"My rule of thumb for thinking about the global recession is that whenever you hear claims that some country has weathered it unusually well because of Favored Policy Initiative A, you ought to first ask yourself if it’s not really just an exchange rate issue."So sayeth the wise Matt Yglesias! Quite awhile ago, actually. We'd really meant to say something about it at the time, but we're busy and important, and also we spent the first week of April clutching a can of Boddingtons on our couch.
But it's a pretty brilliant insight. We wish we'd thought of it. People tend to underestimate the impact of exchange rates on economic performance. And, because we like strong things in America, we're wedded to the concept of a strong dollar, which means we don't properly ken devaluation as a policy choice.
We should. A floating exchange rate would help Greece along quite nicely, just as a fairly valued RMB would ease our current-account deficit. More than that, it cuts through some of the Ron Paul insanity that's lately gripped the nation. A floating currency isn't bad. It's just flexible. These days, flexible isn't a bad thing.
