Thank heavens for flexible exchange rates

A graph at Brad Delong´s.

Last time around, in the 30s, the sooner you came off the gold standard the better you were doing by 1937.

Bit of a pisser for all those that cannot come off the euro standard really but there it is.

6 thoughts on “Thank heavens for flexible exchange rates”

  1. That graph is rubbish! I think Delong needs to sort out his dates.
    (This doesn’t weaken your point about the euro but please don’t use Delong to support your argument – you’ll be quoting Krugman next!)

  2. Yeah, imagine quoting a Nobel laureate economist [*] to support an argument about economics? Whatever next…

    [*] insert obligatory “yeah, Bank of Sweden, whatever, fuck off”

  3. @john b,

    I have no problems with anyone quoting Nobel prize winners but not if they get their dates wrong. As someone has pointed out in the comments:

    “I think the overall argument is as you present it regarding ending the GS, but the highlighted portions you have done are a bit off:
    (1) you have the US leaving gold in 1932 when Hoover was still President when it actually left gold in June 1933 under FDR;
    (2) Germany effectively abandoned gold with capital controls in August 1931, but did not pursue expansionary monetary policies until 1933
    (3) Japan (which went back to gold in 1930) did not abandon the gold standard until after the UK — Sept 1931 for UK, Dec 1931 for Japan.”

  4. But not everyone can devalue! I really don’t think you understand this point – an exchange rate is a ratio, so if one goes down the other goes up.

    Tim adds: Sure I understand the point. And?

    We should worry about them or we should worry about us?

  5. I’m not sure you do understand. But also, basically you are saying that all countries should let inflation rip. Surely that is what happens if everyone comes off gold and tries to benefit?

    This is not necessarily a bad idea, but Kaytie has pointed out some of the obvious problems.

  6. Competitive devaluation is merchantilism. It is the same thing as setting up tarriffs, just in another form. Certainly it can produce temporary gains.

    Even those though are difficult to measure correctly. I doubt the graph is really correct. How does it take into account currency variations for example?

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