You’ve already heard me talk about Martin Wolf and (closer to home) Rod Oram, and I’ve mentioned Brad Delong in passing a couple of times. It’s only a matter of time before Will Hutton and Paul Krugman crop up. (And there have been a few others mentioned in my weekly email newsletter.)
As I foreshadowed last week, however, one of my very favourite writers at the moment is a guy named Matthew Yglesias. Yglesias is a fulltime professional blogger, employed by the Center for American Progress think-tank as part of their Think Progress project. He is one of those intimidating guys who, at the age of 28, seems to already be able to offer insightful comments on just about any policy area under the sun. He often has a way of turning an issue around and offering something incisive that you hadn’t thought of before, or else citing an author and crisply summarising the ‘take-home message’ from what they’d written.
Yglesias is prolific (ten posts a day isn’t unusual) and writes on a range of topics. Much of what he writes is pretty specific to a US audience (filibuster reform is currently a big theme), but a lot of his writing about ideas is relevant to us, and very occasionally he even mentions New Zealand.
One example of the latter that I’d like to reference and expand on came last November in a post entitled Israel’s Recession. Yglesias was responding to a claim from William Galston of the New Republic that Israel had weathered the global recession particularly well because of a unique policy approach that rejected both Keynesian stimulus and supply-side approaches. Yglesias was sceptical:
Knowing that Israel is a small country, I suspected that the real story is what Israel did is just let its currency sink in value, boosting exports.
. . . This is exactly what I would do if I were in charge of Israel. Faced with a downturn, a small developed economy needs to be much more worried than a large developed economy does about maintaining markets’ confidence in your ability to sustain your debt level. At the same time, a small developed economy has much more ability to sustain employment and growth by making its currency cheaper. So a policy of austerity and devaluation is a very reasonable course of action.
He provides an exchange rate graph to illustrate his point, and then adds that this approach doesn’t have much application to a large country with a huge internal market like the US, but is “possibly relevant to Sweden, Iceland, and New Zealand“.
That got me thinking, to what extent do we see the same pattern taking place here? So I put together the following graph, comparing New Zealand, Israel and Sweden. (I decided that Iceland’s situation was unique.)
Yglesias explains that “since the onset of the downturn in mid-2008 the Shekel has gotten cheaper relative to the Euro, the Yen, and even dollar which has itself been depreciating”. We can see from our graph that much the same thing happened in New Zealand and Sweden; in fact, both these countries exhibit the same pattern as Israel but to a more pronounced extent.
So what have been the results?
Each country’s path is different, but clearly Israel was touched by the recession to a much lesser degree than either New Zealand or Sweden, despite the much greater exchange rate falls that these two countries experienced in the second half of 2008.
This doesn’t necessarily invalidate Yglesias’s suggestion that Israel’s exchange rate decline helped it escape the recession. But clearly an exchange rate decline is not sufficient on its own.
Also from Yglesias, but more recent and on a more theoretical level, is The Very Big Picture. Check it out, this is a really interesting piece.
Yglesias responds to Australian economist John Quiggin’s lament about the lose of a sense of “possibility of a fundamental transformation of capitalism” amongst modern progressives. Yglesias counters, “It turns out that welfare state capitalism just is the alternative to capitalism” and then gets into how it’s now “more possible than ever for people’s non-commercial labors to have a meaningful impact on the world”.
Quite a bit of food for thought on both sides, and I’m sure I’ll return to this exchange again in a future post. In the meantime, I’d be interested in your thoughts.