People get really confused when talking about currency value. Paul Blustein, the Washington Post’s economics writer, has an article in today’s paper about the state of the U.S. dollar. But he gets it wrong:

The dollar’s downward move, after all, stems from a massive imbalance in the U.S. economy, as reflected in the country’s burgeoning trade deficit. Since Americans import more than they export — the gap is running at about $600 billion a year — foreigners effectively lend the difference, taking the dollars they receive for their goods and investing them in U.S. assets such as Treasury bonds.

This assumes that the only thing to do with dollars is to spend them on buying Microsoft Windows etc. or Treasury bonds.

It also ignores the fact that about a third of the ‘trade deficit’ involves foreign subsidiaries of American companies selling things back to their U.S.-based parents: so the ‘trade deficit’ is more accurately $400 billion, or about 4% of the U.S. economy. That this is ignored is especially puzzling given that this very fact is mentioned further down in the article.

Imports are decreasing:

British automaker Jaguar, for example, is enjoying brisk business in Western Europe, with new car registrations up 24.5 percent in the first 10 months of 2004. But in the United States, sales have fallen 15 percent, and losses have grown as revenue per vehicle, which is measured in dollars, sinks below manufacturing costs, which is measured in pounds.

Jaguar is, incidentally, owned by Ford, which is an American company. However, that 24.5% rise in Jaguar sales — profits from which flow back to Ford (an American company) — doesn’t count as an increase in U.S. ‘exports’ because the vehicles themselves are sent from Coventry. However, any Jaguar sales to the United States (as well as cars and car parts being shipped from American-owned factories across the river from, say, Ontario) count as imports to the U.S. If this isn’t a method of measurement guaranteed to produce alarmist results, I don’t know what is.

In any case the Post is skeptical:

That’s the type of dynamic that ought to help correct the U.S. trade deficit. So far, however, that hasn’t happened.

And now we come to the meat, to my real point. This Dynamic Has Not Corrected The U.S. Trade Deficit, allegedly.

Thus for the trade gap to narrow, exports not only have to increase, as they have been, but they must also rise much faster than imports. The opposite has been occurring, as Commerce Department figures for October showed. Exports hit a new monthly high of $98.1 billion, which was 11.3 percent more than the previous year’s level. But imports were $153.5 billion, 18.5 percent more than a year before.

And, of course, we will conveniently ignore the minor point that all of these measurements are in dollars. This is why people don’t understand currency values: they’re so used to using currency as a yardstick that they continue to do so when they’re talking about the value of the currency itself.

It’s as if we re-defined the meter as being 150 cm long, and then wrote hand-wringing stories about everything getting 50% smaller. It’s not that simple, of course, because the meter is an arbitrary measure while the dollar represents — one hopes, at least — something in the real world.

The dollar has dropped by 16.5% since February 2002, so when you’re measuring imports and exports in dollars, you have to take that into account. The Washington Post compares the dollar’s fall since early 2002, but the change in imports and exports since late 2003 — and it doesn’t really specify where any of these numbers come from (‘the Commerce Department’ is kind of vague), so I’ll just use the numbers at hand. They are likely to exaggerate my case, but they’ll do well enough to illustrate.

Exports, the Washington Post says, have increased 11.3%, while imports have increased 18.5% — when measured in dollars. During the same time, of course, the value of the dollar dropped, particularly when you’re talking about transactions with people in other countries. So if we take the dollar as being worth 16.5% more at the beginning of this period, with our crude constant-dollar calculation we get an actual increase of 2% in imports, and an increase of 27.8% in exports. If this isn’t a fast enough shift, I don’t know what the hell he’s looking for.

These numbers are inaccurate, not least because not all of my figures represent the same period of time. But my numbers are not necessarily more inaccurate than the Washington Post’s, and I don’t get paid for this.

It is bad enough to have the government thoroughly Sovietizing the statistics it releases, without the press willfully — really, the idea that the Post is deliberately misrepresenting this stuff is less frightening than the idea that they’re that stupid — misleading their readers about the meaning of all this.