What an incredibly weird statement by Larry Elliott

Nixon called time on the Bretton Woods system of fixed but adjustable exchange rates, under which countries could use capital controls in order to stimulate their economies without fear of a run on their currency.

No, this is arse about tit.

It was the system of fixed exchange rates which prevented stimulus. If you went off to tickle the scrotal sac of the economy, to stimulate it, you then came up against the boundary of having to defend your currency exchange rate. You then had to do all sorts of nasty raising interest rates, cancelling the stimulus (to continue our earlier analogy, akin to waving pictures of Anne Widdicombe/Margaret Beckett, to political taste, at it) in order to defend that currency rate. This was as true of Harold Wilson in 1966 as it was of Norman Lamont in 1992: raising interest rates three times by lunchtime wasn\’t it?

Fixed exchange rates were a constraint on the ability to stimulate. As shown by the way we came off the gold standard in 1931 in order to stimulate, as shown by the way we quite deliberately dropped the £ 25% in the last few years to do so.

And the suggestion about what we do next?

There is strong ideological resistance to the policies that make decent wages in a full employment economy feasible: capital controls, allowing strong trade unions, wage subsidies, and protectionism.

Dear God Almighty. Forward to the 17th Century! Medieval guilds, mercantilism…..has no one actually read Adam Smith?

11 thoughts on “What an incredibly weird statement by Larry Elliott”

  1. There have been some economists since Adam Smith, Tim. Some of them were even proper free marketeers rather than enthusiastic customs men who supported the Navigation Acts, and some of them have even developed a proper theory of value.

    It’s a bit rich complaining somebody’s harking back to the 17th Century, by referencing… the 18th Century.

    What is it with this Cult Of Smith?

  2. What I don’t get is this:

    I’m 40 years old so am about as old as the fiat money experiment. When I was a kid ‘stuff’ cost a lot of money (relative to what people earned). Buying a new TV was a big purchase, and it had to last a long time. People fixed their own cars, bought second hand clothes (all my classmates in my rural (ie not deprived by any means) primary school wore hand-me-downs and clothes from jumble sales). Anyone who could afford new clothes, new cars, foreign holidays was rich, ie out of the norm.

    In business my father would buy secondhand building materials and pay builders to build his farm sheds with them. This was cheaper than buying purpose made barns. He would buy old machines and repair them.

    Nowadays stuff is cheap. A TV can be bought brand new for a few quid. Cars can be boughtnew on HP. People holiday abroad several times a year. In my business it makes more sense to buy a new machine or building, than employ 3 or 4 men to fiddle around making stuff from secondhand materials or mending things. Ergo labour has a better standard of living now than it did in the 1960s and 70s.

    So why do people like Larry Elliot want to send the workers back 40 years?

  3. Because he believes that inefficiency creates jobs and high wages, because it takes more man hours to make an expensive telly. Thus industry will have to employ more people, wages will rise and everyone will become wealthier.

    I leave it as an exercise for the reader to identify the fallacy.

  4. Jim, Ian: +1. Although technological progress has also played a part (and while different systems incentivise different speeds of progress, the direction of travel absent of Dark Ages-style total cultural destruction is always going to be forward.)

  5. As the blues singer Sleepy John Estes, who at least wasn’t being paid for any supposed economic expertise, remarked in the Great Depression:

    You know, you oughta cut off so many trucks and tractors, white folks, you oughta work more mules and men (x2)
    Then that would make, ooh boy, money get thick again.

  6. Unimportant Quibbler

    IanB: “It’s a bit rich complaining somebody’s harking back to the 17th Century, by referencing… the 18th ”

    As I read it, this was TW’s point!

    He is hardly trapped in some kind of Cult of Smith, unable to progress even unto the revitalising intellectual spirit of 19th-century liberalism or beyond into the ideological battles of the 20th.

    He’s just pointing out how bonkers it is that there are so many people who seem intent on taking us back in time, and the weaknesses of whose positions were already clinically exposed in the 1700s. That’s the point of the 17th-18th century contrast in this piece, and much of TW’s other references to Smith elsewhere (for instance, when he’s caught someone falling into the mantrap of “division of labour” ignorance).

  7. Protectionism aside, I am unable to see how capital controls and wage led growth are a return to Mercantilism, and how anyone can oppose them vehemently given the last 30 years.

  8. “the way we quite deliberately dropped the £ 25% in the last few years to do so.”

    This is a quite remarkable statement. You’ve said before it wasn’t a devaluation as that only happen in fixed exchange rate systems.

    So do you really think the government should be deliberately trashing people’s savings etc? Surely this is mercantilism gone mad?

  9. Matthew2: Sterling devaluation encourages exports and enables interest rates to be held low. That is economic stimulus by any standards. Yes, savers suffer when interest rates are reduced and sterling depreciates. No surprise there: the whole point of economic stimulus is to encourage spending at the expense of saving. That’s how growth happens and it’s essential after a recession. Tough luck, savers.

  10. I understand how it works Frances (although you ignore the impact on consumers, which is huge). I’m wondering why anyone who should think it is a good idea for the government to deliberately trash the value of people’s savings and incomes?

  11. Matthew2: Impact on consumers is only huge to the extent that they are buying imported goods. Assuming that sterling devaluation hasn’t gone hand-in-hand with inflation (that’s quite a big assumption, though), it should encourage domestic consumption and discourage imports – which is a good thing for domestic business, generally, isn’t it?

    I’m not arguing that devaluation is necessarily a good thing. But there are occasions when it is definitely the best of the available options. In a depressed, indebted economy where domestic business is crowded out by cheap imports and internationally uncompetitive, sterling devaluation may be the only thing that makes a significant difference. Under those circumstances, yes I do think it is a good idea for govt to deliberately trash the international value of people’s money.

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