Deluded fantasists

Cable argued that sterling\’s vulnerability strengthened the case in the medium to long term for the UK to be \’locked into a bigger currency block\’ – meaning entry into the euro. The case for euro entry was also put by leading economist and commentator Will Hutton. \’The pound buying less than a euro is an important psychological moment. Britain first doubted the euro would be launched, then whether it would survive, then whether it would ever become a serious currency,\’ said Hutton.

\’Even today people are rushing to pronounce its death warrant. Now it is plainly the world\’s second currency after the dollar. As the pound becomes more volatile and less valuable, the euro will be seen increasingly as a safe haven – a zone in which both British industry and the City of London would flourish. The question is not if Britain will join, but when – and how many working lives and businesses will be wrecked by ideological opposition before it does.\’

They\’re using the observable benefits of having a flexible currency to argue that we shouldn\’t have a flexible currency.

How do you argue with people this deluded?

9 comments on “Deluded fantasists

  1. Well as you know there are loads of arguments one can make to advance the pro-euro case. One I’d be interested in hearing your view on is whether you think having a flexible currency allows politicians too much flexibility, which inevitably gets abused, and which down the line is not in the best interests of the country.

    Tim adds: I look at it rather the other way around. A flexible exchange rate provides a check on political activity because you’ve got a market providing a real time information service on that political activity.

  2. Btw, i thought the article was uselss as well. It’s worth making the point that tourists are now getting only about 1 euro per pound, but that doesn’t justify the headline ‘pound slips below euro’ (or something like that). Furthermore someone should ask Hutton et al whether they believe the other eurozone members would be happy with the UK joining at 1 to 1.

  3. Matthew, passing control over currency from one political body to another does not seem to decrease political risk, especially when the body that is to take over is less accountable for its actions to your own people.

  4. What Michal is saying. But it’s all “whistling in the dark” or “rearranging deck chairs on the Titanic,” or any other metaphor for the incomprehension of futility.

    In the long run (and, by “long run” I mean 100 years or less, maybe much less), there can be no (zero, zip, nada,zilch, etc.) prospect whatever for the survival of a worldwide regime of inconvertible currencies.

    Attempt by ANY national regime to return to a “sound” money will precipitate disaster for the rest. But postponing the inevitable will simply enlarge the scope and extent of the disaster to truly horrifying proportions, to which I’ve alluded previously.

    Oddly, if there are monetary scholars poking around for “causes” a few hundred years later, they will have to admit, finally, that human beings are, indeed, ultimately (and always) rational actors.

  5. When a currency falls in value, it hurts everyone in proportion that they buy imported goods.
    So when the pound falls, the rich suffer maybe more than the poor. Their Porsches and skiing trips cost more.
    No wonder the rich prefer a fixed, high, exchange rate.
    Overall, the fact that everyone suffers, a little or a lot, or gains, a little or a lot, when the pound falls or rises, means that the national sense of “being in this together” is sustained.
    Again, no wonder the EU wants to get rid of national currencies. The las thting they want is that a nation might think they could cope with a problem by themselves.

  6. If Hutton or whoever were to argue for Sterling to be tied to a bank that was tied to gold, now that might be a bit more interesting….

  7. “How do you argue with people this deluded?”

    By pointing out that:

    a) We tried this in the late 1980s and it went badly wrong.

    b) Ireland did dump their own pound (that was closely tied to sterling) in favour of Euro and their property price bubble was even bigger than ours.

    c) There appears to be a natural advantage to businesses using the same language (English) similarly there are some advantages to having the same currency (we used to have a single world currency called gold), which is why there are far fewer (paper) currencies than there used to be (like obscure languages dying out)

    But there must be diseconomies of scale to currency unions, or else this process of minor currencies dying out (Luxembourg and Belgium have used the same currency for ages; the Isle of Man and the Channel Islands use sterling, for example) would have resulted in their being a single world (paper) currency.

    d) We have had, in Europe, all sorts of currency unions, fixed exchange rate systems etc over the centuries, most of which fell apart again. Ergo, there must be diseconomies of scale to such systems.

  8. @ Jim

    “When a currency falls in value, it hurts everyone in proportion that they buy imported goods. So when the pound falls, the rich suffer maybe more than the poor. ”

    When a currency falls, every business that imports its means of production and buys services abroad is hurt which in turn hurts its partners and clients. Now, do you really think that the rich are hurt more by this? If they are really rich, they probably own foreign assets that start to ear more pounds as what they earn is valued in currencies now stronger when compared to the domestic one.

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