But what is absolutely clear but is not mentioned by most economists, not even by a person like Paul Krugman, whom I like very much for many of his assertions, but he is not saying, well, flexible exchange rates do not work. But this is the fact and this is the core of the matter.Real-World Economics Review Blog
Flassbeck vs. Krugman on hot money
Paul Jay interviews Heiner Flassbeck
3 comments:
Unless of course high interest rates cause inflation and investment... and the orthodoxy has it backwards.
Then everything works just fine.
He's proposing a return to a modified Bretton Woods system with more frequent exchange rate realignments so that real-economy imbalances will be corrected "in the bud".
That sounds interesting. What is not clear is wether he is for a return to capital controls and if so in what measure.
Being allowed to move your funds around the world in search of better returns is an important freedom. Say a U.S. Pensioner wants to take his funds away from ZIRP America to high risk-free interest rate Brazil - so that he may enjoy better returns in his old age. He should be entitled to do just that, IMO.
So while we should definitely accept that some capital controls may be needed in emergencies to fight speculative attacks on currencies it's a real danger that governments may exxagerate - and throw out the baby along with the bathtub water by applying a rigid return to the extreme forms of capital controls prevalent in the 50s and 60s.
More Big Hug club stuff.
It's just like the Inca priests saying we need more human sacrifices and then it will be ok.
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