The inherent strength of the peculiarly American version of free
enterprise is shown by how long and how well the U.S. economy has
been able to withstand the constant battering by wrong-headed
government policies - but the bulwarks are starting to weaken.
Once upon a time the "greenback" was the world's premier
currency. Now the dollar is cheaper in value than both the euro and
the British pound.
In recent months, it has twice hit record lows. Every time our
currency cheapens, the dollar price of oil and everything we import
With less purchasing power in the global marketplace, we
Americans are poorer than we were before. We lose confidence in
ourselves and stature in the eyes of others.
Currencies rise and fall against one another in international
exchange markets on an almost daily basis and for a variety of
reasons - including the recent expansion of the money supply by the
But the long-term weakness of the dollar is fundamentally the
result of two failings.
First, we Americans do not save enough to meet the economy's
requirements for capital investments.
We must, therefore, each year acquire from other countries about
$700 billion of capital to fill the hole left by our profligacy.
Second, and corollary to our lack of saving and investment, we
consume more than we produce.
We must, therefore, acquire from other countries not only large
amounts of their savings but also large amounts of their goods and
Because our exports (dollars flowing in, goods flowing out) are
much less than our imports (dollars flowing out, goods flowing in),
there is an oversupply of dollars in the international market that
drives down the price.
The federal government is strongly implicated in America's
spendthrift status, its enormous trade deficit, the weak dollar and
the fact that most Americans are less well-off than they should
More than a hundred years ago, Henry David Thoreau (hardly a
right-wing ideologue) had already tumbled to the sad truth about
He wrote: "The character inherent in the American people has
done all that has been accomplished; and it would have done
somewhat more, if the government had not sometimes got in the
Insofar as profligacy is concerned, the federal government leads
by example. For 24 of the past 30 years, it has run a substantial
budget deficit, having spent more than it takes in in revenue - and
when it does so, it reduces national savings.
Federal budget deficits are dissaving by the government in the
same way that individuals dissave when they spend more than they
earn. Most Americans follow the government's example.
Those who rebel and who do save and invest are punished with
extra taxes. The government has for decades deliberately taxed
income that is saved and invested far more heavily than income that
is immediately consumed.
Gross private savings has been less than gross private
investment for 26 of the past 30 years.
Not only do taxes on savings and investment weaken the dollar,
they slow the growth of the private economy - often costing
Americans $3 billion in lost incomes and jobs for every $1 billion
of revenue yield to the government. The total cost of tax-induced
collateral damage to the economy is about $2.5 trillion per
Now the Democrats in control of Congress, led by New York Rep.
Charles Rangel, are preparing to kick up the deadweight loss to the
economy by another $2.9 trillion.
That's a $2,600 annual whack for every family in America for the
next 10 years - and that's only for starters.
To make matters worse - especially insofar as concerns the trade
deficit - the government heavily taxes the export of American-made
goods, making it hard for companies to compete in the global
markets from their home base in America.
But when American companies flee this country and operate abroad
- because of the penalties on exports or for other reasons - they
get a tax holiday from the U.S. government, provided they reinvest
their foreign-source profits abroad to the benefit of some other
Woe be unto them, however, if they bring the money home to
reinvest in America. The government will tax them.
No wonder the annual U.S. trade deficit is about $0.7 trillion
and is equal to nearly 6% of America's entire gross domestic
product. And no wonder those in other countries are downgrading
their view of the American economy and downgrading the dollar.
Christian, an attorney, was a deputy assistant secretary of the
Treasury in the Ford administration. Robbins, an economist, served
at the Treasury Department in the Reagan administration. Both are
adjunct scholars at the Heritage Foundation.
First appeared in Investor's Business Daily
The inherent strength of the peculiarly American version of free enterprise is shown by how long and how well the U.S. economy has been able to withstand the constant battering by wrong-headed government policies — but the bulwarks are starting to weaken.
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Ernest S. Christian
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