America Must Reform Its Economy

America’s economic weakness isn’t just due to Chinese currency manipulation. Many of its problems are homemade — plus, there aren’t enough jobs.

The world is acting crazy once again. The heads of state and finance ministers of the world’s largest nations worked for two years to get a handle on the global financial crisis. Now, as the global economy revives, and Germany is showing faster growth than it has in previous years, that’s where the similarities end. They’re even talking once again about a currency war.

There’s nothing new about the dispute over the fair value of currencies. The United States has been complaining for years that Asian countries enjoy an unfair advantage in exporting, because the Chinese are keeping their currency, the Renminbi (RMB) artificially lower relative to China’s economic strength. That makes Chinese products cheaper than competing American products. At nearly every international trade conference in recent times, the United States has warned the Chinese that it has to change its behavior.

The fact that that isn’t happening quickly enough for the United States and that America is also upset by Germany’s exporting successes has one simple explanation: While America’s economy is growing once again, no jobs are being created. High unemployment is depressing America’s spirits. The old saying, “It’s the economy, stupid!” is a truism that frightens Obama. He and his Democrats will have to cope with bitter losses in the upcoming midterm elections. The war-like rhetoric in this campaign is due largely to that fact.

But the problems go even deeper than that. America’s weakness isn’t primarily due to China’s unfairness; it’s homemade. The decline of the American automobile industry is a good example of that. Broad sectors of American industry are barely competitive globally anymore.

If the United States wants to get out of this mess, it won’t suffice to merely cheapen the dollar relative to other currencies. This country, once famous for its astounding flexibility, has to reform its labor force and must invest in education and infrastructure. Germany has proven it can be a successful industrial power despite high operating costs — so it can be done.