The Pound Revisited
The pound keeps falling. Bill Emmott predicts the Eurozone will collapse, because having an independent central bank means you can't simply have your currency devalue and soften blows. One really would have thought that solving underlying conditions like short-termist, excessive risk-taking in the financial sector would be considered bigger priorities than simply cutting interest rates and over-spending, but there are apparently people, like this guy, who prefer to whine and moan about the Eurozone.
I've read a few articles on how we need to privatise coin production, go back to using hard metal coins and allow the market (and by that they mean a market where there are no rules to correct information asymmetry, of course) to deal with it, because that's what's "efficient". Though I doubt that's what this guy advocates, I feel it's another example of people who enjoy missing the point, simply because they prefer to think parochially, as opposed to globally, and prefer short-term to long-term thinking. You know, the kind of thinking that landed us in this mess in the first place, this time applied to monetary policy. Currencies should not be barriers to trade, and what's what the pound is, among other things (like an over-valued rope that's been strangling the British economy for quite a while, until it finally started to drop).
We have evidence that Mr Emmott has entertaining thought processes in this article, where he says everyone is overreacting to the current "slowdown" (back in August; maybe he's changed his mind now, slightly?), and this article, where he argues that Chancellor Darling didn't go far enough in his spending and borrowing spree (could this be a sign he's changed his mind). The guru Emmott even pokes fun at Germany's criticism of Darling's measures, demonstrating he really does believe that Governments should go financially bananas in a time of crisis - I'm sorry, of "slowdown". One wonders, though, why Darling had to go further, considering how massively people have been over-reacting to what's going on, in Mr Emmott's very, very, very considered opinion.
Of course, Emmott-sensei used to be the editor of The Economist, which has some good articles on some issues, and some ridiculous articles on other issues, chief among them the European Union. One would think that a publication with a free market bent would welcome market integration, and understand and come to terms with the fact that market integration has legal and political consequences attached to it, or else there will legal and political barriers to trade, which means the market will not be integrated (to put it simply). One would think a serious economic publication would support a measure that would help in dissiminating information about prices (by getting rid of costs associated with conversions), which would empower consumers to make choices across Europe, what with today's online retailers shipping everywhere, but for some reason they just don't support it. Super Emmott prefers to paint a gloomy picture, predicting the downfall of the Euro owing to different economic strategies adopted by different countries to deal with... well, what he considered to be a "slowdown" people have been over-reacting to. One would think the eminent collapse of the Eurozone would be a pretty massive outcome for a "slowdown" as unimportant as this but you see, the categorisation came in August, this prediction is much more recent. Given his opinion of the Eurozone, though, one might think that its collapse would simply be deemed to be unimportant, and a great opportunity for Emmett to descend from the heavens and, with a beatific smile, spread his arms and say, "My children, I told you so."
Emmott thinks all we're dealing with (aside from the credit crunch) can be explained by poorer countries becoming richer due to globalisation. That's what caused food prices to go up, etc. That's part of it yes, but it doesn't account for all of it, and dismissing the excesses of manic risk-takers is not sound policy. While risk-taking is a necessity for the economy to function, and while recessions and depressions cannot simply be averted, it is still irresponsible to sit back and relax while financial institutions create a tangled web of bad credits that then chokes the economy. Financial regulation, like healthcare regulation, for example, is a tough nut to crack, but that doesn't mean we should ignore these issues and let them slide. Master Emmott would do well to ponder on these matters, instead of raving about the necessity of overspending during a crisis while decrying a way to make the price mechanism even more effective (monetary union).
Emmott is right in saying the Bank of England shouldn't try to prop up the pound (I think they learned their lesson during Black Wednesday, though, so I don't think anyone really thinks that should be done), but he's wrong in whining about the Euro. Whatever happens to the Eurozone, a single currency has too many benefits in terms of market integration and freedom of choice to simply be dismissed for eminently political considerations typically hidden by economic jargon. Having an independent central bank means that we can't simply devalue our way out of a crisis - we have to deal with it head on. That's why we have Governments. Instead of attacking prudence in the face of a crisis, Mr Emmott should be defending it, as well as cooler heads, instead of attempting to mock those who try to govern responsibly even in the face of what he considered, in August, to be a mere "slowdown".