Dear Mr. Taillard:
If U.S. changes the currency for a new and different dollar that its value be 10 times (like what is $10 today, after the change is only one)and the government makes a mandatory law that all services and merchandise has to be charged a tenth of what was before the change. Do we solve our economic problem?.
If today a person makes $2000 a month and spend $2000 a month and after the currency change makes 200 and spend 200, that person has not lost anything but then we can compete with China in the cost of production. Even if a person has paid his house ($100.000)and after the change, the house value is $10.000, that person has not lost anything neither because 10 thousand is going to be the same to 100 thousand before the currency change.
But the gov. has to make a law and force all commerce to charge a tenth of what used to charge before.
We need to be in equal conditions to be able to manufacture at the same cost than other countries.
Instead of $7.50 the minimum wage it will be $0.75 an hour but instead of paying $700.00 for rent, would be $70.00, people economies are the same but we can compete with China.
If after all this U.S. put a higher tax to all the merchandise coming from China (let's say 100 % of the merchandise value)all the factories and companies that left to China would come back and our products would be able to sold all over the world, increasing the export.
I think and you maybe know that with the taxes ideas that the president or Romney have, it is not going to solve our bigger problem. It is not a political matter, it is just , economy.
If a country does not produce goods and does not export, it will remain in poverty. Now, you are the expert and I ask, If other countries have done currency changes and make protectionist laws, Why can't we do it?. If it is going to solve the problem, Why the government does not do it?
Thank you very much in advance and expect to hear from you soon,
Sorry for the delayed response on this, but it was a really expansive question and I wanted to make sure I was giving it it's full dues.
Basically, what you're describing happens during a recession. It's called deflation. Deflation is a period of decreasing prices and wages, usually driven by high unemployment. As unemployed workers compete with each other for limited jobs, they accept lower wages in order to get work at all. At the same time, since people are making less money, companies decrease price in order to deplete surplus inventories that cost money to store and maintain. This is usually a small decrease, though, and must be handled naturally. If you attempt to do it by force, then the results aren't pretty. In fact, nations have attempted to force the value of their currency down before. It was quite common during the early 20th century, wherein nations would attempt to drive down the value of their own currencies in order to increase exports. What this does, however, is increase inflation, decrease confidence in the currency, and drive up the amount of interest that must be paid on bonds in order to incur debt thereby increasing government spending by increasing the cost of their acquisitions. As I tell my students, "Think of economic management like walking an elephant down the street; a light touch that sets things in motion generally toward an end goal is the best option, because trying to force it can only leave you crushed under the weight of an animal of which no one is ever fully in control." For a modern example of what happens to a currency when a government tries to inappropriately manage its value, look at the case of Argentina's hyperinflation.
By putting a higher tax on all imports from China, the only thing you will accomplish is increasing prices and costs in the US. Protectionist policies have been proven harmful time and time again by the Soviet Union, North Korea, China, Japan, Australia, the United States, and more. What results is a misallocation of domestic resources to inefficient production causing increased consumption of the factors of production, decreasing international trade competitiveness, and driving the entire economy down the toilet. The US trade with China is like a big discount coupon for the US, valid until China's wages and prices increase to the point that it is no longer beneficial for the US to buy so much from them. At this point, the point at which China no longer as a wage-based absolute advantage, trade between the two nations will equalize by a process called factor price equalization. For an example of the influences of trade protection, I recommend looking up the case of the Volga automobile. It helps increase employment but only for a very short time before it causes more harm.
As for Romney and Obama, they're both missing the point. The Republicans are stuck in the 1870s, and Democrats are stuck in the 1950s. You're 100% correct when you say that the decisions being made are political ones and completely ignore good economics. What we really need is a completely reform, not of the economy, but a reform of the way in which we make economic decisions. Rather than having the same arguments every year, we need to be more focused on revamping government accounting and fiscal policy to more closely resemble those utilized by capital investors. It doesn't matter how much a government spends, as long as they are generating a return on investment for the money it spends. There isn't a single politician talking about how much returns we're making on our spending, though, which means we end up wasting a TON of money on things that end up being a complete "money pit", rather than a true investment.