At a time when characterizing the United States as a dangerously imbalanced and declining nation has become a commonly asserted bit of "conventional wisdom", it is difficult to locate an intelligently constructed, counterveiling argument.
Fortunately though, Marc Chandler has written a book that lays out an argument worthy of that precise description. In Making Sense of the Dollar: Exposing Dangerous Myths about Trade and Foreign Exchange, Mr. Chandler draws upon 20 years of global capital market experience to present an argument that systematically dispels popular misconceptions about the dollar, trade, deficits, and much more. If you prefer economic literature that dwells entirely in abstraction and theory based analysis, then this book may not be for you; Mr. Chandler focuses on real world situations and knowledge derived from his experience in the foreign exchange market. Making Sense of the Dollar identifies ten specific myths that are widely believed as true; three of these are:
The Trade Deficit Reflects US Competitiveness
Most people are aware that the United States consistently records a multi-billion dollar trade deficit. A common interpretation of this fact is that the United States simply consumes far too much, and is no longer able to compete with foreign manufacturing. Such reasoning, argues Mr. Chandler, ignores the fact that our nation's current system of trade accounting was developed during and for a previous era of corporate evolution. Multinational corporations are increasingly choosing to produce and sell their products in the local foreign market, as opposed to older methods of producing in the corporation's home country, and exporting to foreign customers. This change in ways of conducting business increases the headline US trade deficit, however, profits are still retained by the US corporation. Mr. Chandler points out that every iPod sold in the United States increases the trade deficit by $150. Does this mean that our nation grows closer to collapse every time an iPod is sold?
You Can't Have Too Much Money
Yes, you can. The countries that consistenty purchase US Treasuries do so not because they are interested in funding our government's activities, but because the US Treasury market is the only place in the world with the capacity to absorb hundreds of billions of dollars worth of surplus capital. In that respect, the United States has served as a vital store of the world's excess capital; a role that no other country is remotely large enough to assume.
Globalization Destroyed American Industry
It has been technology, not globalization, that has contributed to the declining number of American manufacturing jobs. Manufacturing in the US has remained stagnant or declined for the past fifty years when measured by the population of the manufacturing workforce, and when looking at manufacturing as a percentage of GDP. However, the value of goods manufactured in the United States has continued to rise. In other words, more goods are being manufactured by less workers. This effect is known as productivity.
I found Making Sense of the Dollar to be very well written book, that manages to convey a complex argument without overwhelming the reader. Furthermore, the arguments made are compelling enough that only denial could cause a reader to dismiss their validity.
Disclosure: I just purchased a new iPod
This book is available from Bloomberg Press.