Dollars and Deficits
By Arnold Kling
About the falling dollar, I literally say “So what?”
Taking as given government policy for spending, taxes, and money creation, there is nothing specific that political leaders can contribute to the operation of the foreign exchange markets…Our government has no more business manipulating the value of the dollar than it does manipulating the betting odds on next week’s football games.
As a typical American, how does a dramatically lower value of the dollar affect you? It makes certain consumer goods more expensive. It also subtly affects the outlook for employment in different industries. Compared with two years ago, the likelihood has increased slightly that you will work in an industry whose goods and services are traded internationally. By the same token, you are slightly less likely to work in an industry whose goods and services are insulated from international competition.
Chris Dillow makes the point with even greater specificity.
The OECD has estimated that a weak dollar has remarkably little impact on economic activity in the rest of the world. A 22.5 per cent fall in the greenback, it has calculated, would take only 0.1 per cent off euro zone output after five years – though the impact on Japan would be greater.
For Discussion. Who has suffered the most from the decline in the value of the dollar over the past two years?