'Splain me this
K's sketched out -- a couple of times -- why a weak dollar is good news, and I think I understand. But -- Twilight of Empire-wise -- isn't there a large and neglected psychological element here? I've been in London and listened to Brits gush about how cheap everything was last weekend in New York, and it doesn't feel good; there's an undertone of "thank heavens for globalization and the ability to visit more primitive cultures," yes? To that Brit -- as I've also seen Americans express towards Thais, Indians, and Chinese -- isn't it a case of "civilized countries like us" vs. "those cheap places"?
Can we retain our standing in the twenty-first-century world and still be the place Europeans flock to plunder Century 21?
Can we retain our standing in the twenty-first-century world and still be the place Europeans flock to plunder Century 21?
1 Comments:
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Anonymous said...
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- 3:01 PM
Post a CommentI think you are very right to be concerned. K. has a point, but the point applies better to industrial (or even agricultural) economies better than post-industrial ones.
As an example, K. probably argued that a weaker dollar makes our goods and services look "cheaper" to the outside world, which translates to greater demand for them, which demand will in turn stimulate our economy to produce more of those things.
The problem, as I see it, is that the sorts of things that the U.S. sells to the world (entertainment, computer software, etc.) don't really compete on price. Therefore, any reduction in their prices doesn't necessarily translate into increased demand.
Even though it is no longer backed by anything other than the full faith and credit of our government, the U.S. dollar is viewed as a store of value in much of the rest of the world. Although it sounds like an urban legend, some enormous amount of non-counterfeit dollars (perhaps one-third, or maybe even two-thirds of the value of all U.S. currency in circulation) sits outside of the U.S., often in mattresses, coffee cans or other non-interest-bearing household goods. With respect to these dollars, the U.S. government effectively gets a zero-interest loan. In short: being the world's "reserve currency" has tremendous, quantifiable benefits, and if the USD loses that status, then the dollar could face serious devaluation, which would hurt the import-dependent, consumer-driven U.S. economy very badly.
That being said, I don't think you have to worry about European shopping trips, per se. Those Europeans are consuming hotel rooms and restaurant meals that can't be replaced by imports. Furthermore (and more importantly), the goods that they're buying are largely imports to the U.S., and they're cheap not only because the dollar is weak but also because the producing countries link their currencies to the dollar. They do this because they see the U.S. economy as the best long-term destination for their goods, and they want to keep that economy healthy. So in a way, it's a good thing that all these Europeans buy their consumer electronics in the U.S. because it deludes the exporting countries into thinking that the U.S. economy is "larger" than its native population can actually support.
Man, I'm verbose this evening.
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