One-Half Cheer for a Weaker Dollar

I spent two days last week in Oslo, Norway, for a conference and naturally wanted to sample one of the country’s fine beers. My pint of Ringes was served cold at Lorry’s, a popular and slightly low-brow pub near the Royal Palace. I nursed it slowly because it cost 61 kronor, which converts to slightly more than $10.

It seems I’m not the only American traveling abroad these days who has found that our once mighty dollars do not go as far as they used to. As this morning’s Investor’s Business Daily reports:

The dollar last week sank to a 26-year low against the British pound and is nearing record lows vs. the euro. Even the lowly Japanese yen has gained some ground against the greenback. 

Analysts say the dollar’s fall is the result of a cyclical shift in the global economy: Growth and interest rates in Europe and Asia are outpacing those in America, drawing capital away from U.S. stocks, bonds and other assets.

Most politicians and many economists believe that a weaker dollar is just what the U.S. economy needs. A depreciated dollar means U.S. exports are more affordable abroad and imports more expensive at home, promoting sales and profits for U.S. exporters and putting downward pressure on the trade deficit. 

Count me on the side of Milton Friedman in believing that exchange rates should float freely without government interference. But excuse me if I can’t work up much enthusiasm for the depreciating dollar. And it isn’t just because I want to pay less for a beer in Oslo.  

A weaker currency cuts like a double-edged sword in our domestic economy. On the downside, it raises prices for millions of American families that buy imported clothing, shoes, food, and consumer electronics.  It raises input costs for U.S. businesses. It puts upward pressure on the price of oil, which is universally quoted in dollars.  In fact, I counted the many ways in which we will all pay for a weaker dollar in an op-ed a few months ago. (Don’t be fooled by the headline written by a distracted copy editor!) 

So pardon me if I don’t lift a hearty toast to the weaker dollar.