July 18, 2011
Weak or Strong Dollar and Exports
I got into a discussion with one of the GOP Presidential candidates about whether a strong or weak dollar was preferable. “We have to have a strong Dollar,” was the instant reply, with a rambling critique of everything Obama had done to purposefully weaken the dollar. “What’s your plan on how to strengthen the dollar,” I asked? “We need more exports, and we need to stop importing so much oil,” he said, “because strong exports and domestic energy will keep the dollar strong.”
Case study moment for my fellow armchair economists. What is right, what is wrong, and what is incomplete, with this popular theory? Hint: Consider, among other things, the impact of 1) imports, 2) global use of the US$, 3) relationship between a cheap/expensive US$ with the attractiveness of US-based goods and services.
