Monday, April 4, 2016

A Mighty US Dollar is Not a Bad Thing

I expect the US dollar to come crashing down in the very near future. That said, there is nothing wrong with a strong dollar, as Don Boudreaux makes clear in this letter he fired off to the editor of the New York Times:
Neil Irwin is correct that, contrary to the assertions of Donald Trump and Bernie Sanders, a U.S. trade deficit is neither necessarily bad news for the American economy nor a symptom of poor economic performance in America (“What Candidates Are Saying By Harping on Trade Deficits,” March 28).  But even Mr. Irwin errs when he writes that “[t]here’s no doubt that maintaining the global reserve currency creates costs for the United States, namely a less competitive export industry.”

A U.S. dollar made stronger by its use as the global reserve currency means that we Americans have more purchasing power than we would otherwise have in foreign markets.  This fact, in turn, means that we must sacrifice less of our own valuable resources and labor in order to acquire desirable goods and services from non-Americans.  This reality is unambiguously desirable for Americans.

To lament the fact that a strong dollar reduces the amount of resources that Americans must sacrifice to acquire, say, cars from factories in Korea is akin to lamenting the fact that strong agricultural technology reduces the amount of resources that Americans must sacrifice to acquire corn from land in Kansas.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030


  1. He does not do anything to show there is "nothing wrong" with a strong dollar. He points out an obvious benefit of a strong dollar but never addresses the costs. There are pros and cons to every policy. People who are selling goods and services in the United States are hurt by a strong dollar.