Making Sense of the Dollar - Marc Chandler (Bloomberg Press, 2009)

The Chief Foreign Exchange Strategist at Brown Brothers Harriman takes a critical look at ten myths about the balance of trade, the labor market, and globalization and the dollar. [332.4560973]

Marc Chandler takes the reader through a critical review of ten myths about exchange rates, the dollar, and international trade in a well-written 200 pages.  The book might have been suitably named, "Against the New Mercantilism."  The author completely takes apart the commonly held picture of a world in which the U.S. runs huge trade deficits that lead to an accumulation of dollars overseas that will weaken the U.S. standing in the world and that its manufacturing can be saved only by a weak dollar policy.  In every point, Chandler presents a fresh perspective to show how the common view is wrong.  

His first key point is that trade statistics do not capture how American firms compete in global trade.  Rather than producing everything in the US and shipping finished goods, US firms establish foreign subsidiaries to produce locally.  Much of what is measured in trade statistics is actually intra-firm movements of goods in production.  This means that trade data understate US competitiveness.  His second point is that dollars overseas serve more functions than simply being used to purchase goods made in the US.  This strikes at the commonly held notions of the proper exchange rate or the role of the dollar in the world economy.  Finally, he addresses the impact of institutions on the development of markets in modern societies.  This includes an insightful look at the myth that there is only one way to capitalism. 

The book is a fresh and much-needed antidote to the facile assertions about the US economy and its future in global trade.

This book is highly recommended.