Law 2—
You Don't Catch up without Catching Up

Our response to the present challenge has, to date, included a miscellany of wishful thinking, "concession bargaining," and manipulating monetary factors. Concession bargaining sought to cut the wages of U.S. workers producing high-technology goods—and thus their standard of living—so that the U.S. could match the prices that low-wage countries are offering. When "concession wages" didn't work, the U.S. then decided to find another financial gimmick that would permit us to lower the price of our goods in world markets.

The U.S. decided to cut the exchange rate in half. At the bottom, the dollar was worth 120 yen, while before it had been worth 240 yen and more. In effect, this introduces a factor (in this case 1/2) between the world price before the change and the world price after, while leaving the U.S. domestic equation unchanged. Given that we have over a $5 trillion economy today, cutting our exchange rate with the world in half amounts to giving away $2.5 trillion in the relative value of our economy. The $30

billion improvement in the balance of trade due to the lower world price of our goods yielded a return on our investment of only a little over one cent on each dollar of value lost. This is not an intelligent way to run an economy.