A great piece in the NYT today by economist Christy Romer (disclosure: a friend and former colleague) on the right way to think about the strength or weakness of the dollar in an international context. It’s not only straight talk, which as Christy says, is rare on this issue, but it’s a crystal-clear discussion of something–dollar policy–that can be pretty arcane.
A few points to add:
–This is a nice companion piece to Krugman’s oped the other day on much-needed and much-welcomed improvement in manufacturing employment.
–I’ve always thought a big part of the problem here is simply the negative power of the word “weak.” It’s hard for us to wrap our heads around the idea that it can actually be a good think when those hard-earned green pieces of paper we’re schlepping around are “weak.” I don’t know the answer to this, but we need a more muscular word that implies improved international competitiveness when the value of the dollar falls relative to other currencies.
–In this sense, I understand the pressures on US officials. It’s just very hard for the Sec’y of the Treasury to get up and say, “I’m ok with a WEAK dollar.” What you have heard lately, which amounts to the same thing but, as Christy points out, is unintelligible to normal people, is: “we think currency values should be set in markets, not by countries managing their values.”
–Maybe they should say “competitive,” instead of “weak.” Like this: “The US supports a currency value that makes our goods most competitive in foreign markets.” I know…needs work.
–Final point: there’s a class bias in this debate. Note that the editorial page of the Wall St. Journal is constantly arguing for a strong dollar, disregarding all the points Christy made today. The reason is that a stronger dollar typically leads to less inflation by lowering the cost of imports to dollar-holders like us. But at times like the present, that policy leads to higher unemployment than would otherwise prevail, by reducing our exports and increasing imports, missing out on the type of gains that PK documents in the link above. Obviously, high inflation hurts everyone, but that’s not our main problem right now. We still suffer from a deep jobs deficit, and the weaker…I mean “more competitive” dollar can help…in fact, it is helping.