tag:blogger.com,1999:blog-2277215496195926573.post3101321477880690017..comments2024-01-01T07:41:51.347-08:00Comments on RALPHONOMICS: Fiscal or monetary measures on their own are distortionary.Ralph Musgravehttp://www.blogger.com/profile/09443857766263185665noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-2277215496195926573.post-737670595796305982011-04-09T17:14:17.908-07:002011-04-09T17:14:17.908-07:00Governments do, foolishly, make huge efforts to ke...Governments do, foolishly, make huge efforts to keep their currencies strong. Lerner would of course agree that a strong currency, in the hands of a rational government using functional finance, is an unalloyed benefit. But the thing is that strong currencies are results of a strong economy, not a cause. Keeping your currency strong by monkeying with interest rates, making them high, is very destructive to the real economy, causes unemployment, inflation and financial instability (Minsky). Lerner urged floating exchange rates, and that governments should err on the side of having their currencies depreciate, and never try to protect their value. Misguided high interest rates/strong pound policies were the bane of the UK economy for decades.Calgacushttps://www.blogger.com/profile/06031818010224747000noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-80926511606952898832011-03-28T12:18:17.853-07:002011-03-28T12:18:17.853-07:00Neil, If a govt holds interest rates at any level ...Neil, If a govt holds interest rates at any level other than the free market rate, that obviously makes the relevant currency more (or less) attractive, which in turn distorts the relationship between exports and imports. Good point: I didn’t think of that.<br /><br />But I don’t think governments make a HUGE effort to make this export and import effect an objective: it’s more of an unintended side effect (as indeed are all the distortions I’ve referred to).Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-46778457488103076492011-03-28T10:33:06.236-07:002011-03-28T10:33:06.236-07:00The biggest distortion of monetary policy appears ...The biggest distortion of monetary policy appears to be to try and hold the currency at a higher value than it otherwise would be.<br /><br />That seems to lead to a favouring of imported items over domestic production and over time the economy becomes more and more dependent on the kindness of others.<br /><br />I can't see monetary policy as anything much more than an 'implicit government import subsidy' and I'm struggling to see why a government would do that.<br /><br />What do you think?Neil Wilsonhttps://www.blogger.com/profile/18178155357632397049noreply@blogger.com