'Mainstream Economics': None Dare Call It Voodoo
The quality of public debate on economic issues is rapidly degenerating to the level of intellectual barbarism. Contradiction has become the mark of sophistication, evidence is dismissed as irrelevant, and "experts" are defined as anyone who advised the government during some economic catastrophe. Indolent journalists lean on an imaginary consensus, claiming that "most economists agree" about this or "Wall Street worries" about that.</br></br>Most economists are said to be concerned that a growing economy must raise interest rates, which will prevent the economy from growing. The solution, it seems, is for the Fed to raise interest rates to slow the economy, so that interest rates can fall and thus speed up economic growth.</br></br>Mainstream economists are reported to agree that a strong dollar causes trade deficits, and trade deficits make the dollar weak. The Fed therefore has to raise short-term interest rates to attract long-term foreign investment, or else the absence of foreign investment might raise interest rates. If foreigners keep investing in U.S. factories, on the other hand, most economists fear the U.S. will become a "net debtor" rather than a net lender (to Latin America and East Europe). The solution is to attract and repel foreign capital.</br></br>Most economists apparently believe that all countries should export more than they import, and can do that by periodically devaluing their currencies against each other. Exports are the benefit from trade, and imports are the cost. Inexpensive foreign goods make us poorer. The U.S. should try to raise import prices and cheapen exports, so that we can give up more wheat for less oil.</br></br>Most economists did not approve of the falling dollar of 1978-79, or the rising dollar of 1981-83. But most of all they do not like a stable dollar. The dollar must be free to float, but it always floats to the wrong level. Most economists agree that the dollar is overvalued 30%, and in danger of falling, but monetary authorities must ignore exchange rates and prices.