QOTD: Devaluing history

Quote of the Day:

Menzie Chinn goes after Paul Ryan’s challenge: “Name me a nation in history that has prospered by devaluing its currency.” But why go back to the 1930s?

How about:

-Britain, which recovered strongly from its early 90s doldrums after it devalued the pound against the mark in 1992. (At the time, some wags suggested putting a statue of George Soros in Trafalgar Square.)

- Sweden, which recovered from its early 90s banking crisis with an export boom, driven by a devalued kronor.

- South Korea, which roared back from the 1997-1998 crisis with an export boom, driven by a depreciated won.

- Argentina, which roared back from its 2002 crisis with an export boom, driven by a depreciated peso.

And more. The truth is that every recovery from financial crisis I know of since World War II was driven by currency depreciation. In fact, that’s the biggest reason for pessimism now: because of the global scope of this crisis, the usual exit is blocked.

Now, I’m sure that the goldbugs will come up with ways to explain away all of these events. But at that point we’re not learning from history; on the face of it, history seems to suggest many cases of countries prospering through devaluation.

So what’s going on with Ryan? First, it’s a good bet that he doesn’t actually know much about monetary history. Beyond that, though, what you often see among hard-money types is a sort of Lives of the Saints approach to history: they’ve got their iconic examples (Weimar Germany! Zimbabwe!) which they pull out on every occasion, while remaining utterly ignorant of all the examples that go the other way.

And no, it’s not symmetric: people like me have heard about hyperinflation, while people like Ryan apparently have never heard about post-crisis Korea or Argentina. - Paul Krugman