A version of this post appeared on Pieria in December 2013. In my post “The desert of plenty”, I described a world in which goods and services are so cheap to produce that less and less capital is required for investment , and so easy to produce that less and less labour is required to produce them. Prices therefore go into freefall and there is a glut of both capital and labour. This is deflation. There are two kinds of deflation. There is the “bad” kind, where asset prices go...
Read More »The problem with words
Ah, those pesky words. They do not mean what we think they do. And sometimes we say one thing, but people think we mean another. And so it is that David Glasner, in a beautifully crafted takedown of my previous post, has managed to miss my point entirely.I did, in fact, read carefully all of David's quotation from Ralph Hawtrey, though I did not quote all of it. Hawtrey's point is that what appeared to be destructive competitive devaluation as countries left the gold standard was in fact...
Read More »Competitive devaluation is not a free lunch
It's not often I disagree with David Glasner. Or, for that matter, with Ralph Hawtrey. But I fear I have to take issue with both of them over competitive devaluation. "Bring it on", says David. No, please don't. It's a terrible idea.Hawtrey's pictorial explanation of why competitive devaluation is a good idea seems both charming and plausible: This competitive depreciation is an entirely imaginary danger. The benefit that a country derives from the depreciation of its currency is in the...
Read More »Everything’s under control, China edition
Daiwa Securities has forecast Armageddon. They say that over-investment in China in recent years has created a debt bubble so great that Chinese authorities would not able to manage its collapse, resulting in a debt deflationary spiral which would make 2008 look like a walk in the park. Such a meltdown would, in their words, "send the global economy into a tailspin".But they also outline another scenario, in which China's economy undergoes a nasty, possibly prolonged recession, from which...
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