Thirty years ago, many economists argued that inflation was a kind of minor inconvenience and that the cost of reducing inflation was too high a price to pay. No one would make those arguments today.

The good news is that a competitive dollar in the global market and a strong dollar at home are compatible in both the long run and during the transition to a more competitive dollar.

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

The more competitive value of the dollar turned around the trade deficit.

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

But the primary reason for wanting the dollar to become more competitive in the near future is that we may need an increase in exports this year and in 2007 to sustain the economy's current pace of expansion.

After all, an overvalued dollar gives us the ability to buy foreign goods at lower prices. And the existing volume of exports brings more yen and euros than they would if the dollar were more competitive.