Whether it's the 1930s or the 2010s, depressions are the only casualties in a currency war
I don't know how it compares to peeing in your bed, as one anonymous senior Fed official put it, but a currency war is one of the surest ways to end a global slump. Despite what you may have heard, it was a big part of what stopped the vicious circle of the Great Depression.
Currency wars are the best type of wars. Nobody dies, and everybody can recover, as long as everybody plays along. Here's how it works. One country devalues its currency -- in other words, prints money -- which, in a time of weak global demand, puts pressure on other countries to do the same, lest they lose out on trade. Then another country devalues, and so on, in a cascade of looser money. It's the invisible hand pushing for expansionary monetary policy when it's needed most.
But there are a few caveats. For one, a currency war only makes sense during a global depression when short-term interest rates are mostly stuck at zero. It's about boosting monetary stimulus when conventional methods are out of ammo. For another, devaluing forever (a là China) is not a sustainable growth strategy. It might make sense for developing nations to subsidize export industries early on, but, eventually, this will only cause imbalances to build up, while robbing the domestic population of purchasing power. And finally, there's a risk that a currency war could turn into a trade war. In other words, countries will retaliate to expansionary monetary policy not with expansionary monetary policy of their own, but with tariffs. Presumably that's what our silver-tongued senior Fed official was getting at with this head-scratcher of a quote:
Devaluing a currency is like peeing in bed. It feels good at first, but pretty soon it becomes a real mess.
This fear of a currency war begetting a trade war is certainly serious, but it's made to sound more serious thanks to some bad history. Here's the erroneous story you might have heard (especially now that Japan's talk of more aggressive easing has revived fears of a currency war):
After the Great Crash of 1929, countries abandoned the gold standard and devalued their currencies in a beggar-thy-neighbor battle to the bottom. This currency war turned into a trade war, with countries eventually resorting to tariffs and counter-tariffs, as they tried to grab a hold on an ever-shrinking pie of demand. The consequent collapse in world trade is what made the Great Depression so great, and set the stage for the trade war to turn into an actual one.
Scary stuff. But not quite true. The reality is the trade war started before the currency war, and the latter jump-started recovery wherever it was tried. The infamous Smoot-Hawley tariff in the U.S., the first salvo in the trade war to come, was actually passed in June 1930, more than a full year before any country devalued its currency. It wasn't until September 1931 that Britain abandoned the gold standard ... and that's when things get a bit complicated. It's hard to accuse Britain of "competitive" devaluation here, because it had no choice but devaluation; it had simply run out of gold. Nonetheless, other countries responded to Britain's increased competitiveness by increasing their trade barriers; in this case, the currency war, such as it was, did exacerbate the ongoing trade war, as Gavyn Davies of the Financial Times points out.
But then a funny thing happened. The punishment for Britain's economic weakness was a recovery. Ditching gold gave Britain (and everybody else who did so) the freedom to pursue more aggressive monetary and fiscal policies than the "rules of the game" of the gold standard had allowed.* As you can see in the chart below (via Brad DeLong) from Barry Eichengreen's magisterial work on the depression, Golden Fetters, recovery followed devaluation everywhere. There was no reward for financial orthodoxy in the 1930s. The countries that stayed with the gold standard the longest, the so-called Gold Bloc of France, Belgium, and Poland, were the last to begin growing again. In other words, the currency war didn't deepen the depression; it ended it.
And that brings us to one last, stupid question. How did beggar-thy-neighbor policies kickstart growth even after world trade had already collapsed? In other words, how did stealing a trade advantage help so much when there wasn't much trade to steal? Well, it's not entirely, or even mostly, about stealing trade. Indeed, as Scott Sumner points out, the U.S. trade balance actually worsened in 1933 after FDR took us off gold, even as the economy quickly reversed its death-spiral and began a virtuous cycle. It's easiest to frame devaluation as grabbing demand from abroad, but it's really about increasing demand at home. Devaluation means printing money, and more money during a liquidity trap means more demand, period. It also allows more stimulus spending than a fixed-exchange rate system (like the gold standard) would. The next time you hear someone lamenting the "destructive devaluations that followed the Great Depression," remember to ask them -- what was so destructive about ending the most destructive depression in modern history?
The only thing we have to fear is fear of currency wars itself. Depressions are the only casualties in these kind of conflicts.
* There were two exceptions. The gold standard did not constrain looser monetary policy in the U.S. and France in the early years of the depression, as both had more than enough gold to back more credit growth, but chose instead to sterilize their gold inflows out of fear of nonexistent inflation in the face of actual deflation. This stockpiling drained everybody else of gold, and consequently made staying on the gold standard impossible. Even the U.S. and France had to eventually abandon it to reverse years of deflation.
The Islamic State is no mere collection of psychopaths. It is a religious group with carefully considered beliefs, among them that it is a key agent of the coming apocalypse. Here’s what that means for its strategy—and for how to stop it.
What is the Islamic State?
Where did it come from, and what are its intentions? The simplicity of these questions can be deceiving, and few Western leaders seem to know the answers. In December, The New York Times published confidential comments by Major General Michael K. Nagata, the Special Operations commander for the United States in the Middle East, admitting that he had hardly begun figuring out the Islamic State’s appeal. “We have not defeated the idea,” he said. “We do not even understand the idea.” In the past year, President Obama has referred to the Islamic State, variously, as “not Islamic” and as al-Qaeda’s “jayvee team,” statements that reflected confusion about the group, and may have contributed to significant strategic errors.
Maya Arulpragasam is a famous rapper, singer, designer, producer, and refugee. When she was 9, her mother and siblings fled violence in Sri Lanka and came to London, and the experience was formative for her art. As she explained to The Guardian in 2005 after the release of her debut Arular, “I was a refugee because of war and now I have a voice in a time when war is the most invested thing on the planet. What I thought I should do with this record is make every refugee kid that came over after me have something to feel good about. Take everybody’s bad bits and say, ‘Actually, they’re good bits. Now whatcha gonna do?’”
That goal—to glorify people and practices that the developed world marginalizes—has been a constant in her career. Her new music video tackles it in a particularly literal and urgent way, not only by showing solidarity with refugees at a moment when they’re extremely controversial in the West, but also by posing a simple question to listeners: Whose lives do you value?
Without the financial support that many white families can provide, minority young people have to continually make sacrifices that set them back.
The year after my father died, I graduated from grad school, got a new job, and looked forward to saving for a down payment on my first home, a dream I had always had, but found lofty. I pulled up a blank spreadsheet and made a line item called “House Fund.”
That same week I got a call from my mom—she was struggling to pay off my dad’s funeral expenses. I looked at my “House Fund” and sighed. Then I deleted it and typed the words “Funeral Fund” instead.
My father’s passing was unexpected. And so was the financial burden that came with it.
For many Millennials of color, these sorts of trade-offs aren’t an anomaly. During key times in their lives when they should be building assets, they’re spending money on basic necessities and often helping out family. Their financial future is a rocky one, and much of it comes down to how much—or how little—assistance they receive.
In the name of emotional well-being, college students are increasingly demanding protection from words and ideas they don’t like. Here’s why that’s disastrous for education—and mental health.
Something strange is happening at America’s colleges and universities. A movement is arising, undirected and driven largely by students, to scrub campuses clean of words, ideas, and subjects that might cause discomfort or give offense. Last December, Jeannie Suk wrote in an online article for The New Yorker about law students asking her fellow professors at Harvard not to teach rape law—or, in one case, even use the word violate (as in “that violates the law”) lest it cause students distress. In February, Laura Kipnis, a professor at Northwestern University, wrote an essay in The Chronicle of Higher Education describing a new campus politics of sexual paranoia—and was then subjected to a long investigation after students who were offended by the article and by a tweet she’d sent filed Title IX complaints against her. In June, a professor protecting himself with a pseudonym wrote an essay for Vox describing how gingerly he now has to teach. “I’m a Liberal Professor, and My Liberal Students Terrify Me,” the headline said. A number of popular comedians, including Chris Rock, have stopped performing on college campuses (see Caitlin Flanagan’s article in this month’s issue). Jerry Seinfeld and Bill Maher have publicly condemned the oversensitivity of college students, saying too many of them can’t take a joke.
While Saint Nicholas may bring gifts to good boys and girls, ancient folklore in Europe's Alpine region also tells of Krampus, a frightening beast-like creature who emerges during the Yule season, looking for naughty children to punish in horrible ways—or possibly to drag back to his lair in a sack.
While Saint Nicholas may bring gifts to good boys and girls, ancient folklore in Europe's Alpine region also tells of Krampus, a frightening beast-like creature who emerges during the Yule season, looking for naughty children to punish in horrible ways—or possibly to drag back to his lair in a sack. In keeping with pre-Germanic Pagan traditions, men dressed as these demons have been frightening children on Krampusnacht for centuries, chasing them and hitting them with sticks, on an (often alcohol-fueled) run through the dark streets.
Jeb Bush, John Kasich, and other presidential contenders appease Donald Trump at their own peril.
Give Donald Trump this: He has taught Americans something about the candidates he’s running against. He has exposed many of them as political cowards.
In August, after Trump called undocumented Mexican immigrants “rapists” and vowed to build a wall along America’s southern border, Jeb Bush traveled to South Texas to respond. Bush’s wife is Mexican American; he has said he’s “immersed in the immigrant experience”; he has even claimed to be Hispanic himself. Yet he didn’t call Trump’s proposals immoral or bigoted, since that might offend Trump’s nativist base. Instead, Bush declared: “Mr. Trump’s plans are not grounded in conservative principles. His proposal is unrealistic. It would cost hundreds of billions of dollars.” In other words, demonizing and rounding up undocumented Mexican immigrants is fine, so long as it’s done cheap.
The generation has been called lazy, entitled, and narcissistic. Their bosses beg to differ.
Yes, many Millennials are still crashing on their parent’s couches. And there’s data to support the claim that they generally want more perks but less face time, and that they hope to rise quickly but don’t stick around for very long. Millennials have also been pretty vocal about their desire to have more flexible jobs and more leave time.
But does all of this mean that all Millennials are actually worse workers?
Laura Olin, a digital campaigner who ran social-media strategy for President Obama’s 2012 campaign, says that’s not been her experience. “You always hear about Millennials supposedly being entitled and needing coddling, but the ones I’ve encountered have been incredibly hard-working and recognize that they need to pay their dues.”
Why are so many kids with bright prospects killing themselves in Palo Alto?
The air shrieks, and life stops. First, from far away, comes a high whine like angry insects swarming, and then a trampling, like a herd moving through. The kids on their bikes who pass by the Caltrain crossing are eager to get home from school, but they know the drill. Brake. Wait for the train to pass. Five cars, double-decker, tearing past at 50 miles an hour. Too fast to see the faces of the Silicon Valley commuters on board, only a long silver thing with black teeth. A Caltrain coming into a station slows, invites you in. But a Caltrain at a crossing registers more like an ambulance, warning you fiercely out of its way.
The kids wait until the passing train forces a gust you can feel on your skin. The alarms ring and the red lights flash for a few seconds more, just in case. Then the gate lifts up, signaling that it’s safe to cross. All at once life revives: a rush of bikes, skateboards, helmets, backpacks, basketball shorts, boisterous conversation. “Ew, how old is that gum?” “The quiz is next week, dipshit.” On the road, a minivan makes a left a little too fast—nothing ominous, just a mom late for pickup. The air is again still, like it usually is in spring in Palo Alto. A woodpecker does its work nearby. A bee goes in search of jasmine, stinging no one.
To solve climate change, we need to reimagine our entire relationship to the nonhuman world.
Humans were once a fairly average species of large mammals, living off the land with little effect on it. But in recent millennia, our relationship with the natural world has changed as dramatically as our perception of it.
There are now more than 7 billion people on this planet, drinking its water, eating its plants and animals, and mining its raw materials to build and power our tools. These everyday activities might seem trivial from the perspective of any one individual, but aggregated together they promise to leave lasting imprints on the Earth. Human power is now geological in scope—and if we are to avoid making a mess of this, our only home, our politics must catch up.
Making this shift will require a radical change in how we think about our relationship to the natural world. That may sound like cause for despair. After all, many people refuse to admit that environmental crises like climate change exist at all. But as Jedediah Purdy reminds us in his dazzling new book, After Nature, our relationship with the nonhuman world has proved flexible over time. People have imagined nature in a great many ways across history.
Places like St. Louis and New York City were once similarly prosperous. Then, 30 years ago, the United States turned its back on the policies that had been encouraging parity.
Despite all the attention focused these days on the fortunes of the “1 percent,” debates over inequality still tend to ignore one of its most politically destabilizing and economically destructive forms. This is the growing, and historically unprecedented, economic divide that has emerged in recent decades among the different regions of the United States.
Until the early 1980s, a long-running feature of American history was the gradual convergence of income across regions. The trend goes back to at least the 1840s, but grew particularly strong during the middle decades of the 20th century. This was, in part, a result of the South catching up with the North in its economic development. As late as 1940, per-capita income in Mississippi, for example, was still less than one-quarter that of Connecticut. Over the next 40 years, Mississippians saw their incomes rise much faster than did residents of Connecticut, until by 1980 the gap in income had shrunk to 58 percent.