Strong dollar = fewer jobs
Washington — A strong US dollar hardly sounds like a contributing factor to the economic recession which has thrown so many Americans out of work.
Yet, says economist C. Fred Bergsten, the buoyant strength of the dollar against other world currencies has boosted the price of American exports and cut sharply into sales abroad.
Each $1 billion worth of exports represents 40,000 to 70,000 jobs for American workers, according to government estimates. So an export decline puts people out of work.
''The decline of net exports from the first quarter of 1981 to the third quarter of 1981,'' says Mr. Bergsten, director of the Institutefor International Economics in Washington, ''was at an annual rate of $8 billion, compared with a drop in the gross national product of $1 billion.
''If net exports had remained constant,'' he says, ''no one would have talked about a recession, because the GNP would have risen.''
If, in other words, American exports had held their own during that period, they might have pushed the GNP - the total of all goods and services produced by the nation - into growth, not loss.
Eventually, experts note, recession would have come anyway, given the persistence of high interest rates that throttled back the economy and shoved industries like housing and autos into the worst slump since World War II.
But, says Bergsten, if an overvalued dollar had not helped to whittle down American exports, the recession would have been less severe.
He cites three major components thatpulled down the nation's GNP during 1981 - a decline in the construction of homes, a drop in personal consumption of durables, mainly autos, and a loss of exports.
''All three categories,'' says Bergsten, a former high US Treasury aide, ''showed about the same decline - $7 billion to $8 billion in each case.''
Over the past 18 months, says Brookings Institution economist Lawrence B. Krause, the net drop in exports has been $18 billion at an annual rate, expressed in constant dollars - that is, with inflation factored out.
This decline amounts to roughly 40 percent of the total amount by which the country's real GNP, adjusted for inflation, shrank.
In almost every recession since World War II, the balance of trade of the US improved. Imports fell, reflecting weak American demand for foreign goods, and US exports - fueled by an undervalued dollar - climbed.
This time just the opposite is the case. Imports have gone up, while exports have dropped, at a time, experts note, when foreign trade plays a bigger role in overall US economic health than ever before.
Why the difference this time? High US interest rates, the same problem that hobbles the domestic economy, provide a big part of the answer.
US interest rates attract overseas investors, eager for a big return on their dollar investments. This in turn strengthens the dollar against the Japanese yen , West German mark, French franc, British pound, and other currencies.
A paradox develops: high interest rates, which plunge the domestic US economy into near depression, cause the dollar to be overvalued in other lands, where interest rates are lower.
A strong dollar, note Bergsten and Krause, is not the only reason why overseas sales of American goods have tumbled. High American labor costs, notably in the auto and steel industries, lagging productivity, and in some cases inferior quality of products, all militate against US competitiveness overseas.
To disentangle these various elements and isolate the extent to which the strength of the dollar contributes to export decline is complex.
Clearly, however, improvement on the productivity, quality, and labor cost fronts - all essential - still would leave US exports at a competitive disadvantage so long as the dollar remains overvalued.
A strong dollar means that European, Japanese, and other peoples have to spend more of their own currencies to buy goods priced in dollars. They tend, therefore, to reduce nonessential imports from the United States.
US interest rates currently are dropping, although they remain at historic heights relative to inflation, which has dropped even more. As interest rates decline, so does the value of the dollar.
Experts caution, however, against expecting an early end to dollar overvaluation, because huge US Treasury borrowings - an estimated $100 billion in the last six months of 1982 - may put upward pressure on interest rates in the months ahead.