I've noticed that journalist Adam Creighton at The Australian has become the darling of the "small government, must-cut-spending, Keynesian-policies-will-be-the-death-of-us" set of economists at Catallaxy. (Julie Novak called him the best economics journalist in Australia. She means he agrees with her. Actually, I see that he has been around for some time, being a contributor to the IPA-lite think tank the CIS, and writing many articles that align with the views of Australia's Tea Party-lite economists.)
Anyhow, Creighton has a column in the Australian today in which he attempts to talk up the down side of a slide in the value of the Australian dollar. He goes as far as to write this:
But officials, politicians and even businesses should be careful what they wish for.He starts with the rather extreme example:
By eroding businesses' and workers' purchasing power, a weaker currency harms far more Australians than it helps. Meanwhile, trying to shift the value of the dollar is even more difficult than knowing what its correct value is.
Andrew Lilley, 25, an inner-western Sydney professional with an economics degree, says he spends about 70 per cent of his discretionary income online at foreign vendors.I suspect Andrew Lilley might read Catallaxy, because I have noticed over recent years that it attracts readers who are proud to crush Australian retail under foot as far as possible by shopping overseas on line.
"I pretty much only buy groceries in Australia. I buy all my clothes, music, books and instruments from foreign providers," Lilley tells The Weekend Australian, suggesting the savings are huge.
People who buy clothes and shoes on line particularly annoy me - I think it is the lowest form of consumer misbehaviour possible to try something on in a shop (as is especially essential in shoes, surely) and then go home and buy it on line. Yeah fine, pay nothing for the service you just got by a real person in a shop. Make it harder for the rest of us who like to have shoe shops as part of the retail mix to find a good one near home.
But I digress - Creighton scratches around to find economists who think the reduced value of the dollar isn't really that good a thing, and does not provide a very convincing case. (I would have thought that in economics, a change in anything can always be found to have a negative impact on someone.)
His article reminded me of something I have noted here before - in the last few years since the Australian dollar climbed higher and higher, the economists at Catallaxy (and, as far as I have noticed, the right wing economics commentators in The Australian) have shown next to no interest in the effect of the high Australian dollar on the economy. True, Judith Sloan had one column in The Oz and at the blog on the topic in December 2012, but she didn't even spend much time on its effects, just whether it was possible for the RBA to do anything about it. She decided not, and then no one at the blog ever mentioned it again. (Well, as far as I have noticed.)
Now, with Creighton's column, I get the suspicion that they perhaps are not only not interested in the topic, but kind of like the dollar being high.
Is it their ideological commitment to fighting government spending, size and regulation that leads then to (nearly) never talk about other factors that have a major effect on the economy?
Or is there something in their whole attitude to currency that means the Australian anti-Keynesians just don't want to talk about it?
Certainly, the Tea Party Right in the US is known for its obsession with the return to the gold standard; as far as I know, the Australian anti-Keynesians won't go there, but I don't really know why when it includes Steve Kates, who is as emphatically "Tea Party" as they come.
Some possible insight into Sinclair Davidson's views about money turned up in this post this week, and while I am no economist, this statement to my ear had a ring of eccentricity about it:
Now I’m happy to believe that fiat money will result in inflation, and I’m happy to believe that economies can and will shrink or grow, and I’m happy to believe that goods and services can become more or less valuable as relative prices change. I’m not convinced that fiat money can result in deflation – paper money becoming more valuable?What I half expect is that Davidson and Kates have some views about currency that they just don't like to talk about.
But if anyone has any other theories about their lack of acknowledgement of the detrimental effect of the high Australian dollar, let me know.
Update: an anonymous comment below reminds me that Sinclair Davidson did talk about the Australian dollar in a 2009 WSJ column. I am pretty sure I have read it before, but had forgotten it.
Reading it with the benefit of hindsight, the article highlights the deficiencies with his permanently ideological driven analysis.
At the time of writing, the Australian dollar was on the way up, and it is noted that "It is possible that the Australian dollar could eventually reach parity or even beyond." Indeed, this possibility came true:
Davidson's main point in the column is that the Australian approach to not taking steps to try to intervene with the dollar's rise was the right one to take. Now, it seems to me that at that time of the early rise, he may have been right, as (so I understand) intervention in currency markets is not without risks and problems, but his reasoning is purely ideologically driven. For example:
A depreciating U.S. dollar is a market signal that the U.S. needs to export more and save more. It is a symptom of extremely loose monetary policy and high government spending in Washington. It is also a warning about inflation, given a dollar today buys fewer goods than it did a year ago. U.S. policy makers are reinforcing this cycle by refusing to reform America's "too-big-to-fail" financial system and avoiding tough decisions on spending priorities. In a sense, the falling dollar is a signal that the U.S. needs reform at home.The assumption is that "market signals" on currency always point the way to what is good for every nation on earth - the currency market always knows what is best. Kinda naive, no?
Central banks abroad that buy dollars to control the dollar's fall are both ignoring and subverting these market signals.
And what if the US government completely contradicts the so called "market signal", as Davidson would argue it has, over the next four years? Well, from the chart above, you can see exactly what happens, but because he is ideologically driven, I would bet my last dollar that he would never change his prescription from what it was in 2009.
And what about the attitude here: " If the prices of Australian goods and services are rising on world markets, this provides a clear incentive for Australian firms to either reduce their costs or to improve the quality of their offerings."
Yeah sure, just how much, and how quickly, does he think quality can improve to compensate for most of a decade under US80c followed by an extremely rapid rise, and 3 year pause, at above parity? And how far does he think wages should drop to compensate for such a rapid 25c rise?
The other thing about the chart above is the reminder of just remarkably low the Australian dollar was during the entire Howard government, versus how remarkably high it was during the entire Gillard government. The effects of this on the performance of the Australian economy under Labor is virtually never acknowledged at Catallaxy.