Lindsey gives an example of how the current President Bush had made the improvement of the nation's schools as one of his top priorities in office. An educated American workforce means a sound human infrastructure, which will help secure foreign investments. The third aspect Lindsey points out is that the U.S. must make sure it engages in free trade with other nations. If there is no free trade environment there is no incentive for foreigners to invest in the U.S. currency. Therefore reciprocity must be maintained between nations during trade.
In contrast to Lindsey's defense of the strong dollar policy, Bergsten attempts to attack this policy head on before defending his own. In attacking this policy, he initially points out that a strong dollar policy was useful during times of economic progress. But now that the economy has significantly slowed down, it is no longer necessary to maintain anti-inflationary measures and to lower short-term interest rates any further. He also states that some of the benefits listed by Lindsey, such as seignorage and America's ability to use its own currency during international transactions, have gone on in the past during times of both dollar weakness and strength.
Bergsten points out that the strong dollar policy has led to America's enormous trade deficit, which led to U.S. manufacturers not competing well in the global market. This could force the U.S. To create domestic safe goods, which would involve momentarily suspending certain concessions made towards promoting free trade due to its slackening economy. One other adverse effect that the strong dollar policy would ultimately have upon the U.S. economy, according to Bergsten, is that it would inevitably cause the dollar to experience a sudden depreciation in value. This would lead to a dramatic drop in interest rates and to the plummeting of the stock market, which would spell trouble for the U.S....
economy.
Bergsten mentions about two aspects of the sound dollar policy that should be implemented in order for it to work, which is similar to the way Lindsey listed three aspects of his policy. The first aspect he mentions is that the U.S. And its G7 partners should influence foreign currency markets by helping to prevent both the euro and the yen from depreciating any further. This would keep the dollar in balance, thus preventing it from becoming stronger than other major currencies. The second aspect is that the U.S. And its partners could work to bring about the gradual reduction in the dollar's value so that it does not experience a "hard landing." Finally, he believes that his policy should not be labeled as a mercantilist policy because, even though it helps to endorse the manufacturing sector, it would prevent trade barriers from being set up by allowing American exports to compete effectively in world markets.
Of the two authors and their views, it seems that Bergsten has made a stronger argument. He was able to provide more facts to support the notion that the strong dollar policy would not be beneficial for the U.S. economy, especially in the dismal state it is currently in. He presented the problems that America's trade deficit and sudden dollar depreciation would cause to the economy if left untreated. He pointed out some of the flaws in Lindsey's statements, such as when the latter stated that foreign investment helped the U.S. To build its military in the 1980's, thereby causing the collapse of Communism. Bergsten rightfully pointed out that through Reagan's military buildup, the U.S. incurred deficits and became dependent on foreign capital through its extensive borrowing. He was also able to provide a clearer method of implementing his policy, when he stated that the U.S. could slowly lower the dollar's value while strengthening the value of other major currencies.
