Advocating for a Weak Dollar Policy Is Like Throwing a Birthday Party for Osama Bin Laden?

Despite all the apocalyptic nay saying by right wing economists that the falling dollar is a bad thing, its actually a really great development for Economic Recovery:

From Nobel Prize winning economist Paul Krugman:

The truth is that the falling dollar is good news. For one thing, it's mainly the result of rising confidence: the dollar rose at the height of the financial crisis as panicked investors sought safe haven in America, and it's falling again now that the fear is subsiding. And a lower dollar is good for U.S. exporters, helping us make the transition away from huge trade deficits to a more sustainable international position.

But if you get your opinions from, say, The Wall Street Journal's editorial page, you're told that the falling dollar is a terrible thing, a sign that the world is losing faith in America (and especially, of course, in President Obama). Something, you believe, must be done to stop the dollar's slide.

A weak dollar is good because it means that its cheaper for foreign countries to buy American products .Indeed, the falling dollar is helping put workers back to work in the U.S. As an article in today's New York Times points out:

Mr. Stevenson's family-owned company, Eastman Machine, has been making cutting tools for the textile industry for 120 years. A year ago, in the depths of the financial crisis, Mr. Stevenson had to lay off a dozen workers, but the dollar's almost 20 percent decline since March has made his goods much more competitive overseas. Next month, Mr. Stevenson hopes to sign a multimillion-dollar deal in Europe that could enable him to rehire his workers.

"This wouldn't have happened five years ago, or even two years ago," he said. "Business conditions are still slow but the dollar has allowed us to be much more aggressive overseas."

So why does a weak dollar get such a bad rap in the media? Part of it has to do with messaging. Last week, Ezra Klein brought up a good point:

When people hear "weak" dollar, they think something bad is being done to the United States. It's terribly hard for a politician to advocate a "weak dollar" policy. It sounds like you're throwing Osama bin-Laden a birthday party.

So how do we get around these barriers? One reason why right winger economists are able to so easily manipulate the debates in the big multinational's interest is that messaging and labels on this subject are just so tough for most people to understand.

What is "free trade"? What is "fair trade"? "Weak dollar" policy? "Strong dollar" policy?

Most people don't know so conservatives can easily come in and label something as fair trade that isn't necessarily good for anyone. What are some ideas that people have on this issue? How can we overcome the barriers that make it tough to advocate for policies that build a sustainable economy both in the U.S. and abroad?

Follow Mike Elk on Twitter: www.twitter.com/MikeElk

Comments

[research]

If we invested 5T$ in main street like we did in WWII we, the dollar would inflate, then become strong again as productivity went up, people got jobs, and economy recovered.

Printing money inflates the currency if those dollars are wasted, say by giving them to Banksters,

but will strengthen the currency if it is invested in Main Street,

Say 3 cent rooftop solar and WASTE biofuels.

see my profile.

[winningticket]

The US Dollar will continue to be weak as long as interest rates are kept near zero. By doing that, people will borrow dollars to finance highly lucrative currencies like the Australian and New Zealand Dollars and emerging market currencies like the South African Rand and the Brazilian Real where people stand to get excellent returns. If you want a stronger Dollar, raise the interest rates.

[phlashba]

Exports? What a joke.

[ClarcKing]

The devaluing dollar creates distrust/contempt for the United States. If other nations decide to stop using the dollar as the world's reserve currency, the world economy will crash.

[seawolf77]

This is the last final blowout. When W did the perscription drug benefits for the mummies I knew they had authorized to party like it's 1999. When the US hit peak oil in 1971 it was absolutely necessary to get off the gold standard becuase now a significant portion of our wealth would be going to buy energy. If the dollar was backed by gold eventually we would run out of money. So fire up the presses for as long as they believe is the name of the game. It may be out dollar, but it's your problem.

[perk]

THe dollar has dropped by 15% this year vs a basket of other world currencies. What does this mean? Other countries and their investors think US bonds are attractive and they finance our new multi-trillion dollar debt by buying ( or loaning us the money) . That is not a bad thing.

If they did not believe the US was a bargain now, our interest rates on things like credit cards would be soaring! They are all tied to the interest rate paid on Treasury securities, which are determined by how good of a "bargain" the US currency is. When the gig is up, we are screw*d.

ON the other hand, US banks are borrowing at low interest and buying T-Bills instead of loaning money. And they are using the fed money to do it. You know, borrow from the US Fed at 0% and buy t-bills at 3%. No wonder they are not loaning money.

[Rog49Thomas]

One thing that Uncle Miltie was right about is that there is no free lunch in economics.

One pays one way or the other.

[Matthew Blaine]

The dollar is not just falling against the euro. It is falling against commodities. I dare presume that Mike won't mind paying five dollars a gallon for gas again, but I sure do! Thanks anyway for the straw man, Mike. By the way, I am a lifelong Democrat.

[wietog]

Silver linings!

[Duppy]

BTW, the dollar is no weaker today than it was 14 months ago (before Obama). In fact today is is around 1.50 vs the Euro and 14 months ago it was around 1.60. The Right Wing is blaming Obama for the weakness. I wonder if they blamed Bush for the same weakness 14 months ago. They are clueless as usual. This is all about speculation and making profit in the currency market.

[marcsmith68]

The problem with comparing the dollar to the euro and the pound is Europe and England are in more long-term fiscal trouble than the US with all of their government entitlement spending. Look at the dollar vs the Yen. The fact is the spending plans of the current administration will require the government to borrow more money or print more money. The Fed already printed $1 trillion a few months ago. As the government prints money to inflate the economy and thereby decreasing the cost of our borrowings, the dollar has to decline. We have been fortunate that there is really no other alternative for a world reserve currency, so there is always some level of demand providing a floor to dollar trading. I think the reports last week about trading oil globally in a basket of currencies vs in US dollars was likely true, regardless of what was officially said. The dollar is in trouble, sadly, and that will not do good things for our economy over the longer term.

[BLBass]

There's an important corollary that Krugman frequently points out: the benefits of a weak-dollar policy imply that we shouldn't pull up stakes on stimulus/spending for a good long time.

There's another that I don't think he addresses explicitly enough: we get a weak dollar by allowing some inflation, which is the bogeyman on the right for all attempts to address high unemployment. So we should be pushing gung ho on policies that reduce unemployment because the traditional downside of those policies is a net benefit in the current economic climate. This doesn't mean we approach such a tactic without foresight, but of all the places to be risk-averse this is the least reasonable. Now it's almost as if we've allowed all our risk tolerance to be used up by the financial wizards that brought us economic ruin, and can't use it anymore to climb out of that hole.