WE WERE TAUGHT in graduate economics classes that if a country runs large and persistent trade deficits, the value of its currency will decline relative to the value of the currencies of its trading partners. Oh yes, other things being equal, of course. Then we entered the real world and found that other things are never equal.

Which may be why the dollar continued to levitate as America’s trade deficit chalked up one record after another. We bought the world’s goods–cars, sneakers, apparel–and in return sent out bits of paper with the pictures of American presidents printed on them. As the dollars flowed in increasing amounts to foreigners, economists waited in vain for the value of those dollars to drop, so that American goods would become cheaper overseas, and foreign goods more expensive here. That, they reasoned, would correct the trade imbalance.