Thursday, October 15, 2009

My View on Angus' "Cheap Dollar" Post

Wow, there is quite a bit here to comment on. Angus said some things about the dollar....

1. There are some things I know more about than Angus. Not many things, and not much more, but some. Social choice theory, Hayek's later books, campaign finance law. But the intersection of monetary theory and trade? Please. Not only does Angus understand this better than I do, he understands it better than almost anyone. So, on the merits, and given that he is making quite a simple point, I would defer to him.

2. Besides, on the merits, I agree with him on the main point, completely. Who gives a crap about the dollar? Why should we care what currency the rest of the world uses? The dollar is big enough, and the U.S. is big enough, that the rest of the world can switch if it wants. Besides, money is by and large a veil, though "when the veil flutters, real output sputters." That just means that you need something stable, limit discretion of the Fed, and then go back to making stuff and selling it. Seignorage is basically theft, anyway. Let it go.

3. I'm not sure the actions of the Fed "helped avert catastrophe," as Angus claims. But in a comparative sense, compared to 1933-1936? You bet: catastrophe then, caused by Fed, no catastrophe now, possibly helped by Fed (though Fed did cause problem in first place; see below). Bernanke did NOT contract the money supply and force everyone with upside down balance sheets to liquidate. So, Angus said, "Unlike the Fed of the 1930s..." and he points out that the weakness of the dollar is at least partly because of "vanishingly low interest rates." I just don't see anything to disagree with there.

4. Now, one could easily criticize Angus for being a big Fed-lover, and wanting to have Greenspan's baby. After all, it was Greenspan who suppressed interest rates artificially, and inflated the housing and asset bubble. Yet Angus has consistently defended Greenspan, right. Oh...wait...that's not right, as even a casual reading of previous posts can show (commenters: Google is your friend. Read before you say stupid stuff). There's this, and then there's this, and (I could go on). Angus has hammered the Federizer Bunnies consistently for years.

5. Finally, BOTH of us have consistenly hammered Porkulus. That canard ("You support the stimulus?") is not even worth considering.


aub said...

"Who gives a crap about the dollar?"

I do.

I've spent two years building a small company from scratch. After spending much time and effort trying to find a US supplier to manufacture a component for our product (we found no one willing to make it for less than twice our retail price), we looked overseas.

As the dollar goes down, our import costs go up and it's not like we're going to suddenly be able to afford to manufacture in the US. We'll simply close up shop. And I suspect we won't be the only ones.

Also, large companies may be able to hedge against a fluctuating dollar, but not smaller entrepreneurs. One reason is that we're just not that savvy. Another is we have no idea how much product we'll need 2 to 3 years out - there's a lot of volatility in marketing a new tech. A third is that we're not buying commodities that can be easily sold to another buyer if we don't need them.

Norman said...


My Schumpeter may be a bit rusty, but I believe he would applaud your entrepreneurial spirit. Then he would calmly inform you that if you go out of business it is because you were in the wrong business, not because the government failed to protect your ability to get cheap goods from overseas.

Now, you couldn't have known you would be in the wrong business ahead of time, but that's why they call it risk. Creative destruction stings like a bitch sometimes, but that's what happens in a growing economy. So maybe we should be wishing you better luck on your next venture?

"[...]we're just not that savvy."
I'll have to ask Angus if I should use this line during my AEA interviews.

aub said...

"Then he would calmly inform you that if you go out of business it is because you were in the wrong business, not because the government failed to protect your ability to get cheap goods from overseas."

First, I'd like to say that I'm not crying in my milk and am not looking for the government to protect anything, other than my ability to trade freely with others - inside or outside political boundaries.

My point is that there's likely to be quite a few small businesses that will go out of business because they didn't account for the dollar falling like a rock.

And as they're failing, many others that are much smarter than us - in the sense that they predicted the dollars fall - will not start a business or open a new plant.

That matters. And that stings like a bitch to a lot more than just those of us trying to get something going.

Norman said...

"I'm not crying in my milk"

I assume this must be true of people who actually put themselves on the line for a new business rather than working for the man (like I do).

My only point is that the falling dollar is no more (and, as you point out, no less) noteworthy than any other major shift in prices. We would see quite a few small businesses go out of business if the dollar were rising, too, as more and more small businesses are currently taking advantage of Internet sales to foreign markets.

Falling oil prices are hell for some, heaven for others. But we don't generally see the WSJ pining for the days when oil was expensive.

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