Our sacred cow

01. augusts, 2010


Vjačeslavs Dombrovskis

Just couldn't resist the temptation from poking some people in the eye…

Here is Barry Eichengreen and Peter Temin drawing parallels between today’s events and the event of the distant 1930s.As a quick reminder: back then much of the world operated under what is known as the “gold standard” – essentially, a system of fixed exchange rates. Of course, the gold standard also meant that, in response to asymmetric shocks, countries had to adjust via changes in the price and wage levels, i.e. inflations or, well, deflations. But that’s all pretty much well known. As it’s known that the gold standard didn’t end well.

But here is a passage that I found striking:

“But the gold standard was not just a monetary arrangement. It was also an ideology. Depression-era choices were made according to a worldview in which maintenance of the gold standard was the primary prerequisite for prosperity. Policies were therefore formulated to preserve the gold standard, not to stabilise output and employment. Central bankers thought that maintaining the gold standard would restore employment, while attempts to increase employment directly would fail.”

It’s so familiar, isn’t it? Almost seems like history IS repeating itself!

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