Why the dollar must plunge to save the US economy

It seems like every day more money is being thrown at the financial crisis. Reasonable people worry about what this will do to the value of the dollar if people lose confidence in our ability to pay back our debts. With any luck it will destroy the value of the dollar.

Nothing will do more to bring jobs back to the US than when our unsustainably high global power erodes. It is inconceivable that an average American worker can be a hundred times more productive than an average Asian worker, but our current exchange rate requires it if we're going to have jobs for American workers in an economically competitive environment. Of course, the notion that a weak dollar will bring jobs back to the US is nothing new. The downside is that prices will rise as (artificially) cheap imports are no longer so abundant. Essentially the trade-off comes down to giving up new big-screen TVs in order to provide enough jobs for everybody who wants to work.

But then, there's the bigger picture. I can't help but think we're in a period similar to what Spain went through when it dominated the seas in the 16th Century. I've read in Galbraith's economic history about what caused Spain to recede as a world power. When Spain dominated the seas, ships full of jewels and gold were frequently brought into the country. The country quickly became the richest nation in the world. Once Spain had more wealth than any other nation, they realized it was more economically efficient to simply import goods rather than make goods themselves. Over time, two things occured. First, and most obvious, is the nation slowly lost wealth to other nations who actually produced goods. When the incoming treasure slowed, the overall wealth of the nation started to recede. But a second, and far more enduring, effect was that Spain lost the ability to produce things. The money couldn't keep coming in forever, and when it stopped Spain was no longer able to produce wealth for itself. I fear the same thing is occuring in our country. The best jobs and most lucrative money-making ventures are often in areas like sales and finance and brokering exchanges of property. People who create no real value, but simply move large amounts of money around, are generally compensated far better than people who actually create real products or provide real services. History has shown that such a system is unsustainable.

Our problem is not that our banks and financial companies might fail. Our problem is that we seem intent on propping up a system where moving money around is seen as a more valuable profession than actually creating things or providing useful services. Rather than throwing money at banks, we should be throwing money at artisans and tradespeople and doing whatever it takes to make apprenticeships a viable alternative again. We should be making entrepreneurship as lucrative as pushing papers for a big corporation (and the main way to do this is providing universal health care so people don't have to choose between starting their own business or being able to provide health care for their families). We need to tax the HELL out of trading securities and flipping real estate. Our current tax system imposes a lower tax rate on "unearned" income (capital gains and dividends) than on money that people actually earn through working. This can't be any more absurd. If I was trying to destroy a nation, then imposing a lower tax rate on unearned income would be a good place to start.

Of course, changing all this will cause all sorts of harm. A modest 1% surcharge on all stock trades would go a long way toward ending the speculative bubbles that have caused so much economic harm recently--and also start to pay for all the financial burden Wall St is currently passing on to the taxpayers. Of course, it would also cause stock prices to fall even further. But these are the trade-offs we have to make. We've been coddling the rich for so long that people have come to accept the notion that this is simply the way it should be. But we must change this status quo if we want the country to continue to thrive. We must stop rewarding unproductive activities more than we reward proctive activities. We must stop giving favorable tax treatment to unearned income. We must find ways to make it more lucrative to do actual work and provide a real good or service. If we are unable to figure out how to do this again as a nation, we'll go the way of every other failed empire that has fallen into this trap.