Today’s links to interesting news and analysis. If you find this useful, pass it to a friend or colleague.
- “Why Not the Gold Standard? – Talking Points on the Likely Consequences of Re-Establishment of a Gold Standard“, Brad DeLong (Prof Economics, Berkeley), 10 August 1996
- Watch your liberties slip away while you doze: “Student air passenger handcuffed to echoes of 9/11 fears“, Philadelphia Daily News, 11 September 2009
- From global warming sceptics, effective propaganda for morons: “From Their Own Mouths: Global Warming is a Fraud“, Information Liberation, 10 November 2009 — It has 1.6 million Google hits, but no a shred of evidence. When we no longer accept this sort of trash, America will be back on track for success. See below for a specific example.
- More fruit from the liberation of the CRU emails. We owe a medal to whoever did it. “Science chief John Beddington calls for honesty on climate change“, The Times, 27 January 2010 — Suddenly the things sceptics have recommended for years become respectable, but they remain outcasts.
- “You’re Rich. Get Over It.“, Daniel Gross, Slate, 3 February 2010 — “People who make $250,000 or more a year can afford a tax hike.”
- One key to China’s success: reverse-engineering — “How Manufacturing’s Mockingbird Sings“, Caixin, 10 February 2010 — “From batteries to cars, BYD engineers have found that successful product manufacturing begins by copying others.”
- The dream of a political alliance of all right-thinking folk: “Fantasy-League Politics“, Mark Schmitt, American Prospect, 11 February 2010 — After all, don’t all good and wise people agree with me?
- Speech by New Jersey Governor Chris Christie: New Jersey is in a state of financial crisis, 11 February 2010
- Valuable analysis of liabilities of western governments: “Government hedonism and the next policy mistake“, Dylan Grice, Société Générale, 11 February 2010 — Excellent graphics. His forecasts have not been so accurate, however.
- “Poll: Tea Party Shows Prospects; Less So for Sarah Palin“, ABC News, 11 February 2010
- Looking at Palin’s ratings over time: “National Favorable Rating: Sarah Palin“, Pollster
Today’s special feature, with powerful implications for both the EU and us
An overvalued “hard currency” can be a horrible drag on a nation: “Latvia’s Recession: The Cost of Adjustment With An ‘Internal Devaluation’”, Mark Weisbrot and Rebecca Ray, Center for Economic and Policy Research, February 2010 — Excerpt:
The Latvian recession, which is now more than 2 years old, has seen a world-historical drop in GDP of more than 25% . The IMF projects another 4% drop this year, and predicts that the total loss of output from peak to bottom will reach 30%. This would make Latvia’s loss more than that of the U.S. Great Depression downturn of 1929-1933.
This paper argues that the depth of the recession and the difficulty of recovery are attributable in large part to the decision to maintain the country’s overvalued fixed exchange rate. With the nominal exchange rate fixed, the adjustment in the real exchange rate takes place through pushing down prices and wages.
… In addition, as a result of the recession, the Latvian government is rapidly accumulating debt. From just 7.9% of GDP in 2007, Latvia’s debt is projected at 74% of GDP for this year, stabilizing at 89% of GDP in 2014. This would put Latvia far outside the Maastricht debt/GDP limit of 60% of GDP for adopting the euro. The goal of adopting the euro has been one of the main arguments for making the sacrifices necessary to keep the peg.
Latvia’s experience has been similar to that of Argentina from 1999-2002, which also suffered a deep recession as it tried unsuccessfully to adjust its economy under a fixed exchange rate regime. The government tried to maintain confidence in the peg through contractionary fiscal and monetary policies, and borrowing for interventions to support the currency. But with rising interest rates and a rising public debt burden, this proved impossible. At the end of 2001, the government defaulted on its debt and by January 2002 it abandoned the peg. It is worth noting that, despite widespread consensus that the Argentine economy would experience prolonged economic problems after its default and devaluation, and the collapse of its banking system, the economy contracted for just one quarter before beginning a robust recovery in which it grew by 66% over 6 years.
In comparison, the IMF’s projected recovery for the Latvian economy is weak, just 13.9% for the four years 2010-2014.
Note: this is about Latvia, the Baltic nation. Not Latveria, the nation ruled by Dr. Doom (see Wikipedia).
Please share your comments by posting below. Per the FM site’s Comment Policy, please make them brief (250 word max), civil and relevant to this post. Or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).
Also — you can now subscribe, receiving posts by email — see the box on the upper right.