A weak dollar will sap Donald Trump’s presidency like no other policy. This is something Steve Moore, a top outside economic adviser to Trump, knows well. So does Moore’s great friend, Larry Kudlow.
Back in 2008, Moore and I published a piece titled “Weak Dollars, Weak Presidencies.” It made a clear case that presidents who make a sound currency (Reagan, Clinton) a policy priority thrive economically, while those who don’t (Nixon, Carter, George W. Bush) ultimately fail economically. At the time that we published the piece, Kudlow was so enthused that he sent it to Chris McEvoy at National Review so that it could be run there online.
Kudlow has been a prominent advocate for a stable dollar for quite some time. Writing about the Clinton economy in his 1997 book, American Abundance, Kudlow explained its success this way:
“The single most significant, inter-galactic, extra-celestial, interplanetary, and spiritual force behind the global stock market rally is the decline of inflation to rates not seen in over thirty years. While many industrial nations, including the U.S., have imposed anti-growth and anti-saving tax increases in recent years, fiscal drag has been offset by a steady decline of inflation. Inflation is a tax on money, wealth creation, income, and work effort. Inflation is a devastating tax on savings. But low inflation is a tax cut. By enhancing the value of financial assets, price stability rewards patient savers and investors. It is a stimulant to capital formation, new business start-ups and growth. Growth does not cause inflation, low inflation causes growth.”
Kudlow and Moore have President Trump’s ear, and they should act on it. That’s because Trump at least presently doesn’t agree with them. He was quoted recently in the Wall Street Journal as saying that “You make a helluva a lot more money with a weaker dollar.” That’s not true.
It’s logically untrue precisely because companies and jobs are a consequence of savings and investment, and investors are pursuing returns in dollars when they put wealth to work. A declining dollar erodes the very returns that investors seek in intrepid fashion.
Intrepid is italicized when it’s remembered that there’s risk associated with investment, particularly with the ideas that offer the potentially highest returns. Their remarkable potential upside mirrors their potential downside. Translated, investors can lose every dollar committed.
Considering the risk associated with intrepid capital allocations, how unfortunate to saddle them with more risk via a declining dollar. Except that the latter is what President Trump is presently doing, and markets are complying. Presidents get the dollar they want. Only for it to get worse.
Trump contends that a weak dollar makes U.S. producers more competitive globally. It doesn’t. Kudlow and Moore know why. Not only does a falling dollar restrain the very investment that powers productivity leaps and subsequent global competitiveness, it also raises the cost of importing the myriad global inputs that invariably go into the creation of anything produced stateside, or for that matter, around the world.
Which brings us to the American people. Trump perhaps rightly views himself as the ultimate friend of the typical worker. True enough, but then the typical worker earns dollars without possessing the sophistication required to hedge dollar weakness. When Trump aims for a weak dollar his base suffers the consequnces of such a policy the most.
About what you’ve read, Moore and Kudlow once again know all this. And because they revere President Trump in addition to having his ear, they owe him straight talk about the genius of a stable dollar.
Originally published to Real Clear Markets.
