Thursday, January 21, 1999
Euro will alter U.S. economy, revive lost art of fiscal
policy
BENEFITS: Currency markets will focus on Europe, letting America
control own future
Beginning the first of this year, another landmark on the path
to globalization of the economy was passed with the introduction of
the European Economic Union’s new currency: the Euro. Economic
globalization offers the promise of greater riches for all, but the
world market is a fickle beast likely to turn on those who have
yielded to it. The challenge for America, as well as all nations,
is to maintain control over our economic future and to ensure our
nation’s wealth is distributed equitably.
Capitalism’s hegemony on the planet truly knows no boundaries.
Even stalwart sites of opposition to market forces, such as China
and Cuba, have turned to the power of the market, seeking political
viability through economic stability and growth. Any consideration
of the last years’ global economic tumult, however, should sober up
any over-reaching, unrealistic prognosticators who foresee nothing
but economic blue skies.
Here we find ourselves in the crux of the dilemma of yielding to
global market forces. To yield economically to the global market is
also to yield politically.
Yielding makes us vulnerable to the vagaries of the global
market. When we yield in this manner, we forfeit political controls
that could shape the economic future of this country for the
better. To address the uncertainty of our economic future – as well
as the economic issues of social justice – we must expand our
choices of economic control.
The question that seems of utmost importance with regard to the
European currency is what opportunities, if any, does the emergence
of the Euro present for us to retake control of our economic
destinies. For too long we have had a largely hands-off policy,
leaving us at the mercy of market forces. Economic self-determinism
has been a near complete non-issue.
I believe that a strong Euro and a strong European union
actually may provide reasons and opportunities for America to
regain control over its economic fate.
The dollar dominates world currency markets. Over two-thirds of
the world’s currency reserves are in dollars. Nations throughout
the globe want their excess capital in dollars because of the
dollar’s relative strength to other currencies and its long-term
stability. In time, the Euro will greatly change the balance of
world currency capital, competing with the dollar for
dominance.
How does all of this relate to reclaiming economic control?
In recent years, monetary policy (which is the attempt to
control the economy by influencing the price and availability of
money) has been the sole engine of economic control in the states.
Wall Street, Main Street and Bourbon Street have responded with
irrational hypersensitivity to the Federal Reserve Board (Fed)
chair Alan Greenspan’s proclamations of economic tidings. Because
monetary policy has reigned supreme, the power of the president and
Congress to raise and spend money has been diminished, democracy
has been co-opted and Greenspan wields gross extra-constitutional
power.
By raising or lowering interest rates, the Fed can reign in or
stimulate economic growth. Monetary control as currently enacted
has had very limited effect on the dollar in currency markets,
because of the dollar’s position as the dominant world currency.
Interest rates (effectively the price of money) can be changed
without damaging the dollar’s value relative to other
currencies.
A strong Euro, however, will not enable Greenspan’s
near-invisible hand to operate without cost. A new scenario will
emerge wherein monetary policy changes are framed in a zero-sum
choice between either domestic growth or dollar strength
abroad.
Monetary policy will become a precarious Catch-22. Our single
dimension of economic control will be unable to deal with the
growing complexity of the international economic scene.
My hope is that with the growing need for greater sophistication
in influencing the economy, fiscal policy (which is the attempt to
influence the economy by taxing and spending) can be dug out of its
early grave and be utilized by our government as a means of
re-claiming economic control in an increasingly sophisticated,
world-wide market.
Unfortunately, I do not believe that the intellectual revolution
necessary to revive fiscal policies will come from within this
country. The range of debate has been too narrow the last two
decades. In search of more progressive economic thought one must
look across the Atlantic.
On the eve of the transition to the Euro, the European Union
(EU) took a political turn, decidedly to the left. Currently, in 13
of the 15 EU nations, the progressive Social Democrats are in
power. The EU parliament is dominated by the Socialist Party.
Apparently the EU electorate, when facing the financially
conservative measures necessary for inclusion in the union, decided
it wanted to defend its concern for economic solidarity and justice
for all of its citizens. The Europeans decided not to yield to the
socially corrosive powers of the unfettered market as the United
States has done.
Europe, led particularly by the French, has an independent
streak with regard to U.S. policies and U.S. culture – including
our economic ideas.
Globalization, in its current formulation, greatly stresses the
EU’s ability to maintain both economic and social sovereignty.
Although it will not be easy, the leaders of the leftist coalitions
in the EU are going to attempt to achieve some balance between the
opposing tensions of economic equity and ravaging growth.
In the shadow of an actual debate in Europe over economic
sovereignty and the increasing demands of the world market, perhaps
our leaders will try to regulate and contain economic growth with
more tools than we currently employ.
I hope they will see the utility and desirability of some of the
methods and ideas of the Europeans and adopt them in our own
country. We need more sophisticated tools to manage an economy
growing ever more complicated and interdependent. In the process we
might just be able to regain control of our own economic future and
make the wonderful gains and prosperity promised by globalization
available to all.
Comments, feedback, problems?
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