The effect of devaluation
The pound has been falling against the euro throughout the millennium.
This means that it’s becoming less and less attractive for foreigners to work here, and more and more attractive for British people to emigrate to the continent.
To show the effect, I’ve taken a hypothetical worker, earning £21k in the UK eight years ago, and the equivalent, €35k in the Eurozone. I’ve then increased the salary by 3% each year:
| Year | Exch. rate | Worker in the UK | Worker in Eurozone | Percentage | ||
|---|---|---|---|---|---|---|
| 2000 | 0.60 | £21000 | €35000 | £21000 | €35000 | 100% |
| 2001 | 0.62 | £21630 | €34887 | £22351 | €36050 | 97% |
| 2002 | 0.64 | £22279 | €34811 | £23764 | €37132 | 94% |
| 2003 | 0.70 | £22947 | €32782 | £26772 | €38245 | 86% |
| 2004 | 0.70 | £23636 | €33765 | £27575 | €39393 | 86% |
| 2005 | 0.69 | £24345 | €35282 | £27996 | €40575 | 87% |
| 2006 | 0.68 | £25075 | €36875 | £28418 | €41792 | 88% |
| 2007 | 0.71 | £25827 | €36377 | £30562 | €43046 | 85% |
| 2008 | 0.84 | £26602 | €31669 | £37243 | €44337 | 71% |
This is a dramatic change. In other words, seen from the continent, British people are now earning only 71% of what they did eight years ago.
The five tests have been met
It made me happy today to see that Duff of the LibDems has pointed out that the UK should join the euro:
In 1997 Mr Brown set five so-called economic tests to judge sterling’s accession to the eurozone. Suddenly, all these criteria are met. The pound has fallen to a competitive exchange rate level. The City risks being pushed aside as supervision and regulation is strengthened inside the eurozone. And the economic cycles of Britain and the eurozone are cow completely in sync as they both plunge into recession together. [...] But unless he now changes the terms of the British debate about EMU, the pound will be the ping pong ball bouncing beyond control between the giant footballs of the dollar and the euro.
Is devaluation good or bad?
As I blogged recently, I learnt at school that devaluation in the longer term is bad for you.
However, if you read Government-supporting media, such as The Guardian or The Times, you might now get the impression that devaluation is the best thing since sliced bread. See for instance this one by Anatole Kaletsky.
For a more orthodox view, see this one by Stephen King.
Don’t read the first article without getting the antidote from the second one!
Devaluation
Today the pound fell below 9 Danish crowns, and below $1.50.
The fall against the crown (which follows the euro) has been gradual – when I moved here in 2002, the exchange rate was around DKK 12 to the pound, but it soon fell a bit, and it stayed between 10 and 11 for quite some time. However, since Brown was made Prime Minister, it’s been falling and falling, but this is a new low. I’m sure it hasn’t been that low since the early 1990s.
The fall against the dollar is much more recent – just a few months ago, the pound was worth more than $2.
For some reason, people in the UK don’t seem overly worried. Perhaps they didn’t learn at school like I did that devaluing your currency is like peeing in your trousers on a winter day – it feels good at first but soon makes you feel much colder than before!
Ohio
Fox News have just called Ohio for Obama. Given that Pennsylvania has already gone blue, this means Obama is now certain to become president. Good stuff!
I’m off to bed now.
Election night
I’ve found two good British guides to tomorrow’s US election night: The Times and Spectator Americano. And here’s an excellent American one on Newsweek
The first results will come in shortly after midnight UK time (1am Danish time).
As for which states to watch, FiveThirtyEight has this to say: “Also, there are some states that truly do appear to be “must-wins” for McCain. In each and every one of the 624 victory scenarios that the simulation found for him this afternoon, McCain won Florida, Georgia, Missouri, Indiana and Montana. He also picked up Ohio in 621 out of the 624 simulations, and North Carolina in 622 out of 624. If McCain drops any of those states, it’s pretty much over.”
Both solutions are wrong
On the bus to work this morning, I read a letter to the editor by Mr. G. C. King in The Herald suggesting a solution to the rising number of repossessions: “The UK government can promptly pass a law that says any lender repossessing a house must accept the proceeds of sale in full settlement of the outstanding debt. If the outstanding loan is £100k and a forced sale releases only £60k, the bank cannot pursue the borrower for the balance.”
On the bus back home this evening, I then read an article in The Economist suggesting that a big problem with the housing market in the US is that this is the case, because it gives people an incentive to run away from their home and their mortgage as soon as they go into negative equity. They just send the keys to the mortgage lender, and they’re free again. This means that they’re not motivated to find alternative ways to pay their mortgage, and more homes than necessary end up being repossessed.
So what is the solution? Clearly the British system is bad because it gives the lender an incentive to repossess early rather than giving borrowers payment holidays or the like, and the American system is just as flawed, just in the opposite way.
It seems a system should be found whereby both parties share the pain. For instance, if a house is repossessed and doesn’t bring in enough money to pay off the remainder of the mortgage, the resulting debt should be split equally between the lender and the borrower. Would this work?
5:38
Cartogram of the predicted US election. Each state has been scaled to according to the number of electoral college votes.
First and most importantly, FiveThirtyEight is a great site if you’re into opinion polls. The guy running it does a lot of number crunching based on published polls (and makes nice illustrations), and in addition he writes interesting blog postings.
In addition (and linked to from 5:38), Electoral-vote.com has nice maps updated on a daily basis.
Finally, and on a more light-hearted note, The Economist’s Global Electoral College is asking everybody on this planet to vote, and the result at the moment is 9120 electoral college votes for Obama, and 158 for McCain.
Only Iraq is strongly in favour of the latter – could that be because most people accessing the internet from Iraq are American soldiers…?
Kristelig splittelse
Det er interessant at se Kristendemokraternes formandsudskiftning. Det forekommer mig at være et evigt splittet parti.
I begyndelsen af 1990erne, da jeg var ret aktiv i Radikal Ungdom, havde vi et glimrende samarbejde med Kristeligt Folkepartis Ungdom, der var domineret af unge, der ikke var ret kristne, men blot havde fokus på etiske problemstillinger.
Jeg mener også, det var i de år, at en muslim meldte sig ind i Kristeligt Folkeparti, fordi han mente, de bedst repræsenterede hans holdninger.
Han blev ekskluderet, fordi for de fleste af medlemmerne mente, at de var kristne, ikke kun etisk-moralsk orienterede.
Og sådan vil de vel fortsætte, så længe partiet består: Nogle af medlemmerne vil bare være Etisk Folkeparti, men andre vil være den politiske arm af Indre Mission, og de skiftes til at have magten.
Benevolent humans?
Daniel Finkelstein wrote a good critique of Brown’s record yesterday:
In his book The Black Swan, the financial analyst Nassim Nicholas Taleb provides a useful analogy. In the months before Thanksgiving, turkeys begin to build up a theory about mankind. Man is benevolent. Every day he appears with more food, and the turkey is allowed to get fatter and fatter. And then, about a week before Thanksgiving, the turkey will, as Taleb puts it, “incur a reversion of belief”.Our view of the Brown decade is like the turkey’s view of mankind, utterly destroyed by what has now happened. The stability was a trick of the light, the lengthy period of growth was fuelled by house prices and debt, the low interest rates (of which Brown is still, amazingly, boasting) were an error.
Do read the whole article!