From: Gene McAloon 

You badly need to do some reading on this stuff and preferably not
Republican apologetics.

One of the primary imports in the '70s was Japanese cars. When the falling
dollar boosted the price of those cars from, for example, $2500 to $3000
and then $3500-$4000, Detroit boosted its prices commensurately. Autos are
a big-ticket item and their prices have a disproportionate effect on the
economy, particularly affecting steel. That kind of thing wends its way
through the economy in a marked way and when producers of other goods boost
their prices also commensurately, general inflation is off and running.
That is exactly what happened.  It is not a matter in dispute and never has
been; your attempts to absolve Nixon-Ford by blaming it all on rising oil
prices notwithstanding.

Your claim that trade was not a particular problem in the '70s is also
fallacious. Nixon lowered to the value of the dollar precisely because the
"balance of payments" problem, as it was known in those days, was
unacceptable to conservative economists at the time. It was his economic
advisors who recommended that something had to be done about it and their
solution was lowering the value of the dollar. It was much criticized at
the time because of the inflation it would likely cause, but the problem
was thought sufficiently serious to warrant taking the risk. From their
point of view it was better than directly limiting imports through tariffs
or quotas.

That the lowering of the value of the dollar can have general inflationary
consequences is recognized today when economists talk about the present
lowering
of the dollar. Even  Alan Greenspan, though usually bending over backwards
to please the Bush administration, has mentioned it in a cautionary manner,
as have
many others.  Of course you would argue that it matters more now because
trade represents a greater share of the economy now than it did in the
'70s, but that argument ignores the importance that was attached to it even
in the '70s.

In effect, you don't have a rational argument. What you have is apologetics
attempting to excuse Republican blunders under Nixon-Ford.

On Fri, 02 Jan 2004 23:03:14 -0800, Randall Parker
 wrote:

>Gene,
>
>The US in the early 1970s had a much smaller portion of its economic activity
>involved in trade. A decline in the dollar couldn't cause that much inflation.
Your
>fictional recall of history as you imagine it continues to be a source of
>entertainment however.
>
>In 1973 trade was 11.7% of world GDP versus 1993 where it ws 17.1% of world
GDP. See
>the last chart on page 3 here:
>    http://www.rit.edu/~sctgse/files/econ454/lectures/ch1trade.pdf
>Look on page 4 and you will see that in 1970 that trade was only 4.4% of US
GDP. A
>big shift in the US dollar could simply not create much of a blip in US prices
>because so little of what the US used came from abroad.
>
>As for defending Nixon as a Republican: I am critical of his economic
policies. But
>you are dreaming if you think that the devaluation of the dollar played a big
role in
>the 1970s inflation. It didn't because trade was not a major factor in the US
economy
>at that time.
>
>The essence of the Plaza Agreement was to lower the US trade deficit. It
worked:
>
>http://www.pkarchive.org/trade/ShrinkingTradeDeficit.html
>1980 0.7 pct.
>
>1981 0.7 pct.
>
>1982 0.9 pct.
>
>1983 1.5 pct.
>
>1984 2.8 pct.
>
>1985 2.9 pct.
>
>1986 3.3 pct.
>
>1987 3.4 pct.
>
>1988 2.4 pct.
>
>1989 2.1 pct.
>
>1990 1.8 pct.
>
>1991 1.2 pct.
>
>The Japanese government has been engaging in huge operations in recent years
to prop
>up the dollar against the yen. See here:
>http://www.upi.com/view.cfm?StoryID=20031204-041446-8074r
>
>Excerpt:
>
>The euro's surge, however, has nothing to do with this progress on reform. It
has to
>do with U.S. frailties, to which international investors are beginning to open
their
>eyes. The United States 4 percent plus budget deficit has helped to push the
annual
>deficit on current account (a full measure of trade, including services and
income
>payments) over the half trillion dollar mark. Consequently the United States
needs
>high capital inflows to offset this huge deficit in current payments (and also
to
>help finance the government's growing debt.)
>
>Foreign investors are growing wary. According to Dr. Rob Van de Wijngaert, a
>strategist at ABN AMRO in Amsterdam, U.S. Treasury numbers show that
"apparently
>there is not a single institutional fund in Japan which is willing to buy U.S.
>Treasuries and instead the Bank of Japan purchased no less that $150bn this
year"
>According to Van de Wijngaert, the latest numbers show that foreign "demand
for U.S.
>Treasuries, bonds and stocks is plummeting."
>
>And here:
>http://business-times.asia1.com.sg/story/0,4567,101487,00.html
>
>Excerpt:
>
>For example, the Bank of Japan has already spent 18 trillion yen (S$283
billion)
>slowing US dollar losses against the yen this year, and the strongest signals
on our
>charts are for further euro, Sterling pound and Australian dollar gains versus
the yen.
>
>
>Gene McAloon wrote:
>
>  > Although Reagan pulled the plug on the dollar, that had little to do with
>> helping the trade deficit. In essence the Plaza Agreement was about getting
>> Japan to import more US goods. It did so and that is what lowered the trade
>> deficit, although obviously cheapening the dollar contributed to that as
well.
>>
>> Contrary to the usual Republican excuses, it was not the increases in oil
prices
>> that caused massive inflation. That didn't cause massive inflation anywhere
else
>> either. The massive inflation in the US was directly attributable to Nixon's
>> lowering of the dollar and the increase in import prices that caused it,
>> combined with US industry's commensurate increases in its prices. Recall
Ford's
>> railing against those latter increases, but getting nowhere.
>>
>> You will have to do better than repeat tired old Republican arguments
defending
>> Nixon and Reagan's policies if you are going to have a chance of
contradicting
>> what I have said.
>>

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