Subject:
Compared with what?
Date:
Thu, 12 Jul 2001 07:48:51 -0400
From:
"R. A. Hettinga" <[EMAIL PROTECTED]>
To:
Digital Bearer Settlement List <[EMAIL PROTECTED]>
http://www.opinionjournal.com/columnists/slipsky/?id=95000797
DISPATCH
High Hat
Is the dollar too valuable? Compared with what?
BY SETH LIPSKY
Wednesday, July 11, 2001 12:01 a.m.
Before sitting down to write this column, I put on my favorite hat. It's
a
fedora made by the French hatter Motsch Fils & Cie. A warm gray, it has
a
gold embossing in the band that says garanti castor naturel, meaning
it's
made of real beaver. Hard to come by these days. The hat is
distinguished
by another feature. It was, in the mid-1980s, the object of what may
well
be the strongest exchange rate ever commanded by the dollar against the
modern French franc. The hat was priced at 1,300 francs, but I bargained
it
to 1,100. When the salesman stuck there, I asked him if he'd take a
Reagan
C-Note for it. "Ah, bien sur," he said, and I walked out with the
chapeau.
I reached for my Moetsch as I began to reason out the lead story in
Sunday's New York Times, which ran under a headline asserting "A Strong
Dollar Clouds Prospects for Quick Rebound." More than six months after
the
Federal Reserve began battling to reverse the economic slowdown in the
U.S., the Times reports, economists and business executives say an
unexpected rise in the value of the dollar is complicating the prospects
for a rebound. This is happening, the Times reports, despite six
interest-rate cuts by the Fed this year that would typically be expected
to
weaken the dollar. The result is that American products have become more
expensive when sold abroad.
It has to be said here that I am notoriously slow at these matters. I
often
have to read things several times to figure out what they mean. But it
didn't take me long to grasp that when the Times refers to a rise in the
value of the dollar, it appears to be referring to its value with
respect
to European scrip and the Japanese yen. I then went to the version of
the
Times story on the Web so that I could search the text automatically,
and I
ran a search to find the word "gold." I wanted to double-check my
impression from reading the print version. Sure enough, it turns out
that
this entire dispatch about the value of the dollar doesn't include the
word
gold. Not even once.
Of course, there's no indication in the story of what the value of the
yen
or the euro is either, although the dispatch is illustrated with charts
showing how these currencies stack up against one another. It's like
comparing rulers embossed with different unnumbered lengths. One has
more
lengths than the other, though what length they are is hard to
determine.
To find out what the dollar's real value is--that is, the price of
gold--one has to search elsewhere. It turns out that in fact the
dollar's
value has been decreasing in recent days and, in recent months at least,
has been more or less steady, ranging between 1/250th and 1/275th of an
ounce of gold.
Now if it sounds like I'm a typical gold bug, let me draw some
distinctions. I'm not an economist, for better or worse, but a
newspaperman. I am more concerned with accuracy of description than
policy.
And, for what it's worth, I'm not trying to criticize the journalism of
the
Times, per se. It just happens to be the paper that landed on my
doorstep
Sunday morning bearing a lead story about the "value" of the dollar. No
doubt it reflects the kind of thinking that passes for a policy debate
these days. My beef is that using some kind of plain-language test, it's
impossible to connect the terms in which policy is being debated to
anything real.
Back in 1986, The Wall Street Journal published a famous editorial
called
"The Bonn-Tokyo Deflation," which was accompanied by a shrewdly crafted
chart. It depicted the price of gold in dollars, deutsche marks and yen.
>From a straight line across the center of the chart, representing no change
in price, it showed the dollar angling up slightly, the mark angling
down,
and the yen plunging at a steeper rate still, as the gold price fell in
those currencies. The illuminated the fact that, as another Journal
editorial of the period put it, while the dollar had been inflating
slightly against gold, the yen and the mark had been soaring. What was
happening was the Germans and the Japanese were deflating.
These days the dollar seems to be more or less steady, at least in
recent
months. So if there's a problem it may well be that the Europeans and
Japanese are allowing their currencies to weaken rather than pursuing
other
pro-growth policies like tax reduction and deregulation.
Not that the disinflation of the kind that occurred in America in recent
years is entirely inconsistent with growth. By my lights the
underappreciated story of the 1990s expansion is that it took place in
the
face of a decade-long working up of the value of the dollar against
gold.
There were some ups and downs, but it emerged at the end of the decade
at
something like 1/280th of an ounce after starting the span with a value
of
less than 1/400th of an ounce. But that would only underscore the point
that the real problem here may have little to do with the value of the
dollar and a lot to do with the problems in Europe.
Of course, there will always be those who contend that the choice of
gold
as a measure is purely arbitrary. I was thinking about that point some
weeks ago, when I flew to Detroit to meet some colleagues. The forecast
was
for decidedly inclement weather, so as I departed for the airport I
reached
for my Moetsch. Beaver hats are celebrated for their ability to deal
with
rain. When I walked into the meeting, the hat got so much comment that
it
wouldn't have surprised me if I could have sold it for $200 or $300--or
an
ounce of gold--right on the spot.
In other words, for all its wear and tear, the old beaver skin had
soared
in value after all these years. This may be why beaver pelts used to be
used for currency in parts of America. Or it may be further evidence
that
the inert and rare aspects of gold make it a preferable measure. I have
my
own view, but I'll keep it under my hat.
Mr. Lipsky is a contributing editor of The Wall Street Journal. His
column
appears Wednesdays.
Copyright © 2001 Dow Jones & Company, Inc. All Rights Reserved.
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