Knowing and Making

I went to a very interesting speech by Frances Dickens of Astus on Wednesday. She runs a company which acts as a barter exchange between other firms. She started out describing the business model (eliding a few intriguing things which we were obviously meant to know already - such as the fact that the barter is always backed by spare media space, usually TV inventory). By the end I felt like I'd been listening to a monetary economist talking about the founding of a new central bank. So many of the issues confronting them are exactly like the issues faced by a currency issuer (which, after all, they are, kind of): Is the currency backed by anything? Previous barter companies have failed because they issued promises with no capital behind them, and the promises were quickly devalued Network effects - now that they are the market leader and the majority of companies use their "currency" by default, they have a hugely defensible position Reputation and credibility -...

There's a meme around which says that the euro is destined to break up because countries like Greece are fundamentally less productive than countries like Germany. A strategist at Societe Generale has put his name  to this idea, as has the director of the Open Europe (anti-EU) think tank. This argument supposes that the only way to become competitive is to devalue one's currency. But surely this applies within countries too? The southern half of Italy is much less productive than the north, while the reverse is true in Britain. But there are no calls for a London currency and when the lira existed, it was never under the threat of an Italian breakup. Different states in the US are just the same - with widely varying fiscal problems as well as the same diversity of competitiveness. At the individual company scale, Yahoo is less competitive than Google, but does Yahoo need its own currency to devalue? And 22-year-old new college graduate Travis is less productive than his e...

Interesting but depressing Paul Krugman interview Interesting but depressing Economist cover story I was going to write about bubbles, but an almost throwaway point from the Krugman interview led me into thinking about devaluations instead. He suggests that Spain might need to (as Estonia has already done) reduce wages and prices across its economy to regain competitiveness, because they can't take the shortcut of devaluing their currency. And this, as he points out, is going to be difficult. Devaluations were a concept that used to fascinate me as a teenager (OK, maybe I was an odd teenager - but in my defence this was before I had a girlfriend). The topic hasn't been as prominent recently, except in the debate on the Chinese-US exchange rate. But Krugman's comment started me wondering just why it should be so hard to achieve a cut in prices these days. After all, wages and prices are just nominal values; yes, there are costs to changing them but they're not tha...