No one can deny that our country is having a little bit of trouble economically. Believe what you may about the causes the fact of the matter is we’re here and we have to do something in order to get out of this situation. One thing about the whole situation that irks me, however, is the constant comparison to the euro. The euro, in my mind, is meaningless. Everyone complains about the strength of the euro in relation to the dollar. The “strong euro” is only strong because everyone says it is. The euro is not an accurate measure because of its purchasing value, the difference in its value across its effective area, and its lack of capability for growth.
Right now, a euro costs about $1.41. Right now, a bottle of coke costs a dollar in the United States. Right now, a bottle of coke costs €1 in Italy. So a dollar is worth a coke. And a euro is worth a coke. Sounds like a pretty weak dollar to me right? Would you rather pay $1 or $1.41 for a coke? The nominal value of €1 is $1.41, but in reality they are each worth a coke.
A euro in Slovenia and a Euro in Monaco have the same nominal value in relation to any foreign currency. To Europeans, however, a euro goes a lot further in Slovenia that in Monaco, which is one of the most expensive countries on the planet. The dollar’s value is constant throughout its area of influence, is relatively constant. So comparing the dollar to the euro is kind of like comparing the dollar to the demand for I Love Obama shirts, it really just depends where you are.
The real reason I don’t worry about the euro is that the value for the euro has no potential for exponential growth. It will grow simply because of the way markets operate, but it has little to no potential for real growth. In economic terms, what is necessary for growth is an increase in land, labor, capital, or entrepreneurship. Land is available, but not necessarily available for development. The European labor force is at a relatively constant rate. The European population growth compared to that of the United States’ is minute, which has its benefits but not when it comes to economic progress. Capital markets and entrepreneurship over the past 20 years have been all but vacant from Europe, so they really have no chance at all for growth.
We’re going through some tough times, but everyone needs to stop whining about the “weak dollar”. The dollar may be weak, in exchange terms, but for all intensive purposes, a dollar is still a dollar. And in the long run, the US is still where you want to be. Worry about our economy all you want, just quit worrying about the euro. Economic worries tend to be self fulfilling, so if people keep worrying about it we may one day actually have legitimate concerns.
1 comment:
But doesn't the exchange rate matter? When you take your dollars to Europe and exchange them for Euros, you don't get the same amount of Euros as you had dollars. That Coke in Europe costs you $1.41, and the $50 meal costs you $70. On a day-to-day basis that adds up over a two week trip.
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