So Greenspan's warning about the trade deficit. And the Weekly Standard is claiming that a declining dollar is no big deal—Reagan did it, after all, so it must be okay.

I don't have time to get into the full story now, but this is a big ol' simplification of what happened in the late '80s. True, Reagan devalued the dollar by 40 percent and the world did not end. But he was able to do so because Japan and Germany were (grudgingly) willing to bear most of the costs. It's not clear that a injured-but-recovering Japan and a limping Europe would be willing to bear the costs today. Also, the U.S. trade deficit declined in the late '80s because foreign countries were growing much faster, relatively, than the United States. Rapid growth in Asia, Europe, Latin America helped boost American exports and boost domestic demand abroad (thus limiting their exports). At the same time, the U.S. was growing rather slowly primarily because of high interest rates. It helped avoid catastrophe, but it had the unfortunate side effect of being quite painful—unemployment was up, consumption was down, blah, blah. The whole thing cost Bush I a second term, if I recall.

A declining dollar today might not have the same effect. Europe is growing extremely slowly. China is putting the brakes on growth. Who knows what Latin America is doing. Do our exporters really have so much room to grow that we can avoid the slower economic growth associated with higher interest rates? And can we weather a sharp decline in foreign investment—which will presumably push bond yields up and stock prices down? These, I think, are good questions to ask.

By the way, Greenspan's right: America (guv'mint and people) needs to save more. So why not ask why the Bush administration is promoting a tax reform plan that will in all likelihood reduce national savings?