Tuesday, March 18, 2008

More Consequences of a Weak Dollar

I've blogged here before about the consequences of a weak dollar, but this is something I hadn't really thought about (via Mises):

The slowdown of the American economy and the ensuing devaluation of the US dollar deliver gloomy headlines as timely as weather forecasts. The weakening currency may excite entrepreneurs anticipating increased exports. As well, it might have a stimulating effect for American professionals who are paid in return for our services.

However, the total effect is negative insofar as it will curb the trend toward the expansion of the international division of labor. Less outsourcing means higher labor costs for American business, which means less productivity overall.

I'm not sure this is completely correct. The article doesn't really quantify the change in producitivity or cite much in the way of statistics, but anecdotally it makes sense. Certainly there must be some marginal effect after the recent devaluation. Just another consequence of inflation.

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