Sunday, October 28, 2012
My letter to the NY Times re: Why Devaluation Is NOT the Answer to the Euro-Debt Crisis
Re: Euro Survives, But Future Is in Doubt, by Floyd Norris
Mr. Norris makes many good points about the euro-debt crisis; however, like many other pundits he assumes that currency devaluation is a "normal prescription for countries in financial distress...exports surge and imports plunge.". As I explained in more detail in my essay titled "Value in Devaluation?", the benefits to exporters from devaluation are paid entirely by the citizens of the country using the now-devalued currency. Exports increase, but only because foreign importers get a subsidized bargain. The rest of society finds that necessary imports are more expensive, which, pari passu, means that the cost of living increases. Therefore, currency devaluation is an unjust transfer of wealth, engineered by the state. The Irish example of painful labor reform, which Mr. Norris reports as successful but too costly, is the only real, long term solution.