Saturday, November 19, 2016

A Strong Dollar -- A Socratic Dialogue

“A strong dollar is a good thing, right?”

“Yes, sure.”

“Wrong.  But I think that you meant to agree with the statement, ‘a strong dollar is good for America, good for Americans,’ right?”

“Yes, exactly, that is what I meant to agree with.”

“Well, wrong there too.”

“A strong dollar is not good for us?  It is only common sense that a strong dollar will benefit Americans, so why not?”

“Well, a strong dollar benefits some Americans and it burdens other Americans.  For example, a strong dollar encourages American travel overseas, as our dollar will go farther than normal.  So, it also benefits the travel industry that specializes in foreign travel.  But it hurts American tourism as now our tourism is more expensive for foreigners.  In addition, a strong dollar benefits firms that import foreign merchandise as these items are now less expensive.  But it hurts exporting companies who sell American products that are now more expensive overseas than normal.  A strong dollar benefits retailers like Walmart that sell cheap foreign-made products, now even cheaper, and if those cost benefits are passed onto consumers it benefits them, too.  On the other hand, it hurts companies that manufacture goods for a foreign market and it also hurts workers that are employed by these companies.  In short, a strong dollar benefits foreign tourism, exporting companies, and consumers, while it hurts American tourism, importing companies, and workers.  And it hurts individual workers more than it benefits individual consumers, because there are fewer workers to absorb the loss.  One last thing: as a strong dollar sends dollars overseas, a strong dollar is more likely to induce a recession than a weak dollar.  OK, get it?”

“Ouch, that is complicated.”

“Yeah, but it is common sense, once you really think about it.”

“I guess so.”