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What is the difference with what happened through devaluations in the past?

From Jake


Inflation is a tax on net creditors and those wage-earners and benefits claimants that are in a weaker political position than they were when their wages and benefits were originally instituted (due to the high downward rigidity of nominal wages and benefits). It is a subsidy to net debtors and employers who are in a stronger bargaining position than they used to be. That makes it a net loss for the financial sector, lazy money and weakly organised labour, and a net gain for the industrial sector and homeowners.

Devaluation or depreciation is a tax on imports and a subsidy for exports. Overall that translates to a net benefit for people associated with primary or manufacturing industries and a net loss for people associated with the financial or service sectors.

Contractionary interest rate policy is a tax on the future and a subsidy to the present. Homeowners and the industrial sector lose, because they are capital intensive; lazy money and the financial sector win because they are capital-extensive.

Contractionary fiscal policies are a tax on labour and the industrial sector, both of which are sensitive to the state of demand.

Inflation and devaluation (which tend to go together) were bad for the financial sector (the domestic one, presumably) and good for price-sensitive export-oriented industries, but beyond that, we see that there's nothing that could not be dealt with through re-distributional policies - and with right wing (or equivalent) governments, devaluations also end up hurting labor.


Wind power

by Jerome a Paris (etg@eurotrib.com) on Thu Jun 2nd, 2011 at 09:05:21 AM EST
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