My econ teacher posted this on his blog:
Benefits of a Weaker Dollar
The United States trade deficit shrank in 2007 for the first time in five years, buoyed by a surge in exports that has helped domestic businesses stay afloat as the domestic economy flags.
The gap between what Americans import and export contracted by 6.2 percent last year, to $711.6 billion, the Commerce Department said on Thursday.
How would you counter the argument that a weaker dollar helps exporters?
‘Exporter’ is a functional classification and not a personal one. An exporter of cotton, say, may still be an importer of cotton-producing factors (e.g., machinery, specialized tractors). The gross import/export numbers that you have do not distinguish between this cotton farmer and people who cut down on amazon.co.uk purchases, so you actually have no information at all on whether the situation of exporters has improved.
You don’t counter it. The claim is true, at least partially. Some firms are being subsidized through inflation. In a real free-market they would go bankrupt. However thanks to the wealth redistribution that inflation entails, they are receiving a handout.
Inflation of the U.S. dollar does not affect demand for goods on the world market, and therefore in real terms the price exporters get is still the same and the demand for their goods is unchanged, except that impoverishment of U.S. consumers lowers domestic demand and requires them to export more of their product to stay in business.
I wouldn’t–of course a weaker U.S. dollar helps American exporters, while at the same time, hurting domestic consumption. It’s just more proof that the economy is always tending towards an equilibrium, and the so-called trade deficit was never a problem in the first place, except in the minds of people who don’t understand economics.
A weaker dollar means that American ‘workers’ are being paid less, in real terms. So, firms are getting cheaper labor, wich helps them stay in bussines. Firms are being subsidized.
I think that reducing the value of a currency does not help exporters at all. You can argue that their finished or near finished products are now cheaper to a foreign buyer but this perk is much shorter lived than the pro-export crowd would have you believe. This is especially true for manufacturers. The cost of raw materials generally reacts quickly to the reduction in currency value. Look at the ultimate raw material: Energy. The energy markets react within minutes to the Fed creating money. So the future inputs to the manufacturing business quickly rise in price. Furthermore the price of foreign labor to service foreign customers quickly rises in price as the value of the currency goes down. Then there is the purchase of foreign equipment and parts. These also rise. Eventually labor catches up leaving the manufacturing enterprise worse off than it was before this all started.
But wages always lag, so whatever is lost by wages is gained by other people. Labor never catches up. If it did, inflation would be pointless as a criminal enterprise. But inflation is a ‘sound’ way to loot some people and subsidize other people.
Answer like this:
Firstly, a negative balance of trades is not a bad thing. All it means is that you’re losing money, but you’re gaining goods. Now since money is just a medium of exchange, and is only a means to an end, then the fact that American consumers are able to import cheap foreign goods, is a great boon. Dollars aren’t going to feed you, and they’re not going to warm your house (well you could burn them, might be cheaper than paper the way things are going), the things you can buy with your dollars are what matters.
Secondly, the export hike is short lived, as inflation catches up on the domestic front, raising production costs in just a few months, and cancelling out any positive effects in terms of exports. At the same time, people who consume these goods and services domestically face higher prices.
Which leads to the third point, namely that the well being of your consumers at home must come about as a top priority in policy legislation, certainly well above the exports of corporations. Whenever you inflate and weaken the dollar, the exporting corporations gain in the short term, and lose out in the long-term. The consumers however, lose out in both the short, and the long-term.
Fourth, you must understand that the balance of trades deficit was not caused by a strong dollar, and so the problem will not be fixed by weakening the dollar. The problem was caused by over-regulation, over-taxation, imposition of minimum wages, and subsidisation of unprofitable and unproductive industries at the expense of profitable ones (how else would the government raise the tax money). Hence, the solution lies elsewhere.
Concluding, the idea that debasing a currency will increase exports, and that this is somehow a good thing for the average Joe, is a big lie, just like the lie of the Federal Reserve, and that of Fractional reserve banking. All of these lies have been planted in the consciousness of people through the media and phony economics text books for the past century, all for the purpose of creating a system which causes a net flow of wealth from the middle and lower class, to the upper class. In other words, re-distribution of wealth. Back in the old days, the mechanics by which the dollar is now weakened were called counterfeit, now it’s called “Stimulating domestic propensities to consume through lower interest rates, while helping exporters”. How better to mask a system of stealth taxes, than by making it out as though they benefit the consumer, and the businesses.