Bit of a head scratcher

Yet missed by the fabulists on the left and right is that there are second and third stage market responses to currency devaluation. To devalue the currency is to tautologically raise production and labor costs, all the while devaluing earnings that attract investors in the first place.

What?

13 thoughts on “Bit of a head scratcher”

  1. Let us leave aside the simple wrongness of what he says. Let us instead concentrate on his tone. It’s really basic you see. And if you don’t get it you’re – well obviously not as clever as he is – you’re a bit simple.

    And now let us concentrate again on him being just really really wrong. And not wrong on something that doesn’t matter. Wrong in a way that has caused complete, possibly irreversible, social dislocation across Southern Europe.

  2. If you can be as dumb as that and still be paid to write in Forbes–do they have any part-time jobs going Tim?. I could use some extra income.

  3. It’s true in a meaningless kind of way. The whole point of the devaluation is a correction to the price system that was sending false signals to producers, consumers and investors. But then, most people who believe in things like economic stimulus specifically want to send false signals so… all bollocks really isn’t it?

  4. So Much for Subtlety

    Ian B – “It’s true in a meaningless kind of way.”

    How does a devaluation raise labour costs? You can make a case that it would increase input prices on things like oil and hence production costs. However surely, from the point of view of the worker, he is paid the same, even if from the point of view of the foreign investor (and anyone who can calculate consumption levels) he is paid less?

    “The whole point of the devaluation is a correction to the price system that was sending false signals to producers, consumers and investors.”

    Or more accurately the point is to avoid the necessary structural reforms – especially of Union power – that make the economy grow. It is a way of avoiding tough decisions.

  5. SMFS,
    “the point is to avoid the necessary structural reforms”

    Yes. Detroit would be in somewhat better shape if they could devalue the Detroit Dollar, but structural reforms are long overdue.

  6. Actually, I think I see how this works.

    “Yet missed by the fabulists on the left and right is that there are second and third stage market responses to currency devaluation.
    To devalue the currency is to tautologically raise production and labor costs,
    all the while devaluing earnings that attract investors in the first place.”

    PARKLIFE!
    Aaaaaaaaalll the peo-ple… So ma-ny peop-ple…

  7. So Much for Subtlety

    Andrew M – “Yes. Detroit would be in somewhat better shape if they could devalue the Detroit Dollar, but structural reforms are long overdue.”

    I am not sure that is true. A devaluation would only work in the short term if structural reforms were immediately carried out. They virtually never are.

    Has any country actually benefited in the long run from a devaluation? It is a little bit banana republic. Britain did it a lot before Thatcher. It did not help did it?

  8. SMFS,
    The pound devalued quite significantly post-2008: at one point sterling was at parity with the euro. Economists will argue about how much this helped (if at all), but it seems self-evident that it must have helped a bit.
    On the other hand, Japan’s Abenomics doesn’t seem to have made any difference to the overall economy.

    My point about Detroit is merely a response to the argument that the U.S. copes fine with a single currency across its fifty states.

  9. Absolutely shocking stuff – a competent GCSE student should be able to give him a good fisking – hard to believe he isn’t being paid by the European Commission as well as Forbes – that said, I appreciate Forbes giving airtime to a wide variety of opinions, as well as the fact that the great Frances Coppola seems to have found a platform there (which is hopefully proving lucrative) – makes Murphy’s being kicked out look even more idiotic than previously…

  10. So Much for Subtlety

    Andrew M – “Economists will argue about how much this helped (if at all), but it seems self-evident that it must have helped a bit.”

    In the short-term, I am sure it did. But in the long-term? It is too easy to rely on devaluation rather than carry out reforms. I think it is one of the advantages of a fixed standard like the gold standard or a tie to the dollar that you cannot just keep prostituting the currency.

    “My point about Detroit is merely a response to the argument that the U.S. copes fine with a single currency across its fifty states.”

    The US, by and large, does. Because it has more flexible markets. Nothing would have saved Detroit. Somewhere I have a comparison of Jamaica with, I think, the Bahamas. Anyway Jamaica opted for the devaluation. The other small Caribbean country did not. It is now richer than Jamaica.

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