Rhetorical Exchanges

I've heard many of my fellow PPPlers lament the weakness of the US dollar, and indeed, at current exchange rates we're paying an implicit 40 percent tax on many things we buy with converted currency. For us, the pain of a weak dollar is immediate and obvious. My fellow sojourners might be surprised, therefore, to learn that many policymakers in the Eurozone--Monsieur Sarkozy being foremost amongst them--are positively livid at the strength of the euro because a strong euro means Europeans exports are relatively more expensive and thus less competitive. Given that Europe's economy is driven by exports, the rise of the euro has been troublesome. American exporters, on the other hand, are raking in the profits because a cheap dollar is good for selling overseas.

It may seem odd that Europeans would not want a strong euro, but their reaction is no stranger than the knee jerk American disdain for a weak dollar. The reason is because "weak" and "strong" function not to clarify but rather as a sort of semantic stop sign; as soon as one hears that the dollar is weak, one's mind has instantly registered it as bad . No matter that a "weak" dollar actually can have many benefits--we Americans don't like no pansy currency.

The same is true of the trade deficit (which, incidentally, is helped by a weaker dollar)--after all, how can a deficit be good? Well, the trade balance is definitionally equivalent to the inverse of the current account balance, which means that a trade deficit is exactly mirrored by a capital account surplus. In other words, any newspaper could just as accurately claim a record trade deficit as a record capital account surplus. And who doesn't like a surplus?

Point is, economic truths can often be blurred by poorly (or deviously?) chosen rhetoric. Anyway, here's hoping the dollar can tender some hurtin' on the euro until I'm ready to repatriate myself and my hard earned coal.

Update: It appears the weak dollar also causes illicit drugs to be diverted from the US to markets in Europe. The War on Drugs: Winning with Weakness.