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Why does Sarah Palin suddenly care about the dollar?

PH2009051203881.jpg

Matt Drudge, Sarah Palin and variety of other right-wing cranks have become oddly interested in the falling price of the dollar recently. Their argument, however, does not seem based on a desire to see America orient itself more toward imports than exports, which is what a rising dollar would imply. Rather, they seem interested in a new economic talking point. Dan Drezner explains:

So, what's really going on here with the dollar obsession? I suspect that with the Dow Jones going back over 10,000, Republicans are looking for some other Very Simple Metric that shows Obama Stinks. The dollar looks like it's going to be declining for a while, so why not that? Never mind that the dollar was even weaker during the George W. Bush era -- they want people to focus on the here and now.

And they're helped in this by the fact that we call a lower-value dollar a "weak" dollar, which sounds bad even though it isn't bad. But the whole strategy is reminiscent of the dynamic identified in "It Feels Like We're Thinking: The Rationalizing Voter and Electoral Democracy," a paper by the political scientists Larry Bartels and Christopher Achen. The study examines voters' perceptions of the economy in the late-'90s, when the numbers were traveling in an unambiguously positive direction. What they found was startling: The more informed a voter was, the more likely he or she was to "partisan self-deceive." That is, more "informed" voters believed more things that weren't true but fit their preexisting biases.

This "weak dollar" nonsense is a good example of how it works. If the basic narrative held that the economy was improving, then most people would think that the economy was improving, and people who don't like Barack Obama would think that the economy was improving and Barack Obama is bad. But people who are reading Drudge and right-wing Web sites and Sarah Palin's Facebook page -- "highly informed voters," in other words -- would be exposed to all sorts of obscure statistics that seem to suggest the opposite. Where most people hear that the economy is improving, this groups hears that the dollar is falling, and that this is a terrible thing that weakens America. High-information voters, in other words, have access to a lot more information and a lot more filters that help them fit the world to their biases. This goes for folks on the left as well as the right, and it makes anything even approaching consensus politics virtually unthinkable.

Photo credit: Chris Miller/AP.

By Ezra Klein  |  October 22, 2009; 9:48 AM ET
Categories:  2010 Midterms  
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Comments

People have a good idea whether they're better or worse off economically. If they're better (worse) off, no amount of doom and gloom (rah rah rah) will convince them otherwise.

This rule, of couse, doesn't apply to far right R's and far left D's, who both instead reflexively look to who's in power to determine whether they're better or worse off, but they're both tiny minorities.

Posted by: ostap666 | October 22, 2009 10:00 AM | Report abuse

I suspect that Drezner is correct about the wingnut's search for confirming evidence of ObamaEvil, but it's also true that obsession with the strength (sigh) of currency has been a hallmark of the right long before President Obama emerged.

Some are entranced by gold, others see salvation in a high dollar, but the attitudes are related.

Posted by: ilyagerner | October 22, 2009 10:08 AM | Report abuse

Ezra,

You are conflating "highly-propagandized" voters with highly-informed voters. I'm not a Palin or Drudge follower in the least and I'm fairly certain they are not international currency experts, but you also don't address the potential impacts of the declining dollar when it is the world's reserve currency, trillions of those dollars are held by other countries as debt (and they don't like the value of those debt dollars to fall) and the Federal Reserve continues to print more dollars, thereby lowering the marginal value of the dollars in circulation.

The falling dollar may very well be a symptom of serious structural economic issues in this country. Issues that continue to worsen even as we are being told that the "recovery" has begun.

Posted by: rhythm18 | October 22, 2009 10:10 AM | Report abuse

Since this fact of how people normally perceive reality -- strictly according to their existing narratives -- is itself as old as the hills, sometimes we forget that every new generation needs to learn how the human mind works!

Some of us over 40 will read this with a slight smile, and feel glad this basic, old truth is being mentioned again.

It strikes me though that today America especially could use a wider understanding of this kind of basic psychology of thought processes.

Perhaps we bloggers should begin to spread this understanding of how people perceive reality more repeatedly, until it becomes more of a common knowledge.

Thanks, Ezra, for bringing this up again.

Posted by: HalHorvath | October 22, 2009 10:14 AM | Report abuse

rhythm18, the U.S. desperately needs to improve its trade balance. Why is a deep topic, but you can read on such terms as "global imbalances", "national defaults", etc. Key to improving the U.S. trade balance is of course the level of the dollar, and you'll quickly learn that the Chinese peg is preventing a natural adjustment that would have created a lot of American jobs years ago.

Posted by: HalHorvath | October 22, 2009 10:18 AM | Report abuse

rhythm18, here's one bit:

http://www.ft.com/cms/s/0/9165b8b0-b82a-11de-8ca9-00144feab49a.html?nclick_check=1

Posted by: HalHorvath | October 22, 2009 10:21 AM | Report abuse

I don't think you should completely ignore the thread of Republican history from McKinley through Taft that viewed a strong currency as almost the only thing that mattered.

Ron Paul has stolen a bunch of the true believers, but there are still quite a few Republicans (and even a few Democrats) that will start waxing nostalgic about the Gold Standard after a few drinks.

Posted by: missionpeak | October 22, 2009 10:26 AM | Report abuse

as rhythym correctly states (and i'm no ecomomist so I'm going by what i hear but it makes logical sense) the concern is over the combination of the defecit's growth to record numbers as well as the weakening dollar. Who cares if the dollar's weak. Its the fact that at some point China mostly (and soon to be India) won't want to buy our debt anymore. If the perception is that we won't be able to pay it back (or if our interest stifles our ability to pay it back) then we'll be in the same boat as a country that many homeowners in the US are now. I'm surprised the far right hasn't come up with a slogan/sign that shows a US flag with a foreclousure sign on it yet.

And I doubt they'd (China or India) pull a Fannie or Freddie or AIG and bail us out in 10 years.

Posted by: visionbrkr | October 22, 2009 10:26 AM | Report abuse

There is precedence for this is Communications research as well. The Hostile Media Effect (http://en.wikipedia.org/wiki/Hostile_media_effect) essentially says that people will see media coverage as biased against there own opinions. Not the same as partisan self-deception, but not as contrary as it first appears.

In general news coverage those who perceive themselves as knowledgeable (and knowledge does, in fact, correlate to partisanship) will see coverage of the
improving economy as a conflict to what they believe (or "know") to be fact, therefore they will seek out opinions - statistics, etc - that conflate their own bias/knowledge/perceptions. Studies have shown greater support for this effect in respondents who self identify as partisan or who claim to have particular knowledge of the information at hand

Posted by: zacksherwood | October 22, 2009 10:33 AM | Report abuse

"Why does Sarah Palin suddenly care about the dollar?"

Because Bill Kristol told her to care about it.

Posted by: shamey73 | October 22, 2009 10:35 AM | Report abuse

because of her concern, perhaps she will allow herself to be interviewed for thirty minutes, by fareed zakaria, on the state of the american economy, so she can share her knowledge and solutions.
that will be the end of that.

Posted by: jkaren | October 22, 2009 10:57 AM | Report abuse

A headline on MarketWatch today is "America's Collapse is Inevitable." It was there yesterday.

Drudge and Kudlow harp on this non-stop: day and night, night and day.

King Dollar is basically a metaphor for Big Pensi. If you understand it that way, then you know why people are so concerned...they see Washington overrun by commies and f@gs and they need a manly dollar to represent the USA. Don't show them a 20 year graph, though, because they will see the dollar stronger today than it was when Commander Codpiece was preznit.

But seriously, yes there is a point where you don't want the dollar to fall further. But do you want to strangle the economy to make that happen?

Hint - IYAR, yes you do!

Posted by: luko | October 22, 2009 10:58 AM | Report abuse

The proof is in the pudding.

All those who listened to the conservatives tell them to buy gold are doing quite well right now.

A declining dollar is the quintessential definition of inflation. So, how's any of this good, again?

Posted by: WrongfulDeath | October 22, 2009 11:16 AM | Report abuse

"A declining dollar is the quintessential definition of inflation. So, how's any of this good, again? Posted by: WrongfulDeath"

That is the fallacy of the undistributed middle.

A declining dollar, that is a dollar who's value is declining, DOMESTICALLY, is a result of inflation, an increase in the monetary supply without a corresponding increase in the supply og goods to purchase with that dollar.

A dollar that is declining against FOREIGN currency is neither particularly inflationary or deflationary for DOMESTIC goods. All that declining dollar does is shift consumption to domestic consumption. Where domestic consumption can grow to accomadate the increased demand, because it is well below capacity, which is the current situation, all that losing ground against foreign currencies does to the dollar is make it less valuable to foreign holders, who then can try to dump their supply of dollars. Since the only really way to dump dollars is to convert them to goods, that means foreign markets need more U. S. made goods, thus increasing domestic production.

That, of course, violates a current republican policy of offshoring as much of our economy as possible to give the few market operators who make money offshoring an advantage, and THAT, of course, is what they really object to.

Posted by: ceflynline | October 22, 2009 11:25 AM | Report abuse

visionbrkr,

I'm not an economist either so I can't really comment about how realistic your story about how China will pull the plug on buying U.S. debt is. But, I have reason to suspect that it is somewhat simplistic. See this article by Simon Johnson, former chief economist at the IMF:

http://baselinescenario.com/2009/07/27/secretary-geithners-china-strategy-a-viewers-guide/

Johnson argues that if China were to pull the plug on U.S. debt they would be hurting themselves more than us. I like to think of it as kind of like mutually assured economic destruction. Not that there isn't a real possibility that that dynamic won't change in ten years like you suggest.

Posted by: nklein1553 | October 22, 2009 11:33 AM | Report abuse

" Its the fact that at some point China mostly (and soon to be India) won't want to buy our debt anymore. Posted by: visionbrkr "

At whatever point that China and/or India decide they don't want any more dollars, or that they want to hold fewer dollars, they have a major problem. Their economies depend on paying THEIR workers in dollars and keeping those workers from using those dollars for buying foreign made goods. If ONLY china and India want to dump dollars they can buy, say, Thai products with dollars, and Thailand then profits from China and India wanting to be rid of dollars, but to do so they have to let in Thai products to compete with their own products.

They do have one sink for those dollars, currently, and that is raw maerials, especially oil, that they must import from foreign sources. So as long as Arabia, or Africa, still value the dollar India and China have use for them. WHEN Arabia and Africa saturate on dollars, for India and China all bets are off, but the U. S. is still quite unaffected, since there is virtually nothing that we need, or even simply want, that we CAN'T produce if needed.

Let the dollar sink. The results are problems for China and India, not for us.

Posted by: ceflynline | October 22, 2009 11:35 AM | Report abuse

Here's what a declining dollar means to me:

1) The new Panasonic camcorder I need for my video production business will cost me at least $100 more than if I had bought it a few months ago.

2) The main reason I need the new camcorder is to help produce some thousands of dollars worth of training and promo videos for my second-largest client, whose international sales are exploding.

Any questions? :)

Posted by: roblimo | October 22, 2009 11:39 AM | Report abuse

"Here's what a declining dollar means to me: 1) The new Panasonic camcorder I need for my video production business will cost me at least $100 more than if I had bought it a few months ago. 2) The main reason I need the new camcorder is to help produce some thousands of dollars worth of training and promo videos for my second-largest client, whose international sales are exploding. Any questions? :) Posted by: roblimo"

Yep. When XEROX or Kodak comes out with a camcorder selling for $1000 less than Panasonic. or Panasonic moves production back to the U. S. and drops its price by that $1000, will you be offended? Will you be offended when your second best customer finds his sales to overseas customers of U. S. made goods goes up by quite a bit, and you have to make training videos to cover those goods?

A dollar that falls against foreign currencies improves the value of our products overseas, and reduces the value of overseas goods domestically. The goods are still available.

Posted by: ceflynline | October 22, 2009 11:59 AM | Report abuse

The other thing that's kind of odd is you would think Palin would be extolling the virtues of the strong, manly, muscular Euro. But I don't hear that. Because yes, relative to the dollar the Euro is *strong* (and causes them lots of anxiety) and that's NOT because the Eurozone is deficit of debt free (which goes part and parcel with talk about a weak or strong dollar). And it's not because they don't have socialized medicine. Or unions. Or regulations. Or government intrusion into the lives of private citizens.

So when I hear Palin talking about how great Europe is, and how we should be emulating the economic policies there that have resulted in a strong Euro, that's when I will start paying attention to her.

Posted by: luko | October 22, 2009 12:10 PM | Report abuse

ceflynline, thanks for working to explain the effects of the dollar exchange level. If anything, this is too abstract for most people to instantly comprehend.

Here for examples is a good general statement of what needs to happen:

"A solution to this impasse would be for China to abandon its de facto dollar peg and adopt a regime characterized by a multiple-currency, basket-based reference rate with a reasonably wide band. In this case, there would be more stability between the renminbi and other Asian currencies. In addition, exchange rates in the region would be able to appreciate together in response to regional trade surpluses.

This move would be difficult for China. Labor-intensive exports and thus employment in these industries are sensitive to exchange rate appreciations. On the other hand, exchange rate appreciations would reduce the need for Chinese and other Asian central banks to continue accumulating U.S. Treasury securities. Private and social rates of return are much higher for investments in education, healthcare, and clean water than for investments in U.S. government securities. An appreciation of the RMB would also allow Chinese consumers to purchase more of the final manufactured goods that were previously exported to developed markets (Thorbecke, 2009). A stronger renminbi would thus allow Chinese workers to enjoy more of the fruits of their labor while reducing their dependence on final demand in the West."

http://www.econbrowser.com/archives/2009/10/east_asia_the_g.html

---
Simply put, we have a lot of explaining to do, and we need to try to put it in plain english. That's work, and worthwhile.

Posted by: HalHorvath | October 22, 2009 12:25 PM | Report abuse

ceflynline, that's what roblimo was getting at: on one hand, his camcorder costs more. On the other hand, the only reason he needs the camcorder is because his client's international sales are exploding because the dollar has fallen.

We went through this before in the 80s. There was a lot of anxiety over the falling dollar, in part because of our ego over the issue. In the end, it all worked out fine. But if you're looking for something to be anxious about, then that's something to get agitated over. Back in January, when the dollar had recovered from its fall in 07-08, people were complaining about the stock market, as Ezra said.

Posted by: constans | October 22, 2009 12:28 PM | Report abuse

I think Palin's view on the dollar may not be solely attributed to right-wing hackery. Being a former governor of a petro-state, Palin has competently displayed her knowledge of the oil industry. Unfortunately, as was shown throughout the entire 2008 campaign, Palin seemed to conflate the interests of Alaska with the interests of the United States. Perhaps her devotion to a strong dollar could be seen in that context.

Posted by: len2v | October 22, 2009 12:53 PM | Report abuse

ceflynline,

great explanation, thanks. one question though:

Couldn't as the lender china raise the price to borrow and squeeze the US just as a mortgage lender can squeeze a homeowner with an ARM?

Posted by: visionbrkr | October 22, 2009 1:27 PM | Report abuse

Palin is late to the party, which is possibly a contrary indicator and a signal to go long on the dollar.

Serious people were concerned years ago. She and Bachman are johnny-come-latelys. I stumbled on this from 2005 when reading a link in a post above...

http://www.econbrowser.com/archives/2005/12/the_gold_standa.html


Posted by: luko | October 22, 2009 1:34 PM | Report abuse

"Couldn't as the lender china raise the price to borrow and squeeze the US just as a mortgage lender can squeeze a homeowner with an ARM? Posted by: visionbrkr "

Its sort of a trap that China hasn't recognized.

A banker can demand more money to write or extend a loan because his stock in trade is money and he can use the excess for more trade or profit.

China COULD squeeze us, of course, but to what end? They just get more money that they don't want.

Should China call in its loans, since we only pint greenbacks we pay them in greenbacks. They CAN, of course use those greenbacks to buy U. S. products, IF we decide to sell those products, but of course those products are all products China would like to have in domestic surplus to sell to us.

Whether China has recognized that trap or not is the question.

Posted by: ceflynline | October 22, 2009 2:15 PM | Report abuse

ceflynline,

thanks. I get it now. I guess the understanding of it requires considering money as a commodity like oil. But then we get back to the problem that there's not much that the US makes anymore. America over the last 40-50 years has turned more into a "service" economy than a constructive economy. transitioning from that back to what we were is very difficult I'd assume.


So exactly what products would they buy? I'm thinking not many. So at some point they'll realize this(ie the trap you mention) and stop loaning us money which is why we need to keep the defecit in check because like a mortgager we'll be underwater with our loans.


And then we get back to the fact that this is what concerns the Republican's and any fiscal conservative. Now should they have the same fiscal conservatism when it comes to planning wars all over the globe, ABSOLUTELY. But it doesn't deter from the fact that the nation's debt is a serious problem that needs to be resolved and the affect of it is the dollar's weakening, no?

Posted by: visionbrkr | October 22, 2009 3:43 PM | Report abuse

visionbrkr, when you ask: "
So exactly what products would they buy? I'm thinking not many."

The answer depends on the price of the goods, and *that* depends on the exchange rate to the dollar! See?

As the dollar goes down, to a more natural level like it was in the past, then U.S. goods become more competitive, and people around the world buy more U.S. goods.

What does the U.S. sell to China? A great deal, already. But it could and should be more.

Posted by: HalHorvath | October 22, 2009 3:59 PM | Report abuse

Hal,

thanks. but what can we sell them that they can't already make (and cheaper because labor cost is cheaper) themselves? I'm sure there are some things and nothing comes to mind now but the value of them can't be in the trillions like the debt and growing, no?

Posted by: visionbrkr | October 22, 2009 4:29 PM | Report abuse

US is still the world's number 1 manufacturer. China won't surpass us until about 2020.

Posted by: luko | October 22, 2009 4:31 PM | Report abuse

"So exactly what products would they buy? I'm thinking not many. Posted by: visionbrkr"

That, heh! heh! is the trap. China CAN'T actually buy very much FROM America because it needs to try to sell its version of those products TO America.

Food stuffs? We can probably feed all of China, BUT of course China demands that it be food independent. Automotive goods? China wants to be able to sell them to us.

China, particularly, remains slave to an attitude that led to the Ming Dynasty closing China up like a purse, but which actually goes clear back to Shang, Zhou and Yao, "Value nothing that comes from afar. That which you value an enemy can withhold from you." (Thanks to Larry Gonick in "The Cartoon History of the Universe") If they become dependent on a foreign country for anything at all they fail at an underlying cultural belief.

During Ming, Spain hauled silver from Mexico and Peru to the Phillipines to trade for Chinese trade goods. Silver was virtually the only thing China would accept in trade. Silver could be cast in Taels, which were one kind of money. Copper, from which China could cast cash, being a commodity in China, China wouldn't accept.

China still has its Ming economic policy, and is trying to use post WW II as its economic model for dealing with the west. So China is trying to get rich using techniques that are fifty years outmoded, and an economics theory that ossified 7000 years or so ago.

They aren't getting the results they desire. Naturally

Posted by: ceflynline | October 22, 2009 4:36 PM | Report abuse

Good info on US exports:

http://www.trade.gov/press/press_releases/2009/export-factsheet_021109.pdf

Posted by: luko | October 22, 2009 4:59 PM | Report abuse

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