Ed,
At 11:45 02/08/2010 -0400, you wrote:
Keith, it would be nice for the world to have a common currency whose
value is invariable because it is based on a valued substance like gold,
The main value of gold, quite besides its cosmetic attractiveness, is that
it is largely not used for anything else and that its production is
expensive, low and fairly constant. Almost all the gold that has ever been
mined still exists as coin, ingot, or jewellery*. A currency that's
exchangeable with gold is therefore under constant discipline not to be
expandable at a government's pleasure. (*Most jewellery is in Asia where,
mostly, it is also considered to be a currency as well as a status item.)
just as it would be nice to have a world that is peaceful and nicely
settled into economic patterns that vary little from year to year or even
from decade to decade. However that is not the world we have. Countries
vary greatly in terms of stability and the economic problems they face. A
stable country one year may be less stable the next.
Of course. And a weak government can make itself popular for a while by
expanding its money supply and making its people think they're better off
-- that is, until prices start catching up. Then, if a government is even
more foolish, it prints more money, etc.
Monetary policy during periods of stability may need to differ
considerably from monetary policy during periods of instability and each
country will have to make decisions on what kind of monetary policy it
should pursue at a particular time. Having a common currency whose value
is based on gold or another currency will inhibit the kind of action a
country may need to take.
It would only inhibits those governments that wish to escape their real
problems by printing money.
The Euro provides and example of the kinds of problems a common currency
can raise.
The Euro is even less of a full currency than the dollar or pound is. Its
issuing bank, the ECB (European Central Bank), cannot create credit, nor
can it disperse Euros around among its EMU (European Monetary Union)
members to alleviate distress (as America can do among its States, or the
UK among its regions). (The European Union -- not the same thing as the EMU
-- can, and does, dispense some money, but this is only a very small amount
in total. It's only part of the EU's running costs -- the 2% fee that the
EU Commission charges member countries.)
There is now considerable economic variation among the countries of the
European Union. Some are doing quite well, others are facing large debts
and unemployment. Yet the latter cannot take the kind of action that may
be necessary because being tied to a "common good" can't permit it.
No, it's the constitution of the ECB which prevents it. (And, while I'm
mentioning this, the ECB was set up from the start with a considerable
amount of gold in its reserves. If gold is no longer supposed to be a
currency, what on earth is it doing there? It's there because all central
banks know that national currencies, including now the Euro, might fail one
day and gold is a reserve that can always be used in an emergency, whatever
governments and the ECB may say about gold being some sort of medieval
curiosity.)
I wouldn't be surprised to see the EU begin to disintegrate before too
long.
I think the EMU will, but the EU will probably continue as some sort of
political legacy in rather the same way as the British Commonweaith still
(barely) continues even thought the Empire has long since gone.
Control of national currencies is not only important for internal
purposes, it can as I mentioned previously also be used strategically in
international trade. China keeping the renminbi low for trade purposes
is an example.
It's quite entitled to fix its currency in any way it wants because that's
what all governments did after the Bretton Woods Agreement in 1944 -- and
then they remained fixed to the dollar. The only difference is that, from
1944 until 1971, America was able to force all other countries to pay any
trade deficits they had (with America) as gold, America being the only
country that was able to fix its own currency with gold. China, of course,
didn't trade with America during that period and so it fixed its own
currency by tying it to gold. After 1971 when President Nixon cut the link
between the dollar and gold, America could have refused to have anything to
do with the renminbi -- by not trading with China. But it chose to trade
and on China's renminbi's terms.
So, I agree that a stable common currency would be nice to have, but
then so would a nice, quiet, stable and peaceful world.
Because China (and Russia and India and the Middle East oil countries)
don't like what the American government is doing to its own dollar
(pauperizing it) they now think it's about time we had a proper world
trading currency.
Keith
Ed
----- Original Message -----
From: <mailto:[email protected]>Keith Hudson
To: <mailto:[email protected]>Ed Weick ;
<mailto:[email protected]>RE-DESIGNING WORK, INCOME
DISTRIBUTION, , EDUCATION
Sent: Monday, August 02, 2010 10:18 AM
Subject: Re: [Futurework] Usual Krugman rant
Ed,
At 09:17 02/08/2010 -0400, you wrote:
Who's ranting? When it comes to employment, I don't see it as being
primarily about mass producing consumer goods. There are many things
that could be done to get people working and a Keynesian approach would
probably be needed to get them to be done. American cities, roads,
bridges and other vital pieces of infrastructure need to be rebuilt.
Try it if you want. But Japan tried heavy Keynesian spending for a decade
and somewhat less in the following -- but they were no better off after
20 years than at the beginning.
Doing this might not employ all of the unemployed, but those who would
have work would spend a lot more money on groceries, housing and other
things they can't afford right now. Small businesses would benefit,
multipliers would come into play and at least part of the currently
depressed American world would reawaken. So, I tend to agree with
Krugman -- bring Keynes back into the picture and let's see what happens.
You'll get more of what we've had in the last 30 years -- declining real
wages for average people (at least for those in work).
Why, as Krugman argues, isn't government doing anything? It may be
the nature of the Obama administration. Obama's opponents sit there
staring at him and all he does is stare back at them. "Yes we can!!"
is long gone. And so much now is about the forthcoming
elections. Being perceived to be doing the right thing (really, doing
nothing) will stand a better chance of getting votes than doing
something would be.
Raising tax revenues by getting people working could be important in
terms of dealing with the deficit. Eliminating tax breaks for the rich
could also be important. The European powers may be in a deflationary
mode right now, but why should America be?
And going back to some kind of gold standard arrangement is not the
answer. It simply wouldn't work. It didn't work in the past,
Can you tell me when and where it didn't work?
so why should it work in today's far more complex world.
The gold standard worked for England for 150 years and most of Europe for
80 on average and also for America for about 40 years -- all with no
inflation whatsoever. All was cut short by the First World War when so
much money was needed that it had to be printed. But then, later, when
governments tried to go back onto a gold standard they did so without
taking the subsequent inflation of the pound, dollar, mark, etc into
account. Result? More inflation -- and even more so after Nixon cut off
even international trade surrencies from gold in 1971.
As more and more Chinese, Middle East oil exporters and big investors'
money goes into gold and not dollars or government bonds, you can be
certain that gold, as currency, is quietly re-asserting itself. All the
Western banks are now grimly hanging onto what gold they still have
because it's their only one sure asset they have these days. It can only
mean one thing. We're going to revert to a gold standard -- or another
reliable world currency -- sooner or later, whether after yet another
chaotic episode like 2008/9 or by international agreement -- as China is
calling for -- remains to be seen.
Keith
Ed
----- Original Message -----
From: <mailto:[email protected]>Keith Hudson
To: <mailto:[email protected]>RE-DESIGNING WORK, INCOME
DISTRIBUTION, ,EDUCATION
Sent: Monday, August 02, 2010 2:13 AM
Subject: [Futurework] Usual Krugman rant
Paul Krugman is off on a typical rant this morning in the New York
Times. He observes that unemployment will probably grow in the years
ahead but says that there is "growing evidence that governing elite
just doesn't care?"
Of course they care! They care for their own skins in the coming years.
Every conceivable type of government cares about unemployment, and has
done so throughout history if it wants to maintain power and sleep easy.
Paul Krugman refuses to entertain the idea that high and growing
unemployment is structural. Why? Because, even after writing hundreds
of op-eds over the years, he still thinks that Keynesianism can supply
the solution. It might have done so in the 1930s when there was still a
large tranche of still-expensive consumer goods awaiting mass
production and purchase by a substantial proportion of the population.
That's no longer the case. There's no long line of desirable consumer
goods visible ahead of us. As regards existing goods, automation still
proceeds.
So "Congress is sitting on its hands" is it? And the Fed is not
repeating inflation out of some sort of malignant obduracy, is it? (At
least there are some officials who learn from their mistakes!) What's
needed is not emotionalism on Krugman's part but some objective
analysis in order to restore his status as a Nobel prize-winning
economist and not a tub-thumper.
Well, I'll give him some pointers. What we need -- and pretty soon, too
-- is a total currency reform so that all advanced governments can
write off their existing debts and not cripple our children and
grandchildren with paying for their profligacy in the past few decades.
And, from then onwards, a currency system that will make governments
keep to sensible annual budgeting. We also need a substantial
educational reform so that there'll be a demand pressure to expand or
share the most interesting and highly-paid jobs. We also need
substantial administrative/political reform so that we don't have a
system whereby politicians have to selectively bribe this or that
section of the electorate in order to remain in power.
Keynes himself said something to the effect that governments always
fall prey to outmoded ideas of a previous generation of economists.
Well . . . that applies to economists, too.
Keith
Keith Hudson, Saltford, England
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Keith Hudson, Saltford, England
Keith Hudson, Saltford, England
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