I’ll have a lot more to say about this important and impressive new report from CAP about “inclusive growth” which some are hailing as a conversation starter for the 2016 D’s agenda. The commission behind the report is co-chaired by Larry Summers, a former Treasury Sec’y (that’s relevant to the part I’m about to highlight).
In lots of writings lately, I’ve been obsessing about the wage- and growth-dampening role of global imbalances, our persistent trade deficits, and most recently, the need for a currency chapter in any forthcoming trade deals, most notably the Trans-Pacific Partnership.
So this officially blew me away (my bold):
“…mechanisms must be found to ensure that the goal of free trade is not subverted by exchange rate manipulation. With the U.S. dollar at the center of the international financial system, misaligned exchange rates present an impediment to employment and wage growth for the United States in particular. But undervalued exchange rates also pose significant costs to people in the countries that are doing the manipulating, effectively reducing their real wages by raising the cost of imported goods and services—and therefore that of domestic, import-competing goods and services.
The World Trade Organization, or WTO, rules pertaining to exchange rates are inadequate to address the challenge of unfair advantage from skewed exchange rates. Thus, it is unsurprising that no WTO member country has ever brought a currency dispute to the body. New trade agreements should explicitly include enforceable disciplines against currency manipulation that appropriately tie mutual trade preferences to mutual recognition that exchange rates should not be allowed to subsidize one party’s exports at the expense of others.”
To be clear, I’m not saying everyone on the commission, including Larry, endorses this. The intro to the doc notes: “there may be specific matters…on which some of us have different views.”
But the imprimatur of a former US Treasury Sec’y who is also one of the world’s top economists makes this all the more impactful. For those of us who’ve held this position for a long time, it’s a powerful and explicit endorsement of a critically important policy change.