Oil Producers Have the Right to Raise Prices (int'l edition)

It is sad to see everybody in the West denying the right of oil-producing countries to protect their economies from collapsing (''Not much mileage in OPEC's mercy,'' American News, Mar. 20). What do we do if we are ourselves an oil-producing country, and oil revenues are the main, and probably the only, income we have? Let's be more realistic and more objective. The price of industrial countries' equipment, as well as technology-related services, has gone up several times in the past 20 years. How can we expect oil-exporting countries to keep buying these with the same price per barrel?


A. Kharbush
Abu Dhabi
United Arab Emirates

Can the U.S. Economy Fall Gently to Earth? (int'l edition)

Reading ''Live by the stock market, die by the stock market,'' (Economic Viewpoint, Mar. 20), I felt that the arguments of Robert Kuttner were valid. But I disagree with him about his suggested solution. It is the age-old wisdom of all democracies that political virtue does not obey the laws of down-to-earth economic policies. Politicians try to get mileage by making unfeasible promises and resorting to populist measures. In such a situation, it is not going to be easy to steer the U.S. economy from its current state of overheating, depending on the political decisions, much less with the race for the Presidency around the corner.


D. Papa Rao
Hyderabad, India

Why Greenspan Should Get Tough (int'l edition)

In ''The case against Greenspan's tougher tactics'' (American News, Mar. 20), author Michael Mandel argues against the use of interest-rate hikes as an policy tool to slow the U.S. economy to more sustainable growth rates. It is significant that he quotes Keynes, who was writing for a period when consumer and business confidence had collapsed, along with the usefulness of monetary policy tools such as the much maligned interest-rate hike.

I would like to challenge his interpretation of a historical parallel with Japan in the 1980s, as well as his views of and recommendations for U.S. economic policy. First, Mandel has not made mention of lax bank-lending practices in Japan, especially among members of the same keiretsu. This led to credit being poured into investment opportunities with dubious returns, thereby contributing to the collapse of the Japanese banking system when interest rates far exceeded the returns from these investments. Seen in this light, the rate hikes were a catalyst for, not a cause of, Japan's economic problems. The U.S. today does not share the fundamental weaknesses of Japan's banking system in the 1980s. Interest-rate hikes would therefore not have the same devastating impact.

Next, it is true that inflationary pressures have been weak in the U.S., but this does not make a case for non-intervention by the Fed. To begin with, monetary policy operates with a lag, so decision-making cannot rely exclusively on current data. Moreover, inflationary pressures are slowly but surely starting to build. Growing wage pressures can be detected in the recent slew of articles from [business] publications telling their readers to switch jobs for higher pay, as well as innovative tactics by U.S. companies to retain staff. Current high oil prices also contribute to inflationary pressures. Recovering global demand, leading to rising U.S. exports, is similarly inflationary.

In fact, current low inflationary figures are due to similarly low expectations of inflation, which in turn owe much of their existence to the Fed's gradual establishment of its inflation-fighting credentials after the 1970s. Still, they can be quickly demolished by accelerating inflation, a plausible scenario.

Finally, a flashing danger sign in the U.S. is the rise in the number of highly leveraged households, which have taken on rising levels of debt (estimated at around 50% of gross domestic product) while under the impression that their permanent income has been boosted through the celebrated ''wealth effect.'' If inflationary pressures are not checked today and expectations rise tomorrow, it is easy to imagine widespread financial ruin, caused by belated interest-rate hikes that will necessarily be more drastic than those required today.

By acting today, the Fed will be able to avert the scenario of economic chaos--similar to that which confronted Keynes--in which monetary tools are less effective.

Waiming Poo-Cheong
Singapore

The Dollar Can Do Wonders for the Americas (int'l edition)

In ''Greenback magic?'' (Latin American Business, Mar. 13), you cover the interesting issue of dollarization, a subject currently under debate in Venezuela and Peru. I was involved in the dollarization process in Ecuador and am now doing the same in Venezuela and other Latin American nations.

With the help of prominent economists in other countries, such as Eduardo Moron in Peru, Juan Roberto Brenes in Guatemala, and Manuel Hinds in El Salvador, this idea will soon be a reality in the whole Western hemisphere: a common currency from Canada to Argentina based on the dollar.

Jose Luis Cordeiro
Director
Asociacion Venezolana
de Exportadores
Caracas

Europe Has the Jump with Home Broadband (int'l edition)

BUSINESS WEEK struck out with ''Welcome to 2010'' (Design, Mar. 13). Today, you get three channels of TV, cordless telephones anywhere, Internet access, and home automation at speeds roughly 1,000 times as fast as an ordinary 56k modem offers with a wireless home system. No need to locate the nearest plug. Place phones, TV sets, and computers anywhere--even in the yard. Combine that with new services that allow you to record TV shows without buying a video recorder, turn the heat on at home when you're in the office, and switch the lights on and off while on vacation, and you're on your way to 2010 today.

Germany will spend more money on broadband communications in the next three years than any other country. Telcos now compete in households with cable TV and powerline telecom providers. So rewiring premises is a top priority for millions of homes. That can be accomplished most economically with wireless systems. The U.S. missed the boat on mobile telephones, while Europe led with GSM. Now broadband in the home is keeping Europe ahead.

Thomas Snell, CEO
Initio Consulting Entrepreneurs
Magdeburg, Germany

The ''Logical Movement'' to Legalize Drugs (int'l edition)

I would like to offer my full support for ''To beat Colombia's guerrillas, legalize drugs in the U.S.'' (Economic Viewpoint, Mar. 13). It is time more prominent people joined this logical movement to stop wasting valuable resources in the hopeless struggle to keep drugs illegal.

As a father of a young child, I do not state this lightly. However, I would rather have my child growing up in a world where drugs are legal, sold through proper channels, with the profit factor taken out of it--incentives for pushers to entice young children, taken out of the equation--than have the present situation, in which we embark on useless crusades.

Luis de Figueiredo
Rosettenville, South Africa