The Worst Economist in the World?
Saint Paul has undertaken the thankless task of sifting through the daily pronouncements of economists to find the real gem of gross stupidity that alone can qualify as the most stupid statement in a field littered with such.
A thought: it has occurred to me that we could use an economics equivalent of Keith Olbermann’s “Worst Person in the World” award. KO does not, of course, mean that the person he goes after on any given night really is the worst person in the world; he just uses the title to highlight some especially awful action or statement.
The issue is somewhat sensitive, Saint Paul admits, since he is quite likely to find himself one of the most popular nominees:
I’d encourage others to enter this game — and yes, I know that various paid trolls and others will award me the title five times a day if they can.
No fear for our Saint Paul, however, since an ego the size of our Saint can easily shake off the popular opinion of “paid trolls” and the various unpaid ideologues.
His nomination for today: a snippet from The Wall Street Journal‘s Real Time Economics Blog:
When one country devalues its currency, others tend to follow suit. As a result, nobody achieves trade gains. Instead, the devaluations put upward pressure on the prices of commodities such as oil. Higher commodity prices, in turn, can cut into global economic output. In one ominous sign, the price of oil is up 8.7% since August 27.
If we understand the argument here: The WSJ‘s Mark Whitehouse thinks devaluation leads to higher prices for commodities like oil. Whitehouse thinks this will push costs of production of other goods up. And, this will tend to increase the prices of those goods. If prices actually rise, demand for the goods will be depressed. If prices do not rise, profits will be under pressure. In either case, output will fall.
Saint Paul thinks this reasoning is stupid. So stupid, in fact, that it qualifies Whitehouse for Krugman’s first Worst Economist in the World award. He dismisses Whitehouse’s silly reasoning with his own patented brand of silly reasoning:
… a fall in the dollar tends to raise the price of oil in dollars — but it also tends to reduce the price of oil in euros. A fall in the euro tends to raise the price of oil in euros, but raise [We think he means ‘reduce’] it in dollars.
Saint Paul offers no reason why the devaluation of one currency should have this effect on the currencies that do not devalue. Why would the devaluation of the dollar cause the fall in the price of oil in euros? If the dollar is devalued, then it is devalued against both the euro and oil. All else unchanged, the relation between the euro and oil is unchanged by this devaluation.
But, is everything unchanged?
Probably not, since the devaluation of the dollar has to reduce demand for oil across the board. So, Krugman might argue, this fall in demand for oil would be felt both in terms of the dollar price of oil and the euro price of oil.
But, there is a defect in this reasoning: oil is priced only in dollars, not euros. So the increase in the dollar price of oil leads to an increased demand for dollars to pay for oil. Those with euros who wish to buy oil now must increase their holding of dollars, so the euro falls against the dollar.
Thus, to some significant degree, the devaluation of the dollar also results in the devaluation of the euro against oil. In other words, by owning the reserve currency, the US can force the devaluation of all currencies for commodities that are priced in dollars. All countries buying dollar priced goods find their prices rising when the US devalues its currency whether they want to devalue their own currencies or not.
Krugman know this, folks. So when he writes:
So what would devaluations that raise commodity prices in terms of all currencies look like? I have no idea.
He is lying.
He knows very well that the US can impose devaluation on other nations simply by devaluing its own currency. And, he know what this devaluation looks like:
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Saint Paul Krugman: today’s Worst Economist in the World.