IN AN experience we have all had, Donald Trump, unable to sleep, reportedly rang his National Security Advisor at 3:00 in the morning to ask whether America should want a strong dollar or a weak one. Look, there are no stupid questions. This one is actually more interesting than you might think. There are a few ways to answer it.
One way is to ask what it would mean if there were a random rise in the dollar (caused, say, by noise trading). Tyler Cowen takes this approach. Since most Americans have their incomes and wealth in dollars, a rise in the dollar would generally be good for America and bad for non-Americans: with caveats, including the fact that a stronger dollar might cause financial trouble for indebted emerging markets which could feed back into the American economy.
That’s fine and all, but the dollar usually does what it does for a reason, or some set of reasons, and the answer to the question depends on why the dollar is strong…Continue reading