Will Hutton is a card, isn\’t he?

Willy\’s been one of those who has been insisting, for years, that Britain really must join the euro. It\’s essential, must be done, tragedy will follow if we don\’t.

Today we get his analysis of what is wrong with the British economy.

interacting with the devastating impact of a still overvalued exchange rate.

Oh, so we should have a lower exchange rate, should we? The one thing that membership of the euro would prevent us from having?

in part because the still high exchange rate makes our relative wage costs high

Yes, he is saying that we need to devalue the currency.

We could, for example, buy foreign assets, so lowering the exchange rate.

Yup.

Leave aside whether we should devalue the currency or not, leave aside whether we should or should have joined the euro or not. Just note the inconsistency with arguing for both: having a fixed exchange rate and devaluing the currency.

And to think this man is a Governor of the LSE and the Master of an Oxbridge College. Clearly the ability to do logic….hell, the ability to think…..is not a requirement to be either.

17 comments on “Will Hutton is a card, isn\’t he?

  1. “in part because the still high exchange rate makes our relative wage costs high”

    Of course he could just say he wants everyone in the UK to be poorer, but I’m not sure his readers would be quite so keen on it if it was worded that way.

  2. What high exchange rate? Sterling is 25% below its 2008 value against both the US dollar and the Euro and is now around the value it was in 1993-4 after leaving the ERM.

    http://fxtop.com/en/historates.php?C1=GBP&C2=USD&DD1=01&MM1=01&YYYY1=1991&B=1&P=&I=1&DD2=17&MM2=02&YYYY2=2012&btnOK=Go%21

    Also, why are people so convinced that devaluing sterling will solve our trade deficit problem? Wilson tried that route in 1967 and all that happened was higher inflation. Doesn’t our Willy realise that manufacturers import raw materials – which would of course become more expensive if sterling was devalued?

  3. Seeing as the major problem facing the UK economy at the moment is the squeeze on household incomes brought about by inflation then surely it is madness to increase inflation via a lower exchange rate and more expensive imported oil, gas, and food.

  4. Wikipedia’s page seems to suggest that Hertford is a bit of a “Guardian” college. Newsreaders, lefty journalists, philosophers, politicians, theologians. Not many hard scientists in their alumni. Willie’s Jonah-like presence could be a blessing in disguise.

  5. Tim

    I think you should have a specific tag for Hutton’s blatherings, as you do Richard Murphy.

    ‘Woolly Willy’ would be memorable.

  6. Comment from the chairman of the National Farmers’ Union on BBC’s Country tracks today to the effect that sterling’s low value against the Euro is helping farming to recover from what is virtually a ten-year recession. I slightly wonder where he thinks farmers buy their animal feed, but aside from that, that does suggest that sterling is actually not overvalued, doesn’t it?

  7. The amazing thing is that economics “thinkers” on both Left and Right are still blathering this mercantilist nonsense about exchange rates, more than two centuries on from the development of economics as a discipline.

    “…and if that doesn’t work, we’ll slaughter a goose, read its entrails, then sacrifice 200 oxen to the God of Money”.

    I mean, for fuck’s sake.

  8. ” that does suggest that sterling is actually not overvalued, doesn’t it?”

    And the huge number of Europeans and Asians buying London property would also suggest that sterling isn’t over-valued.

  9. (Floating) fiat currencies cannot be overvalued or undervalued. The only time the terms have any meaning is if the currencies are supposed to be pegged to some commodity (gold, cowrie shells, Elvis autographs). Fiat currency is a dimensionless unit. E.g. it would be quite feasible for the entire Sterling supply to be £1, if sufficient granularity were provided (nanopound coins, etc).

  10. it would be quite feasible for the entire Sterling supply to be £1, if sufficient granularity were provided (nanopound coins, etc).

    Happy with that, but I don’t see what that has to do with the relative value of the (fiat) currency Sterling, versus the other fiat currencies about? The whole over-valued / under-valued debate surely is about relative costs both over time and jurisdiction?

    Hence the Big-Mac and Mars Bar indexes, purchasing power parity and all the other stuff we need to use because currencies are not (ever?) of usefully equivalent value.

  11. 4000 years ago: a bronze trader returns home.

    Wife: How did it go?

    Trader: Oh, very well. I doubled sales!

    Wife: Darling! That’s wonderful! Somebody just invented curtains, so having some more Baltic amber to trade means I can really spruce this little house up. Especially if somebody can get around to inventing glass for the windows too!

    Trader: More amber?

    Wife: Yes dear. Now you’ve sold all those extra axe heads.

    Trader: Oh, I didn’t get any more amber. I halved the price of axe heads.

    Wife: You gave away twice as many axe heads for the same amount of amber?

    Trader: I increased exports. In fact, I’m going to have to take on staff just to keep up with demand. Trade is good!

    Wife: You are an idiot, Aelfric.

    Trader: Women!

  12. “And the huge number of Europeans and Asians buying London property would also suggest that sterling isn’t over-valued.”

    Could also be because they know that the entire British political class is united in keeping the massive housing bubble inflated and increasing.

  13. And just to continue my rant about Willy’s economic ineptitude……

    With a freely floating currency the only means of forcing down its value is either to cut interest rates or to sell large amounts of it into the open market. The base rate is currently 0.5%, so it’s difficult to see how it can be cut much further. And if QE isn’t selling large amounts of currency into the open market what the hell is it?

    Willy is talking out of his nether regions, as usual.

  14. @Rob

    “Could also be because they know that the entire British political class is united in keeping the massive housing bubble inflated and increasing.”

    Yes, but that’s not much help to a Russian or Middle Eastern buyer if sterling were to fall 20%.

  15. “Wikipedia’s page seems to suggest that Hertford is a bit of a “Guardian” college.” Great, let it be the college that has to admit all the dud students that the government is about to force on Oxford.

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