But that's not what this post is about. This post is about another Megan post:
Dan Drezner points out that resurgent worries about the dollar's decline are mostly ridiculous, which they are. As long as our trade deficit remains large, the dollar is going to tend to slide in order to match inflows to outgoes. Moreover, the dollar has been propped up over the last year by a global "flight to quality", aka US treasury debt. We should be glad that the dollar is declining, not merely because it makes our exports more competitive, but because it represents a restoration of confidence in the global economy.
Far be it from me to be so foolish as to debate Megan on economics, but I wonder if the causal power she attributes to treasury debt also applies to exports, and that the declining dollar reflects the relative demand for products rather than being the key to improving our competitiveness.
Megan appears to be sanguine about the dollar's decline because it's only a symptom, but isn't this akin to saying, "Oh, don't worry about all that blood on your clothing. It's just 'cuz of that bullet lodged in your spine."? Seriously, the "declining dollar" may be just a symptom, but it's a symptom of something really bad: the vote of "no confidence" by the world's central bankers in our collective decision to address the structural problems in our economy by
doubling tripling quadrupling our federal deficit.
What if what Megan calls "the restoration of confidence in the global economy" is not an improvement in the prospects of our trading partners, but only the collapse of American prospects? That's all that exchange rates measure: relative economic value. Kind of like wages reflect relative productivity. But if my wages fall, I'm not going to start jumping up and down saying, "Yea! Now I'm more competitive!" This would be to get the cause and effect exactly backwards.