Earlier this week, the Financial Times ran an article written by Martin Feldstein, the chairman of the Council of Economic Advisors under President Reagan, which highlighted the reasons why a weak dollar is better for America.
If the dollar remained at its current level, the US trade deficit would continue to expand because Americans respond to rising incomes by increasing imports more rapidly than foreign buyers raise their imports from the US. Although a faster growth rate in the rest of the world would raise US exports and reduce the US trade deficit, experience shows that even substantially faster foreign growth would have only a very small impact. A lower dollar has to do most of the work of reducing the global trade imbalance.
There’s an excellent rebuttal at Forbes.com which outlines reasons why a weak dollar is bad for America.
What a weaker dollar really does is to encourage American and international investors to invest in non-American markets. The more the dollar drops, the more global equities rise. Many Asian currencies are hitting record highs against the U.S. dollar.
Let’s not roll up our sleeves and cut federal spending, greatly simplify our tax code to encourage productivity and achievement or reduce corporate tax rates and excessive regulation. Let’s just wink and weaken and let our nation’s currency drift lower on automatic pilot.
A reduction in corporate taxes and regulation might not be the correct answer, but that’s a different argument we’re not going to get involved with, however we won’t argue against doing something to keep the US dollar from sliding, preferably something that considers the long-term value of the dollar and not just a Band-Aid to make it look good right now.
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