Part of my day job over the last couple of weeks has consisted of writing profiles of a number of companies based outside the United States. This led me to check out their prices — which were listed in things like the euro, real (Brazil), złoty (Poland) — in US dollars. And it always looked just like the graph on the left: over the last four years, the values of these currency have gone down — dramatically — compared to the dollar. It was usually roughly one-third. And what this meant was that the prices of these companies were really attractive if you happen to live and work in America.
But then it hit me: this is why having a strong dollar is such a bad thing for the American worker. The products and services in all these countries are really attractive to buyers. We as consumers don’t much notice it, because most of what we buy comes from a lot of different places. And yes, it means that the stuff we buy is cheaper as a result of this. But when you see that the Japanese yen has gone down by 30% in the last four years, you know that Japanese steel is a whole lot more competitive than American steel, and that means there are fewer jobs for Americans.
Last Friday, Mary Amiti and Tyler Bodine-Smith at Liberty Street Economics wrote, The Effect of the Strong Dollar on US Growth. And what they find is pretty amazing, “Our analysis shows that a 10% appreciation in one quarter shaves 0.5 percentage point off GDP growth over one year and an additional 0.2 percentage point in the following year if the strength of the dollar persists.” In the last year, the Japanese yen has gone down 20% compared to the dollar. But overall, the trade weighted change of all nations is 10% — still a cause of great concern.
What I find most interesting about this is that the over-valued dollar isn’t just hurting jobs; it is hurting economic growth. I would think that the power elite would care about this. But they don’t seem to be especially interested in it. They already have huge amounts of money. So the more that that money is worth, the better. Who needs economic growth in the US, anyway? (Besides workers.) They can just use the great exchange rate to invest overseas. In fact, one aspect of this that Amiti and Bodine-Smith didn’t take into account was the reduction in domestic investment spending as a result of less demand for US products.
The main thing is that we all need to remember that a strong dollar is by and large a bad thing. If you are one of those loser Americans who actually has to have a job to get by, you need a weaker dollar. If you are sitting on piles of cash, then by all means be glad that the US dollar is doing great compared to the currencies of most of our trading partners. But don’t get caught up in the nationalistic braying about being “strong.” When it comes to the dollar, being significantly weaker would be great.