The obsession with the value of the dollar is kind of goofy. More than three years ago, not for the first time, I suggested that it would actually be a good thing if the value of the dollar declined significantly, particularly as it relates to the trade relationship with China. People in political circles were trying to get everyone ginned up about the value of the Chinese currency and I pointed out that it would make a lot more sense to reduce the value of the dollar rather than get into a trade fight with China.

   Here is how this works. When the dollar is high, then, whatever is made here is more expensive abroad. Things made abroad–like in China–are cheaper when to export to the U.S. when the dollar is high. In my view, there are only two constituencies that benefit from a high dollar–Wal-Mart (and its corporate siblings who do business in low-wage companies so they can take advantage of cheap labor to make things that then get shipped to the U.S.) and American tourists. Though I am quite sympathetic to the American people who want to travel to other countries who have to pay higher prices for hotels, food and the like, we need to ask the question whether the high dollar is a good thing for the broader population.

   Krugman answers this today:

Consider first the current uproar over the declining international value of the dollar.

The truth is that the falling dollar is good news. For one thing, it’s mainly the result of rising confidence: the dollar rose at the height of the financial crisis as panicked investors sought safe haven in America, and it’s falling again now that the fear is subsiding. And a lower dollar is good for U.S. exporters, helping us make the transition away from huge trade deficits to a more sustainable international position.

But if you get your opinions from, say, The Wall Street Journal’s editorial page, you’re told that the falling dollar is a terrible thing, a sign that the world is losing faith in America (and especially, of course, in President Obama). Something, you believe, must be done to stop the dollar’s slide. And in practice the dollar’s decline has become a stick with which conservative members of Congress beat the Federal Reserve, pressuring the Fed to scale back its efforts to support the economy.

   He is correct. Part of the success of this misguided notion that a high-valued dollar is a good thing has to do with it being wrapped up in patriotism–a strong dollar is like a strong military and a strong America. We need to be clear to people–a strong dollar makes America weak in many respects and is not good for most Americans.