Thursday, March 5, 2015

A Strong Dollar

Most Americans are simple-minded.  Well, that is a libel and in addition, it is not true.  How about this?  Most simple-minded Americans are simple-minded.  Well, OK, still a libel even if it is undeniably true, as most (really ALL) simple-minded Germans are simple-minded too.  And Frenchmen, Japanese, Chinese, etc.  Simple-minded people are simple-minded and even if we don’t have a monopoly on simple-mindedness, we have our fair share.

Here is an example of simple-mindedness: economics is just common sense.

OK, how about this economic statement, uttered more than once by Treasury Secretary Jacob Lew: “I have been consistent in saying, as my predecessors have said, that a strong dollar is good for the United States.”  It sure sounds obvious, but is it really true?  Is a strong dollar good for the United States?

A strong dollar IS good for those of us traveling overseas where our dollar buys more stuff than the weaker currencies it can buy more of, but it is bad for Americans working in travel-related firms in the U.S.  A strong dollar IS good for our citizens who shop at Walmart and anywhere else that sells goods manufactured outside our borders, whose currencies are not so strong.  But a strong dollar is bad for American manufacturing as our goods are now more expensive on the foreign market.  And a strong dollar is bad for American labor for the same reason: reduced demand for more expensive American goods overseas.  A strong dollar is also good for creditors, who will be repaid in more valuable dollars than they loaned out; and that same strong dollar is bad for those in debt who now have to pay off their debts with more expensive dollars (so, good for the top, not so good for the bottom).  And, last but hardly least, a strong dollar is bad for our Balance of Payments as that strong dollar will buy more foreign goods than foreign currencies will buy American goods, so more dollars will fly overseas than Euros and Yen will re-patriate here.

So, is a strong dollar good for the United States?  Surely the answer is never a simple “yes” or “no,” the answer is always “it depends on who you are and where you live.”