In short, both experience and economic theory imply that the US could now t to a more competitive dollar without experiencing either increased inflation or decreased economic growth.

First, I think the science of monetary economics has clearly gotten better.

The price of imported oil in the US doubled between summer 2003 and summer 2005, reducing consumers' purchasing power by more than 1 per cent of gross domestic product.

To finance this trade deficit, the U.S. has to borrow from the rest of the world or sell American assets like stocks, businesses, and real estate to the rest of the world.

And finally, no matter how good the science gets, there are problems that inevitably depend on judgment, on art, on a feel for financial markets.

Inflation is lower and more stable and the real business cycle fluctuations are more modest.

Increased government spending can provide a temporary stimulus to demand and output but in the longer run higher levels of government spending crowd out private investment or require higher taxes that weaken growth by reducing incentives to save, invest, innovate, and work.