CCWA Discussion Board

 The Columbus City Council is currently in the process of considering a proposal to further increase restrictions on panhandlers. This proposal targets panhandlers’ behavior by labeling it as “aggressive,” and hence detrimental to the larger public. The restrictions would include increasing the radius of space around ATMs and banks, from 20 feet to 25 feet, that panhandlers are already prohibited from. In addition, there would be new restrictions around metered parking lots, parking meters, pay phones, and outdoor patios.

These types of laws implemented by our local governments bring into question our beliefs, values, and actions as a society. In addition, it forces us to question cause and affect relationships and to place our local societies in a larger, global context. In the United States, forty-six of the country’s fifty largest cities currently regulate panhandling. In countries that are rapidly emerging economies, such as India, panhandlers in large cities are being jailed in mass numbers in an effort to “clean up” the streets, and promote tourism.

When implementing and enforcing restrictions on where a person can “panhandle,” the first concern that comes to mind is the question of personal rights and freedoms. As a country founded on the basis of freedoms, are we not directly counteracting such principles in putting limits on where a person can express their needs in “spoken, written, or printed work,” or through bodily gestures? This question subsequently leads to the issue of public versus private space. Although it is entirely within ones rights to prohibit activity on private property, it seems more questionable when freedom of speech is restricted in public space.

The Columbus City Council aims to “make it easier to charge someone with aggressive panhandling,” while simultaneously saying panhandling in specified places “would be automatically considered aggressive” (The Lantern). This brings up the issue of communication between the poor and the broader public. If asking for monetary assistance is to be labeled “aggressive,” is it not an institutionalized form of stigmatizing those who ask for economic assistance? Although we are the wealthiest country in the world, such messages contribute to social marginalization and economic polarization.

Yet, set against the global backdrop, one blog commentator makes an interesting observation. He/She notes that in Central/Eastern Europe, one rarely sees fit young men and women, physically capable of working, begging on the streets. In particular, he/she provides the example of Lithuania, where one mainly encounters “old weary women on their keens asking for change besides Baroque churches.” On the other hand, it is noted, that in the West, one hardly ever sees elderly people panhandling, rather most of them are fit and capable of working.

The demographics and prevalence of panhandling brings into question the causes. Panhandling is a phenomenon practiced in countries all over the world and on all points of the economic spectrum. Although poverty seems to be the obvious cause, it is a very broad category. Issues such as unemployment, lack of social welfare programs, exuberant medical costs, and lack of safety networks deserve to be investigated more closely. What would be the benefits of dealing with the causes rather than the effects?

Although panhandling is undertaken by a much wider population in many countries that are on the lower end of the economic spectrum, the majority of the countries that seek to enforce restrictions and attach stigma to the practice are those in the upper half of the spectrum. Many places in Canada, the United States, and the United Kingdom have either placed severe restrictions on panhandling in public spaces or have banned the practice altogether. What kind of message does this send to the panhandlers and the wider public about our beliefs, values, and actions as a society? And, in the current economic climate where more families are seeking public assistance and are being evicted from their foreclosed homes, what policy solutions are being proposed that address the systemic CAUSES of poverty and homelessness? 

Following a June 10, 2008 Columbus Council on World Affairs symposium, we asked our panelists to draft policy memos and/or reflections on the topics about which they presented.  The event was called "Global Challenges Facing the Next U.S. President." For your comments, we present the submission from Peter Schramm of the Ashbrook Center:

Diplomacy is private, undercover, often made up of lies, and it applies only to governments and their formal representative.  Public diplomacy is rather the forming of the opinion of a foreign public by telling them the truth about how this country understands itself and its actions.  It smells like propaganda, but it is not.  Nor is it tactical spinning of information. 

The United States has always conducted public diplomacy.  Even in the Declaration of Independence we explain to the world our actions and the reasons for those actions because a “decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation”.  We have a respect for mankind, for ordinary human beings, their minds, and their capacities—even though they all live under tyranny in 1776—because we have respect for ourselves, because in an essential way, we are equal to them.  Even in 1776 we had more respect for the average Frenchmen then their kind had for his own people.  We have always thought that ordinary folks were more capable of both ruling themselves and understanding their interests and justice, then were their unworthy rulers.

We hold as a self-evident truth that all men are created equal and not only should men govern themselves through consent, but they should also be talked with, have conversations with, because they are capable of rising to the level of equality, as we have done.  We do this out of respect for others, not out of arrogance or hubris.  It is kind of like civic education, but aimed for foreigners, rather than for citizens.  This is the heart of public diplomacy.

Whether it is FDR’s four freedoms, or JFK’s inaugural address, or Reagan’s Westminster speech—or a television program or a radio program or an internet blogger—we conduct public diplomacy because it is part of the things for which we stand as a people.  We explain to ourselves and to others who we are and what we are doing.  We call it freedom.

The only question is how to do it.  We must—speaking as officials or as citizens, in public or private capacities—always be honest, forthright, and clear.  We should also try to be eloquent.  We must reveal who we are as a people, and talk about our actions and interests, yet never forgetting the things for which we stand, and why we may think the Union, and self-government, is worthy of the keeping.  As we think out loud in our civic mode as citizens, we cannot but help to do the same with all other peoples of the world, regardless of the kind of government they may be living under.  Public diplomacy cannot be denied.

Peter W. Schramm
Ashbrook Center

June 10, 2008 

Dear President McBama: 

In recent months the US economy has been jolted by a series of significant increases in the prices of oil and other imported goods.  The US has also experienced significant increases in the cost of food and other goods that are consumed domestically in part but are also sold as exports to other nations.  I hope you will view these price increases as a wake up call.  The purpose of this memo is to identify the extent to which policies of the US and other nations are contributing to underlying economic problems.  The memo also offers alternative policy recommendations that are designed to soften additional economic blows that are yet to come and help prepare the US economy for difficult times ahead. 

How Does the Value of the US Dollar Affect the Prices of Goods in the US? 

The value of the US dollar is measured in terms of the amount of other currencies that one US dollar will buy in the international currency market at a given point in time.  There was a strong upward trend in the value of the US dollar during the 1990s.  However, that trend has reversed in the current decade.  The rate of decline in the value of the US dollar has been especially sharp in 2008. 

When there is a decline in the value of the dollar, other nations that sell goods to the US will seek to offset the loss in value of the dollars they receive.  They do so by charging more US dollars for the same goods.  The effect of the recent decline in the value of the dollar on the price of oil is a predictable example of the general rule. Increasing world demand for oil, and dwindling oil supplies also contribute to a seemingly endless increase in the price of oil.  In particular, developing nations such as China and India have been subsidizing the use of oil as a way of stimulating their domestic economies.  However, even if these effects were absent, the only reasonable expectation following a decline of roughly 30% in the value of the US dollar is that gasoline that had been selling for $3.50 per gallon, would now sell for 30% more, or roughly $4.50 per gallon.  

A decline in the value of the US dollar also means that goods and services that are produced in the US are cheaper for foreign consumers who can pay less of their currencies to acquire the dollars they need to buy US goods.  To create a bargain in the domestic market that is comparable to a 30% reduction in the value of the dollar, a domestic producer would have to generate a 30% reduction in all of its costs.  In particular, labor would have to accept to a 30% reduction in wages, and there would have to be corresponding reductions in overhead and profit. Changes of such magnitude are virtually unthinkable in the domestic market. However, if they were to occur, is there any doubt that demand would increase sharply in response to a 30% reduction in costs and prices?   Accordingly, it should not come as a surprise to learn that following a 30% decline in the value of the US dollar there has been a surge in foreign demand for, and corresponding increases in the dollar prices of, exportable US goods and services such as agricultural products.  

Why is the Value of the US Dollar Declining? 

Many factors are contributing to the decline in the value of the US dollar.  However, as a starting point for the discussion, it is important to note that the US demand for imports has been growing at a rapid pace.  Growth in US imports has been especially pronounced during the current decade.  At the current level of $2.5 trillion per year, US imports represents more than 15% of all goods and services consumed in the US. 

To buy goods from other countries, the US must either exchange US dollars for currencies of the foreign producers, or ask foreign producers to accept US dollars.  Either way, there is a potential overhang of US dollars that could be offered for sale in the international currency market.  

When the US sells goods to other nations, foreign purchasers need to buy US dollars to purchase the US goods.  If the growth in US exports had kept pace with the growth in US imports, the demand and supply for US dollars would be in balance.  Unfortunately, US exports have not kept up with US imports.  Hence there is a growing net supply of US dollars, and there is corresponding growth in the potential for dramatic reductions in the value of the US dollar.   

Part of the net supply of US dollars is absorbed when investors from foreign countries acquire dollars to make investments in the US.  Debt that is issued by the US Treasury has been especially attractive to foreign investors.  Although not formally recognized as a component of exports, the US has effectively been "exporting" financial securities to offset its growing trade deficit in terms of goods and services.  

Unfortunately, the rate of purchases of US financial securities by private foreign investors has also failed to keep pace with the widening gap between the value of US imports and the value of US exports.  As a temporary measure, central banks for various nations initially joined in an effort purchase excess US dollars in the international currency market rather than allow US dollar to decline in value.  However, when the burden became too great, one central bank after another abandoned the effort.  At present China is attempting to shoulder the burden alone.  

The US recently asked China to ease back on its support for the US dollar, presumably in the hope that a weaker US dollar would help US businesses fend off competition from low cost imports and stimulate US exports.  Part of the dramatic change in prices the US has experienced is due to a limited concession on the part of China to permit a partial decline in the value of the US dollar versus the Chinese Yuan. However, thus far the effort has only reduced the annual level of the US trade deficit from $800 billion to $700 billion, or less than 15%.  Prior to the record setting deficits of this decade, a trade deficit of even $100 billion per year was regarded as unsustainable.  Accordingly, it is unlikely that one country, and a developing economy at that, will be willing and able to sustain a US trade deficit at anything close to the current level of $700 billion per year. 

Viewed in historical context, additional significant adjustments on the part of China are simply a matter of time.  Precise amounts and precise reactions are subject to legitimate debate.  However, it is doubtful that even a second round of concessions by China that is comparable to the first round will produce a sustainable level for the US trade deficit.  Yet even such a temporary outcome could effectively double the size of price shocks that the US has recently experienced.  That is, the US dollar could suffer another round of significant declines, perhaps on the order of 30%.  As a result, unless foreign producers lower their prices, the dollar cost of oil and other US imports will increase by an additional 30%.  At the same time, the cost of US exports, when measured in terms of foreign currencies, will decline by an additional 30% and the predictable surge in foreign demand will again increase the domestic prices of US goods, such as agricultural products, that are available for export.  

What this means is that barring an extraordinary set of events, US consumers can forget about a potential return to $3.50 per gallon gasoline. US consumers should not even count on $4.50 per gallon beyond the immediate future. Even if we ignore the continuing pressure on oil and gasoline prices from growing demand and dwindling supplies, an additional decline in the value of the dollar on the order of 30% will translate into gasoline prices closer to $6.00 per gallon. Growing international demand and shrinking supply would then continue to add to the rate of increase in the new base level for the price of gasoline.  

As noted above, even this seemingly extreme outcome is unlikely to bring an end to the troubles facing US consumers and the US economy.  The US dollar has been artificially inflated for so long and to such an extent that it is difficult to estimate how foreign investors and central banks will react to a further collapse in the value of the dollar.  If investors permanently shift away from dollar denominated investments, the decline in the value of the dollar will not end until US imports are effectively curtailed and/or exports are sufficiently stimulated to eliminate the US trade deficit entirely.  Even then, foreign investors and foreign central banks would have to be willing to continue to hold their existing supplies of US investments.  If they were to sell even part of their holdings in addition to merely halting future purchases, the value of the US dollar would have to fall even further to effectively absorb the value of the sale of such securities in the form of US trade surpluses. 

What Can US Policy Makers do to Prevent a Catastrophic Melt Down? 

None of the following alternative policies will provide a painless solution to a serious economic problem.  Nevertheless, as we are repeatedly reminded with natural disasters, such as hurricane Katrina, ignoring a problem only serves to magnify the ultimate damage. Hence I hope that you will at least consider the following alternatives. 

Policy Alternative #1 

The federal government must dramatically reduce the size of the federal deficit. Only then will it be possible to relieve pressures that have built up during the past decade. As tax payers, we all appreciate the reductions in federal income tax rates that were enacted early in this decade.  However, when combined with two long and expensive wars, the result was a dramatic reversal of federal budget surpluses that had been established in the late 1990s.  Federal budget deficits stimulate the demand for goods and services in general.  When combined with a strong US dollar and increasingly liberal trade policies, the record setting US budget deficits of this decade have had an especially strong impact on US imports.   

Unlike prior budget deficits, which were largely financed domestically, US budget deficits of the current decade have been largely financed by the rest of the world.  Until recently, the external financing of US budget deficits effectively shielded US consumers from the financial costs of war.  The traditional tradeoff of guns versus butter was seemingly replaced by a choice of more guns along with more butter. Unfortunately, as is the case with any public or private program that is funded by a rapidly increasing debt, the illusion of a free lunch is short lived.  Eventually lenders seek repayment with interest.  The US has entered the early stage of the repayment phase of its war-time borrowing program.  If policy makers continue to ignore the inevitable, the economic consequences will be severe.  

To reduce the budget deficit, it might be possible to make limited cuts in certain non war related expenses.  However, in the absence of a significant scaling back of war related costs, budget cuts alone are unlikely to have a sufficient impact on the federal deficit.  Instead, reductions in income tax rates that were implemented early in this decade years will have to be repealed.  Moreover, it is likely that the repeal of earlier tax cuts will have to be supplemented by a war time tax surge charge similar to that imposed during the late stages of the Viet Nam War.   

Note that this recommendation is not intended as a political attack on the war.  It is merely an observation that wars are expensive.  Someone must pay the economic costs.  Thus far other nations have been willing to lend the US the money needed to pay for its wars.  Unfortunately, that era appears to be coming to an end.  If other nations reduce their purchases of US Treasury debt before the US manages to get its budget deficit under control, the US could see a return to the era of double digit interest rates and prolonged recession. 

Policy Alternative #2 

The new President must work with Congress in coordination with the Federal Reserve Board to develop a new awareness of the effect that changes in the level of domestic interest rates have on international capital flows and the value of the US dollar.  The US has grown increasingly reliant on periodic reductions in interest rates to temporarily alleviate problems that are associated with economic down turns.  However, it is essential to recognize that lower levels for domestic interest rates cost the US substantial sums in the form of international capital flows that would have been attracted to the US at higher rates of interest.  To the extent that low interest rate policies are employed on a prolonged basis, they dramatically add to the downward pressure on the value of the US dollar and corresponding risk of unmanaged international reactions to US policies. 

Policy Alternative #3 

The US must join with other nations to coordinate a gradual but significant reduction in the value of the US dollar to sustainable level. In the absence of such cooperation, the US will remain dependent on the arbitrary actions of a single nation, China, which lacks the capacity as well as the motivation to place US interests ahead of its own. 

Policy Alternative #4 

Government officials can and must do more to help US consumers and US producers prepare for the reality of even higher costs for energy, and other goods and services that the US imports, as well as for goods and services that the US exports.  Oil accounts for one third of US imports and hence deserves special attention in any plan to unwind the US trade deficit.  Following even earlier warnings in the 1970s and 1980s, other industrialized nations elected to implemented harsh measures in an effort to at least partially wean themselves from oil dependence.  Thus far the US has paid only lip service to this problem.  For example, President Bush recently observed that "Americans are addicted to oil".  He then hopped onto Air Force One and flew to Crawford Texas for a vacation.   

In recent years, artificial support for the US dollar from foreign central banks has hidden the full cost of oil and gasoline for US consumers.  Recall that an inflated value for the US dollar means that foreign nations that sell oil, or other goods, are willing to accept fewer dollars for their products.  Although the pain will be considerable, the US must follow the lead of other industrialized nations and significantly increase the national tax rate for gasoline and other oil based products.  In the case of the US, the rate of increase in the tax rate for oil should approximate the extent to which the US dollar remains over valued.  Otherwise, US consumers and producers who also rely on oil will find it difficult to properly assess the long term cost of oil based products when making critical decisions.  Examples of such decisions include whether to live near the workplace or plan for a long commute; whether to continue to buy large vehicles with low gas mileage, or to shift to high mileage vehicles or possibly even select vehicles that use alternative fuels; and whether to rely on production systems and technologies that are heavily dependent on oil based products.  

Closing Remarks 

These recommendations are not intended to be anti trade.  The benefits from international trade are far reaching and widely recognized.  Producers gain from access to lower cost sources of labor and capital.  Consumers gain in the form of lower prices.  Even the federal government has benefited in the form of access to lower cost sources of funding for its budget deficits.  Yet nothing of significant value is possible without corresponding cost.  The loss of domestic jobs due to US reliance on imports and outsourcing is widely recognized and widely discussed.  Less recognized, and thus far less discussed, is the cost in terms of growing vulnerability of the US economy to actions and reactions of our new global economic partners.  The above recommendations merely ask that predictable economic consequences be included in policy reformulations that are intended to achieve the best long term outcomes for the US and its citizens.