President Trump this week said he thinks a weaker dollar is “great,” but he should be careful what he wishes for. Many politicians over the years have contemplated a weaker greenback as an economic miracle cure. They often discover that a weak dollar is a liability.
Mr. Trump made his remark Tuesday amid dollar weakness that is contributing to instability in global foreign-exchange markets. The WSJ Dollar Index, which compares the greenback to a basket of currencies, has fallen about 8% over the past year, and gold’s steady ascent, to above $5,300 per ounce this week, sends its own signal about dollar weakness. The dollar-euro exchange rate is among the most important in the global economy, and the greenback has lost about 14% of its value relative to the euro over the past year.
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Some economists in Mr. Trump’s orbit have updated old exchange-rate theories to comport with their protectionist instincts on trade. The idea is that “too much” foreign financial investment into the U.S. overvalues the dollar, which kills exporting industries and creates America’s large trade deficit.
Here, too, evidence of actual harm is hard to spot. This so-called problem exists only because so many foreigners are investing in American economic growth. Worse, the so-called solution is to deter that investment, such as with a withholding tax on interest paid to foreign holders of Treasurys.
Arnold Kling, as usual, is insightful and wise:
I fear that humans desire the moral license to hate other groups of humans. Society works better when we overcome that desire. For much of our history, Americans have succeeded in suppressing large-scale hatred of other Americans. That is no longer the case, and the polarization regarding mass deportation reflects that.
Also wise is Scott Winship, who tweets: (HT Scott Lincicome)
If there were a finite amount of work to be done, I’d be more worried about LLMs and labor demand (though not that worried). LLMs ultimately lack inspiration or motivation to create without someone prompting them.
This is where the decline in total factor productivity (TFP) becomes illuminating. TFP is often treated as a mysterious residual, a black box labeled “technology.” But it is better understood as a measure of institutional performance: how efficiently a society converts labor, capital, and knowledge into real output. When institutions work — when rules are clear, timelines are predictable, and compliance costs are reasonable — new ideas emerge. When institutions degrade, TFP falls not because people are “so rich they no longer benefit from innovation,” but because society has become worse at enabling innovation.
The work of Eli Dourado, now at the Astera Institute, is particularly clarifying because it is grounded in experience rather than abstraction. His account of technology policy, from aviation to energy, shows how productivity losses accumulate through procedural drag rather than explicit bans. The binding constraint is often not engineering or science, but layers of veto points, open-ended reviews, and regulatory uncertainty that stretch deployment timelines beyond any plausible investment horizon.
The consequence is an economy that looks technologically sophisticated yet struggles to scale. The innovators exist. The capital exists. Even the prototypes exist. What fails is diffusion. Fewer factories are built. Fewer homes are permitted. Fewer energy projects come online. Fewer breakthroughs are commercialized. The result is a steady erosion of TFP and a growing gap between what is technically possible and what actually gets done.
If the growth problem is institutional, then a serious agenda for 2026 must focus less on outcomes and more on process. The question is not what Republicans or Democrats want the economy to look like, but what needs to be done to allow productive activity to scale.
Adam Michel makes clear that the evidence against taxes on wealth “is stronger than ever.”
Speaking of Adam Smith, GMU Econ alum Harrison Searles joins with my GMU Econ colleague Dan Klein to explore the likelihood that Smith and David Hume were proto-Darwinists. [DBx: See also here.]
