Friday, August 8, 2008 - The Progress & Freedom Foundation Blog

Obama: Economic Genius?

Just kidding. But we figured since we've spent some blogspace hammering Barack Obama's terrible tax plan, we should offer credit when he gets something right. Turns out Obama wants a stronger dollar, and he explicitly tied it to lower oil prices. That's better than the current Administration or the McCain campaign. As The Wall Street Journal wrote this morning:

The underreported economic news of the week is that Barack Obama favors a stronger dollar. Even better, he thinks a stronger greenback would help to reduce oil prices.

That at least is what the Democratic Presidential candidate told a town hall forum in Parma, Ohio, on Tuesday. "If we had a strengthening of the dollar, that would help" reduce fuel costs, he said, according to a Reuters dispatch ignored by most of the media.

This ought to be a bigger story. In linking the dollar to oil prices, Mr. Obama is pointedly at odds with the Bush Administration and Federal Reserve, both of which blame high commodity prices on supply and demand, despite falling demand due to slower global growth. Fed officials -- in particular, Vice Chairman Donald Kohn -- have expressly rejected any strong link between the dollar's collapse and the oil price surge since last August.

This conveniently absolves the Fed and Bush Treasury of responsibility for the consequences of what has been their destructive and all but explicit dollar devaluation strategy. If the Illinois Senator rejects greenback debasement, that's the best news to date about Obamanomics.

The market is applauding, too. Today the Dow jumped 300 points, the inflation-signal of gold fell $15, oil fell $5, and the dollar rocketed against the euro to a six-month high.

The implications for esoteric-seeming monetary and currency policies could not be more far reaching. An inflationary, weak dollar has caused everything from $4 gasoline to the housing boom-bust and thus the ongoing credit crisis. It also might just have deep-sixed the Doha free trade round that collapsed last week. As Business Week noted in a story titled "WTO: Why India and China Said No To U.S.":

Part of the reason for India's firm stand on protection for its farm sector is the crippling food-price inflation the country is facing. The cost of basic cereals, beans, and lentils has risen 25% in the past three years.

Maintaining some kind of stability in its agricultural sector is key to helping tame the nearly 11% annual inflation rate that threatens not only the current government, but also decades of meager income and nutritional gains among India's poor, says Karkade Nagraj, an agricultural expert at the Madras Institute for Development Studies. "You can't isolate what happens to Indian farmers because of WTO policies from what is happening in the world economy," he says. "With the crisis on the financial market, a huge amount of money moves to the commodity markets, leading to a commodity bubble. In a condition such as that, if you open up agriculture, then the farmers could gain, but that's not going to sustain anything for a long while."

Preoccupied with their own rural problems, Chinese and Indian policymakers have little sympathy for the U.S. and other countries that subsidize farmers. The Americans, Europeans, and Japanese are "asking weaker countries to dismantle their own protection measures without doing the same in their own countries," says Shi Yinhong, a professor of international relations at People's University in Beijing. "It's a double standard."

Lower energy prices, an end to the credit tumult, and more free trade. Strong Dollar Obama is a good start. Now if we can just get him to see the light on tax rates....

posted by Bret Swanson @ 3:36 PM | Monetary Policy , Trade