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Roads to war in Europe | 272 comments (272 topical, editorial, 0 hidden)
Re: Roads to war in Europe (none / 0)
Behaving in that way leads to a lack of competitive pressures for domestic industry. It leads to an explosion in wage costs. If you can devalue yourself out of any situation, you never have to adapt, especially when you are a small export-dependent nation. The result is stagnating incomes.

Floating exchange rate, independent central bank, central bank mandate including both inflation targeting and financial stability, and fiscal stimulus when you hit the zero lower bound, seems like a completely sufficient policy outfit.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Mar 17th, 2013 at 11:47:20 AM EST
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Re: Roads to war in Europe (none / 0)
How does it lead to a lack of competitive pressure on domestic industry? From that it would appear to follow that the fact that the Earth is a closed economy (excluding the activities of space probes, which have yet to generate substantial export revenues) implies a lack of competitive pressure on Earth-bound industries.

Which is hardly the case.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Mar 17th, 2013 at 12:01:36 PM EST
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Re: Roads to war in Europe (none / 0)
Why would companies try to become better if there are not constant cost pressures? If you keep devaluing, status quo will seem ok, and there will be no reason to try to become better. Keep in mind that there won't be many, or perhaps zero, domestic competitors in a small, highly specialised and trade-dependent economy.

As Kjell Olof Feldt, social democratic minister of finance during the 80's in Sweden said: devaluation is like peeing your pants; first it feels good - then it doesn't.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Mar 17th, 2013 at 12:11:16 PM EST
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Re: Roads to war in Europe (none / 0)
Because if you do not become better and your neighbor does, then the currency will appreciate (or depreciate too slowly for you, which comes to the same thing). It does not matter what sector of industry your neighbor is in: The private sector will, under a floating currency regime, be competing for a (from the point of view of the individual export firm) fixed export revenue set by the volume of imports. If your productivity drops, then someone else can grab your share of the export revenues.

Of course, the entire society could, in principle, decide that they want to not work so hard and just import less instead. But why is that not an acceptable policy decision? Sucks to be a rentier under that policy, but fuck the rentiers.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Mar 17th, 2013 at 12:15:00 PM EST
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Roads to war in Europe | 272 comments (272 topical, 0 editorial, 0 hidden)
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