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Washington's befuddled statements about the dollar are only part of the trouble. More at issue is how well the U.S. is adjusting to a changed world economy. Oil is the test case. For Americans, it is temptingly easy to blame all the dollar's problems on the Organization of Petroleum Exporting Countries, and the arithmetic is irrefutable. If OPEC had not quintupled oil prices beginning in 1973, the U.S. would not now be paying almost $45 billion a year for imported petroleum; if the oil bill were smaller, the country would not be running a trade deficit of nearly $30 billion a year. There would be fewer dollars for sale on currency exchanges, and the dollar's value would be considerably higher. Unfortunately, making that argument is about as useful as ruminating on how much easier it would be to negotiate with the Soviet Union if it were not ruled by Communists. The fact is that the U.S. is now living in a world of expensive fuel, and doing nothing effective either to conserve energy or to increase domestic energy output. To foreigners, who are saving energy through higher gasoline prices and self-imposed limitations on oil imports, the U.S. seems determined to consume as much foreign oil as its wasteful habits dictate, whatever the effects on the dollar or its own economy.
There are other tests. Foreign nations once looked to the U.S. as the example of a powerful economy that could grow without serious inflation, a feat attained by few countries. The fact that double-digit inflation could hit the U.S. too, as it did in 1974-75, came as a shock abroad as well as at home. Now overseas observers see the U.S. bragging that its economy is growing at one of the fastest rates in the industrial world, yet whining fearfully that inflation is likely to result. The spectacle is compounded by the nation's refusal either to cut its $61 billion budget deficit (despite Jimmy Carter's pledge to do so) or to institute a tough wage-price policy to cope with the inflation threat.
Worst of all, this picture of a self-indulgent America, blind to the consequences of its economic management, has been steadily hardening since the late 1960s. Until then, the non-Communist world had lived fairly comfortably with a system of currency exchange rates pegged to the dollar, whose value was fixed in gold (at $35 per oz., a price that seems ridiculous today). That system might not have lasted in any case; even in the early 1960s there were worries about American balance of payments deficits and an outflow of gold from the U.S. But Lyndon Johnson put an intolerable strain on the system by fighting a war in Viet Nam without raising taxes early on or cutting domestic spending to pay for it. That policy spurred inflation at home, sucked in imports from abroad, and sent dollars pouring overseas by the billions. Under the rules that then applied, foreign central banks had to buy up any greenbacks that private traders did not want, and this merely spread the inflation disease to the U.S.'s trading partners. Governments everywhere screamed that the U.S. was forcing them to pay indirectly the inflationary price of financing a war that they abhorred, but Washington ignored them.