Clyde Prestowitz on the Dangerous U.S. Dollar

While many people think the U.S.’s military superiority is vital to world security, all of the money and energy that we spend on it may be seriously damaging our economy says Clyde Prestowitz, president of the Economic Strategy Institute. “We spend a lot of time and effort and research developing specialized products and technologies that we actually don’t want to use; that we hopefully never use, and that have very little application for our wealth-producing capacity. But yet it soaks up engineering, talent, and scientific talent,” he says.

In his Big Think interview,  Prestowitz also says he thinks the dollar is becoming dangerous. The fact that there are so many dollars out there—and the U.S. has such a large international debt—makes foreign countries wonder if we’re going to eventually try to inflate our debt away, as many big countries do when they get into trouble. Since the dollar is a floating fiat currency that’s not linked to gold, or silver, or any other commodity, countries like China can intervene in currency markets—they buy up dollars to raise the price of the dollar and reduce the price of the Yuan, reduces the price of their exports. “They can intervene to keep the dollar strong, which then accelerates their exports into the U.S. market. It allows them effectively to overproduce and to over-export. o it allows us to be irresponsible, allows us to over-consume, overspend, and over-borrow. And as a result, both we and our trading partners are acting irresponsibly,” he says.

Prestowitz also says he worries that people believe in a false mythology how America initially got rich. It wasn’t just free markets and entrepreneurial activity and lack of regulation, says Prestowitz. It was because from 1800 to 1950, we acted, economically speaking, the same way that China does today: a longstanding partnership between U.S. industry and government promoted the country’s wealth-producing capacity. Prestowitz thinks the Homestead Act is a perfect example. “America’s biggest industry in the 19th century was agriculture and the Homestead Act provided agricultural land. So, essentially factories to the populous at a very low cost from the government, and the proceeds of that were used to fund the Land Grant universities; the big state universities that dominate our scene today and to promote agricultural technology.”