap narrows.
The market scoffed at Snow. As he spoke, the dollar plunged to a new record low against the euro. Snow's performance worsened during question time. When an audience member had the temerity to ask why Snow persisted in discussing the strong dollar policy while the greenback was plummeting, he simply responded "because it's our policy." Challenged again, he reiterated: "The policy is the policy."
Why do our officials bother to say that we're for a strong dollar, when we're plainly not? It has to do with our self-image—no country worth its salt openly says it wants its currency to be weak. But even economic policymakers as obtuse as Bush's should know by now that you can't make the dollar strong by talking about it. If a government is seriously interested in strengthening the path of the dollar, it can control spending and cut the deficit—policies this administration seems notably uninterested in.
In the 1990s, the Clinton administration said it wanted a strong dollar, and it generally got one. That's not because Treasury Secretary Robert Rubin had mythic powers over the currency markets; rather, it was because his policy statements bore some resemblance to the reality of the markets. The Clinton administration took seriously its professions of fiscal responsibility. That's just not the case with Snow. He repeats the same lines that Rubin used about the dollar, while pursuing, or acquiescing to, policies that keep the dollar weak.
(Scene II, Back inside John Snow's head.Nov. 23, 2004. S***. The dollar just fell to new lows against the euro. Again. And today, China—a country in which the banking system is largely insolvent, intellectual property rights are barely enforced, and the per capita income makes Mississippi seem like Beverly Hills—has started to lecture us about getting our financial house in order. Don't they understand? The policy is the policy.)