Keith, a few more comments in this colour.
Ed
----- Original Message -----
From: Keith Hudson
To: Ed Weick ; RE-DESIGNING WORK, INCOME DISTRIBUTION, , EDUCATION
Sent: Monday, August 02, 2010 2:30 PM
Subject: Re: [Futurework] Usual Krugman rant
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.)
A problem here might be that some countries, Canada for example, have lots of
gold to mine; other may have very little. How might one ensure that everyone
starts on the same page?
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.
If one follows the quantity theory of money, printing and issuing currency
may be important to maintaining a fairly uniform level of prices as the economy
grows, just as it would seem important to gather in currency if the economy
begins to slow and output shrinks. The central bank's job would be to
continually assess how much currency may be needed at a particular stage of
economic growth or decline. The kind of flexibility needed for proper economic
management would not be possible with a currency fixed in value to gold. If
the economy grew rapidly, gold miners would have to go out and dig like crazy
to bring in enough gold to ensure that there was sufficient currency to
accomodate the growth.
Well, maybe not. If a country in a growth position could not increase its
supply of gold, the value of currency fixed to gold would rise, as would prices
and costs. The ultimate result would likely a cessation of further growth and
perhaps even a collapse because entrepreneurs could not meet their costs of
production and people could not afford what was being produced. Better leave
the matter to central banks than to hoards of gold.
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.
Central bankers can be mean, tough, even nasty. They are unlikely to let
countries be frivolous. Well perhaps not all of them -- Zimbabwe for example.
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.)
That's enough from me. I have to get on with the rest of my life.
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: Keith Hudson
To: Ed Weick ; 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: Keith Hudson
To: 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
----------------------------------------------------------------------
_______________________________________________
Futurework mailing list
[email protected]
https://lists.uwaterloo.ca/mailman/listinfo/futurework
Keith Hudson, Saltford, England
Keith Hudson, Saltford, England
_______________________________________________
Futurework mailing list
[email protected]
https://lists.uwaterloo.ca/mailman/listinfo/futurework
