A shrunken dollar will help U.S. workers

Steve Yuen, Las Vegas

Wednesday, April 8, 2009 | 2:02 a.m.

If you have faith in government economic stimuli, the current slack in consumer spending is to be filled by increased government spending to lift the economy, resulting in more revenue to eliminate the red ink in the federal budget. Many criticize this as a flawed theory, as it took the 1941 Pearl Harbor attacks resulting in total mobilization and zero unemployment, not President Franklin Delano Roosevelt’s deficit spending, to cure the Great Depression.

In 1940 the national debt was about half the size of the U.S. economy. It doubled in the mid-’40s and peaked at approximately 120 percent in the immediate postwar years.

However, the subsequent decades saw relative prosperity in the United States, reducing the national debt to about 35 percent of the gross domestic product under President Jimmy Carter and proving that deficit spending on an astronomical scale did work. In the 1980s it shot up to almost 65 percent under President Ronald Reagan’s supply-side tax cuts.

President Barack Obama’s stimulus will increase the national debt to 77 percent from the 70 percent of the GDP he inherited. Contrary to the fear that the U.S. dollar would devalue as a result, the U.S. dollar has strengthened against most others primarily because the rest of the world is in worse shape.

As other economies recover, the U.S. dollar will likely devalue, causing a degree of domestic inflation. This will help pay down the national debt, just as your fixed-rate mortgage should be easier to handle as your wages in future years are buoyed by inflation.

A shrunken dollar should help U.S. workers because imports may become so expensive that it will, once again, become profitable to hire Americans. We will also spend more of our money on the services of our fellow Americans, as vacationing outside the U.S. will become more expensive.