Image  —  Posted: August 2, 2015 by Jim Rose in economic history

Milton Friedman on Exchange rate policy #2

Posted: August 2, 2015 by Jim Rose in economics

Originally posted on The Market Monetarist:

“The Case for Flexible Exchange Rates”

I 1950 Milton Friedman was attached to the US Economic Cooperation Administration (ECA), which was charged with overseeing the implementation of the Marshall plan.

The ECA wanted to see a common European market and therefore a liberalisation of intra-European trade and a breaking down of customs barriers between the European countries. Most European nations were, however, sceptical of the idea, as they feared it would lead to problematic balance of payments deficits – and thus pressure on the fixed exchange rate policy.

Once again the political dynamics of the fixed exchange rate system were stoking protectionist tendencies. This was an important theme in the memorandum that Milton Friedman wrote to the ECA on the structure of exchange rate policy in Europe. This memorandum, “Flexible Exchange Rates as a Solution to the German Exchange Crisis”, formed the foundation for his now classic article from 1953…

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Progressives allying with theocrats again 

Posted: August 1, 2015 by Jim Rose in economics

Originally posted on tomowolade:

Nothing illustrates the alliance between the far left and the religious far-right more lucidly than the work of two university of Bath academics: Tom Mills and David Miller, both of whom, in concert with Bath researcher Narzanin Massoumi, wrote an apologia of CAGE for OpenDemocracy, denouncing those who are critical of the group.

The article is a tsunami of misinformation, misrepresentation, euphemism and hysteria. When it isn’t demonising progressive individuals like Gita Sahgal, or progressive groups like the council of ex-Muslims, it identifies CAGE as a human rights group and presents Haitham al Haddad as a misunderstood conservative cleric.

In a manner like this:

There is no doubt that Haddad expresses a conservative strand of Islam, in particular on the appropriateness of punishment fitting the crime (Hudud) and on questions of sexuality. It is not clear, though, that the other views attributed to him are accurately rendered. Much of the…

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The large drop in white young white male deaths so dominates figure 1 that it conceals a halving in white female deaths. These measures in figure 1 are not related to propensity to drive a car. It must be hypothesised that women were driving more than they used to in the 1950s and 1960s. Nearly all of the decline in white young female road deaths has been since 1990.

Figure 1: motor vehicle related deaths of males and females aged 15 to 24 by race, USA, 1950 – 2013


Source: Centres for Disease Control and Prevention.

Deaths of black males young black males in the road actually increased in the 1980s before falling again. There has been no change at all really in the number of deaths of young black females since 1950.

Jim Rose:

Anyone who had a good idea about what the the New Zealand dollar should be would be trading on their own account. These super-rich would not be wasting their time giving advice to others. Their time would be too handsomely rewarded for such meagre returns as pontificating to others as to what they should do with their portfolios.

One of my delights as a bureaucrat was at a meeting between the Reserve Bank of New Zealand and the International Monetary Fund some 15 years or so ago

The Fund asked whether Bank whether it thought the exchange rate was too high, and what their exchange-rate modelling say about this?

  • The reply of the Deputy Governor of the Reserve Bank of New Zealand was we don’t have exchange rate model because we don’t think there are any good. Gone are those days.
  • The International Monetary Fund team was quite flabbergasted by this response.

At one stage the Fund team tried to draw me into the conversation about the level of New Zealand dollar because I was there representing the New Zealand Treasury. I was only attended as an observer, so naturally my response to their questions was to waffle incoherently. I could have been blunter and simply said the Reserve Bank of New Zealand spoke for New Zealand in this matter, but that would have been impolite.

Originally posted on croaking cassandra:

I’ve been continuing to reflect on Graeme Wheeler’s repeated observation that New Zealand’s exchange rate “needs” to come down. I’m still not entirely sure what he means. The exchange rate is an asset price and presumably should reflect all expected future relevant information, not just spot information about current dairy prices. And the market has no particular reason to focus on stabilising the net international investment position at around current levels. Indeed, although it is a convenient reference point, neither does the Reserve Bank.

“Need” or not, I’d have thought it was likely that the exchange rate would fall further.

The ANZ Commodity Price Index, which lags behind (for example) falling GDT and futures dairy prices, has already had one of the larger falls in the history of the series.

ANZ Commodity

Meanwhile, the fall in the exchange rate, while material, remains pretty small by the standards of past New Zealand adjustments…

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Originally posted on The Market Monetarist:

This is from the Telegraph:

Italy was hit by strikes, violent demonstrations and protests against refugees on Friday as anger and frustration towards soaring unemployment and the enduring economic crisis exploded onto the streets.

Riot police clashed with protesters, students and unionists in Milan and Padua, in the north of the country, while in Rome a group of demonstrators scaled the Colosseum to protest against the labour reforms proposed by the government of Matteo Renzi, the 39-year-old prime minister.

Eggs and fire crackers were hurled at the economy ministry.

On the gritty, long-neglected outskirts of Rome there was continuing tension outside a centre for refugees, which was repeatedly attacked by local residents during the week.

Locals had hurled stones, flares and other missiles at the migrant centre, smashing windows, setting fire to dumpster rubbish bins and fighting running battles with riot police during several nights of violence.

They demanded that…

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The Congressional Budget Office did its best to adjust after-tax incomes for inflation between 1979 in 2011. In figure 1, I added an extra 1% inflation adjustment in every year from 1979. 1% per annum is a common estimate of the inflation bias introduced by the inability of most measures of inflation to account for new goods and upgrades in the quality of existing goods to name but a few bias is in the measurement of consumer price inflation.

Figure 1: Cumulative Growth in Average Inflation-Adjusted After-Tax Income, by Before-Tax Income Group, USA, 1979 to 2011, 1% upward annual adjustment for inflation bias for new goods and quality upgrades


Source:  derived from Congressional Budget Office, The Distribution of Household Income and Federal Taxes, 2011.

As can be seen from figure 1, with a 1% up left for measurement bias, instead of increases of 48% and 40% in the incomes of the lowest quartile in the middle three quartiles respectively, their after-tax, after inflation incomes about doubled since 1979.

Well done, capitalism. Everyone was on a working class income in the 1970s is now on a middle-class income. Such are the joys of compounding 1% per year over more than 30 years.


Source: Congressional Budget Office, The Distribution of Household Income and Federal Taxes, 2011.

The original Congressional Budget Office diagram above with the higher income quartiles is presented for comparison. I didn’t present the top quartiles in figure 1 because it made it unreadable because of the dominant influence of the top 1%’s increase in income.