Student Questions: A Global Currency and Getting Out of a Recession

Editor’s note: This week, the Business Desk continues to feature questions from students in three high schools around the country.

Question: Would the world economy be better if all countries used the same currency? — Kevin, senior, Carle Place High School, Carle Place, N.Y.

Paul Solman: Interesting question, Kevin. Yes, the world economy might be better off with a single currency. Think of the convenience: You never have to change money from one currency to another. Think of the savings: You don’t have to pay middlemen (currency traders) for the service; countries don’t have to maintain their own separate mints, spend money to police counterfeiting, etc.

In fact, Europe now has one currency instead of several dozen. And the International Monetary Fund has created a world currency for use by countries, though not individuals.

But think of the problems. Say the United States is in a deep recession and the rest of the world isn’t. Hard to imagine, maybe, but not impossible, right? Tens of millions of Americans decided to specialize in the wind turbine industry, let’s say — designing them, manufacturing them, installing them, advertising them — and then suddenly, oh, I don’t know, it turns out that turbines so disrupt weather patterns that great droughts and monsoons alternate everywhere and the industry has to be shut down at once.

America is a democracy. With so many laid off, the United States feels the need for a stimulus package. But investors won’t lend it the money, given America’s huge strategic mistake: its investment in wind. How will we ever pay back the lenders?

Historically, the other option would be to create more dollars, which we’d use to maintain or re-employed those out of work. But how can we do that if there ARE no dollars and we don’t have the ability to print (or electronically generate) more of the new currency?

In other words, if a country doesn’t have its own currency, it’s got a lot less control over its own economic destiny. This might be a good thing in the long run. But, as a famous English economist said almost 100 years ago: “In the long run, we’re all dead.”

Question: What are different ways to get the country out of a severe recession? — Amanda, senior, Carle Place High School, Carle Place, N.Y.

Paul Solman: One way is the way we’ve chosen to go: Spend our way out of the hole. It sounds odd, maybe, but think of it like this. Your classmate, Anthony, suddenly loses his job due to the recession, through no fault of his own. (We all know Anthony works his tail off at Carle Place Virtual Reality, the video game designer where he was employed testing new products.)

Without an income, Anthony can no longer afford to take his dog for training at Pranav’s K-9 Kompound. That forces Pranav to lay off Kevin, who in turn can no longer to buy those superb discount subs you sell at Amanda’s Four-Dollar Footlongs. This is the famous, and famously feared, downward spiral of recession. How to stop it, turn it around?

A stimulus package! It includes money for education grants, one of which might go to Carle Place Virtual Reality to teach economics to high school students via a video game featuring some respected elder — let’s say that bald senior citizen with the mustache on public TV: Call of Duty 5: Way Old Warfare.

Anthony gets his job back, takes the dog to Pranav’s again. He hires Kevin; Kevin is back in the market for $4-foot-longs, and the spiral is back in the upward direction.

Now some folks would prefer more tax cuts (there are plenty already in the current stimulus package) and less outright government spending. “Let the people decide how to spend their own money,” is how the argument goes.

The counter-argument is that tax cuts won’t get people to spend these days; they’re too afraid to. Instead of spending, they’ll simply save the money, or pay down their debts instead. That won’t get the economy moving in the right direction.

The argument for this approach? It’s worked in the past. In the long run, confidence returns and economic growth again takes off.

The argument against doing nothing was made by a famous English economist who said, in the long run… You can finish the sentence yourself.