One currency for the world?

[onoway]

Someone was insisting with great conviction the other day that there are plans afoot to try to have one currency for the world. There have been mutterings in Canada from time to time to have one for North America but it hasn't met with a lot of public enthusiasm over the years. Possibly even less at the moment.

 

From here and to somewhat uneducated eyes it seems as though the Euro hasn't had exactly the effects people had hoped it would have. What is the likelihood of anyone seriously trying to promote one world currency and does anyone think it would be a good idea?

[jdeegan]

:P It's a lousy idea because when the fortunes of your region's economic specialty either waxes or wanes, it is easier, quicker and less painful to have the single price of your currency adjust than for all the other prices in your economy to have to adjust.

We had this problem in Texas back in the 1980's when the price of oil and natural gas collapsed. Without our own currency the adjustments came mostly in the real estate and labor markets. Cheap real estate and lots of unemployed workers eventually lured in enough outside investment to return things to normal, but it took half a decade. Notice how the Canadian dollar is weaker or stronger vis a vis the US$ depending on natural resource (esp. oil) prices. Isn't it easier to live with that than the alternative?

The one considerable advantage of a common currency is that it facilitates borrowing and lending since the risk of future currency fluctuations is eliminated. Consequently, it is beneficial for different countries to have a common currency as long as they share the same set of economic specialties.

[Mbodell]

From a practical point of view for the man on the street it is getting more and more as if we have one currency: credit cards. But from a trade point of view, given the price of housing is fairly sticky, and the price of wages is very sticky, it is good to have the ability to devalue currencies rather than deflation. At least in theory.

[y66]

Bad idea for the reasons given by jdeegan. For a current real world example, take a look at Iceland, where 3rd quarter unemployment is 5.9 percent, and Ireland, where unemployment for October is 14.4 percent. Guess which country has its own currency? Of course, Iceland also has a woman prime minister.

[onoway]

:P The one considerable advantage of a common currency is that it facilitates borrowing and lending since the risk of future currency fluctuations is eliminated. Consequently, it is beneficial for different countries to have a common currency as long as they share the same set of economic specialties.

My impression is that the easier borrowing has had a rather severe consequence for several countries who share the Euro, Greece... Italy... Ireland.... and now they are borrowing even more because they couldnt pay back what they already owed..which is a form of logic which escapes me entirely. Maybe all the countries being held hostage by the IMF should just form their OWN group and tell the IMF (and the politicians who got them into the mess) to get lost. Shared economic specialty of being broke. :ph34r:

[gwnn]

It will happen sooner than you think, and the currency will be the yuan. ;)

[Free]

Let all go back to paying in gold. Does anyone has a big backpack? :D

[Gerben42]

The single currency isn't working for even relatively rich countries like the Euro zone. The northern countries thrive with low inflation , the southern countries thrive with high inflation. That doesn't fit together.

[phil_20686]

The world used to have one currency - the gold standard. Since all currencies were worth fixed amounts of gold all exchange rates were fixed - this is basically the definition of a single currency.

 

It failed for the following reasons:

 

(1) In the beginning economic expansion was in line with or below the speed at which gold was being mined, so there was no to low inflation, but most importantly there was no deflation, generally. When economic expansion started to pick up, with industrialisation, deflation became the order of the day as the growth of goods outstripped the growth of money. Deflation is always hard to achieve in practice.

 

(2) In the current system, a large current account surplus strengthens your currency. In a gold back standard it weakens it, as there is more and more gold in circulation. This means that exporters end up with cheaper and cheaper labour, which makes exports even more competitive. This is unsustainable in a modern innovative economy, as it would tend to make current account surpluses grow without limit. This was a mistake, this makes labour more expensive.

 

(3) A large current account deficit leads to massive price deflation, which is extremely difficult to handle, and can literally lead to "running out of money", as the gold flows out. This happened in the Great British Silver currency.

 

(4) It becomes virtually impossible to make a country more competitive without being able to revalue one's currency, especially when the world is changing quickly.

 

So the Gold Currency worked out ok when transport between countries was hard, so there was limited current account imbalances, when economic growth was slow, and when the rate of innovation in technology was slow. If you change break any of these conditions then a gold standard, i.e. a single currency, will become unsustainable.

 

Current accoutn imbalances can obviously be corrected by fiscal transfers, but that means a single world government, and who can imagine a bureaucracy that large!

[phil_20686]

The single currency isn't working for even relatively rich countries like the Euro zone. The northern countries thrive with low inflation , the southern countries thrive with high inflation. That doesn't fit together.

 

This seems rather to miss the point. As a German worker becomes more productive, they out compete Italian workers, in order to compensate, the Italian government lowers the exchange rate of lira vs Germany to keep the price of Italian exports broadly in line with German exports. This is done partly automatically by the exchange rate mechanism, and partly by the government printing extra money.

 

I.e. Germany could still improve the competitiveness of its exports with high inflation, but when you are at the top of the tree there is no point, and it lowers your purchasing power abroad. Moreover, if everyone is measuring productivity vs Germany and America, if they print loads of money they just force everyone else to print even more.

[phil_20686]

Let all go back to paying in gold. Does anyone has a big backpack? :D

 

even a small backback of gold would be a lot more than you could carry!

 

e.g., a twenty litre container would hold close to 300kg of gold. :)

[phil_20686]

My impression is that the easier borrowing has had a rather severe consequence for several countries who share the Euro, Greece... Italy... Ireland.... and now they are borrowing even more because they couldnt pay back what they already owed..which is a form of logic which escapes me entirely. Maybe all the countries being held hostage by the IMF should just form their OWN group and tell the IMF (and the politicians who got them into the mess) to get lost. Shared economic specialty of being broke. :ph34r:

 

Its really very hard to leave a currency union. It will cause the mother of all bankruns, who would keep their money in a greek bank if they thought that it might be worth less tomorrow? Even Greek people would move their savings abroad to benefit from a windfall when the bring it back in the new currency, and if you are not going to devalue your currency, then what is the point?

 

You would find, as in many of the eastern European countries, that no one trusts the local currency and many prefer to be paid in euros anyway.

 

Also, although they did overspend, a lot of Greece's problem was not their fault. the financial crises caused a drop in capital inflow of over 5% of gdp, no economy can survive that without a severe recession.

[BunnyGo]

 

So the Gold Currency worked out ok when transport between countries was hard, so there was limited current account imbalances, when economic growth was slow, and when the rate of innovation in technology was slow. If you change break any of these conditions then a gold standard, i.e. a single currency, will become unsustainable.

 

 

Even in ancient times Chinese monetary policy affected the Roman economy. When China decreed that gold should be taken out of circulation, there was huge deflation in Roman and it tanked the economy.

[phil_20686]

Even in ancient times Chinese monetary policy affected the Roman economy. When China decreed that gold should be taken out of circulation, there was huge deflation in Roman and it tanked the economy.

 

Yes it can happen. Wars could lead to massive inflation as goods were destroyed, but all currencies are subkect to shocks of various kinds, I was more interesting the conditions for it to work on a day to day basis.

[blackshoe]

The world used to have one currency - the gold standard. Since all currencies were worth fixed amounts of gold all exchange rates were fixed - this is basically the definition of a single currency.

 

It failed for the following reasons:

 

(1) In the beginning economic expansion was in line with or below the speed at which gold was being mined, so there was no to low inflation, but most importantly there was no deflation, generally. When economic expansion started to pick up, with industrialisation, deflation became the order of the day as the growth of goods outstripped the growth of money. Deflation is always hard to achieve in practice.

 

(2) In the current system, a large current account surplus strengthens your currency. In a gold back standard it weakens it, as there is more and more gold in circulation. This means that exporters end up with cheaper and cheaper labour, which makes exports even more competitive. This is unsustainable in a modern innovative economy, as it would tend to make current account surpluses grow without limit. This was a mistake, this makes labour more expensive.

 

(3) A large current account deficit leads to massive price deflation, which is extremely difficult to handle, and can literally lead to "running out of money", as the gold flows out. This happened in the Great British Silver currency.

 

(4) It becomes virtually impossible to make a country more competitive without being able to revalue one's currency, especially when the world is changing quickly.

 

So the Gold Currency worked out ok when transport between countries was hard, so there was limited current account imbalances, when economic growth was slow, and when the rate of innovation in technology was slow. If you change break any of these conditions then a gold standard, i.e. a single currency, will become unsustainable.

 

Current accoutn imbalances can obviously be corrected by fiscal transfers, but that means a single world government, and who can imagine a bureaucracy that large!

 

I may be wrong, but I don't think Murray Rothbard would have agreed with this.

[blackshoe]

even a small backback of gold would be a lot more than you could carry!

 

e.g., a twenty litre container would hold close to 300kg of gold. :)

 

There is a difference between currency (paper) and the commodity (gold or, supposedly, "debt") that backs it. I would put my gold (and silver, if we're on a dual standard) in a "bank" (aka a "money warehouse") and carry banknotes ("currency") or a checkbook — and coins for small purchases.

 

Speaking of checks, a few days ago I bought a new TV. $1100 (currently about 0.6 oz of gold). At the checkout, I said "I think I'll write a check". Clerk said "okay". I wrote the check. Clerk called a supervisor. She asked for my driver's license. In shuffling through the crap in my wallet, I first found my old expired license, then the current one, which I gave her. She went to her station, and played around with the computer for about five minutes. Came back and asked for my old license! Went away with it and played around for another five minutes or more. Called over somebody else and talked for more minutes. Then she came back and told me "we have a limit of $400 for check purchases". "So why didn't somebody tell me that fifteen minutes ago?" No answer. "What's your limit on credit card purchases?" "As far as I know, we don't have one". So I took back my check, tore it up, stuck the pieces in my pocket, and handed over my credit (actually debit — on the same checking account I'd written the check against) card, and finally got out of there with the TV. Left a bad taste in my mouth. As we were leaving, the friend who was with me said "you were a lot more accommodating than I would have been. I'd have walked out when they refused to take my check." I told him that I'd considered it, and damn near done it myself.

[mike777]

This gets back to the age old question what is the priority of monetary policy, is it:

 

1) maximize employment?

2) stopping inflation?

3) making exports cheap?

4) increase productiivity

5) raise the standard of living?

 

 

Conflicting goals lead to conflicted monetary policy.

 

Note how even in this thread posters boast about how their version does best because.....employment or inflation or etc is better....

[phil_20686]

I may be wrong, but I don't think Murray Rothbard would have agreed with this.

 

I dont care if he agreed, I only care that he was wrong!

 

I actually have more sympathy for Austrian economics than many. They are wrong about the way the world works, i.e. their analysis is wrong, however, the poor choices of government led us to a situation that is very likely to be what they predicted. However, our crisis is inherently made by bad government policy.

 

The most quoted passage of Mises is:

Attempts to carry out economic reforms from the monetary side can never amount to anything but an artificial stimulation of economic activity by an expansion of the circulation, and this, as must constantly be emphasized, must necessarily lead to crisis and depression. Recurring economic crises are nothing but the consequence of attempts, despite all the teachings of experience and all the warnings of the economists, to stimulate economic activity by means of additional credit...

 

For one thing, there were plenty of economic and even financial crises while on the gold standard. E.g. The Great depression. Secondly, von Mises had no problems with the expansion of credit by banks. It is a truism that "undue" expansion of credit is a problem, but who says what is an appropriate level? Von mises apparently believed that it was impossible for private banks to engage in "undue" expansion of credit, though blind belief in the efficient market hypothesis. Its hard for me to believe that something which is ok for banks to do will necessarily lead to crises when a government does it. Of course, that doesn't mean that governments cannot screw up their monetary policy. They have done it plenty of times in the past. However, monetary policy remains a powerful weapon for dealing with what keynes called "magneto trouble". Having said that. We are in the uncomfortable position that the western nations have screwed up our monetary policy, for one decade if not several. The solution to that is not to give up an effective tool and try to go back to a system that we abandoned precisely because of its abject failure, not once, but multiple times. The solution is to do better next time.

 

Essentially, it is correct to believe that if you let the government control monetary policy, eventually there will be a screwup. Its a difficult job, and they are only human. It is not correct to believe that letting the markets control monetary policy (the effective result of a gold standard) would lead to fewer screw ups. They too are only human, and worse, have far more to gain than a central banker from pushing the boat out. The history books have shown again and again that gold standards lead to disaster.

 

Even if you believe that the government will screw up monetary policy worse than the bankers, it is still naive to believe that the screw ups will not happen. Instead you will have governments attempting to control monetary policy with more dangerous and less effective levers, such as happened to the ERM (European Exchange Rate Mechanism - yet another failed attempt at a gold standard/common European currency).

 

What we have learnt, basically, is that as well as inflation and unemployment, Central banks also have to monitor systemic leverage. Higher interest rates will force leverage lower.

 

Finally, if you do not understand the problems of a gold standard; LOOK AT THE EUROZONE. No gold standard can survive large current account deficits between countries. The basic problem in the eurozone is that germany (and others) are running large surpluses, and without an exchange rate or fiscal transfers to mediate the problem, this is making it impossible for southern economies to compete. The USA runs the largest current account deficit ever. It is completely implausible that it could function on a gold standard with a deficit this big. The only reason the dollar has not tanked completely is because of the huge number of T-bills sold to foreign investors, which helps to balance the accounts. If the US government stopped selling T-bills tomorrow, the dollar would decline precipitously in value, to the tune of 5% a year, until its weakness cut off your current account imbalance.

 

The route back to economic stability in the US is (1) cut your deficit. (2) Allow the dollar to weaken, increasing inflation a bit to help it along. (3) Sit back and watch as companies `re-shore` their jobs.

 

 

PS: I have noticed before that you seem to think that the gold standard prevents credit expansion - this is not correct, credit expansion can happen anyway due to fractional reserve banking. It can also happen through issuing government bonds. The only thing that it makes impossible is the printing of money.

[Gerben42]

This seems rather to miss the point. As a German worker becomes more productive, they out compete Italian workers, in order to compensate, the Italian government lowers the exchange rate of lira vs Germany to keep the price of Italian exports broadly in line with German exports. This is done partly automatically by the exchange rate mechanism, and partly by the government printing extra money.

 

I.e. Germany could still improve the competitiveness of its exports with high inflation, but when you are at the top of the tree there is no point, and it lowers your purchasing power abroad. Moreover, if everyone is measuring productivity vs Germany and America, if they print loads of money they just force everyone else to print even more.

 

Well, then the question is, why do Italian workers not become more productive? Is Germany (and most other N-European Euro countries) doing something special? Inflation is a terrible thing (as it is a hidden tax on assets, a pay cut and a pension cut at the same time) and it has been Germany's policy to have none of it. After all, they have seen what it can do more than once in the last 100 years.

[onoway]

Productivity is a word I dont understand, in economic terms. It appears that the same value in terms of economic worth is given to the production of plastic toys for a McDonald's Happy Meal as the production of the wheat or potatoes used to make the meal. Also, present day robots could likely do pretty much anything most workers can do, German, American, Italian or whatever, as well as likely do it faster and cheaper, so what does it really mean?

 

Also, the whole business of trade between countries appears often to be simple (or not so simple) shenanigans. It is beyond belief that it can possibly be valid to pay less for apples imported from halfway around the world than for the ones grown next door. But that seems to be what much international trade is all about. Then you get the sort of tragic nonsense of a few years ago when the Canadian government paid farmers millions of dollars to slaughter healthy pigs so as to drive the price of pork back up and NONE of the meat was allowed to be used or sent to starving people because that would have violated trade agreements. Absolutely heartbreakingly disgraceful that hundreds of thousands of pounds of food just destroyed.

 

The thing is that although I certainly get the point about carrying around a backpack of gold, when the crunch comes money is actually worthless. If 2 people are stuck in the middle of the Sahara and one has a million dollars, gold or any other currency, and the other has a cup of water, that million dollars has no value at all. Money should be the servant of people and it has gotton reversed.

[jdeegan]

My impression is that the easier borrowing has had a rather severe consequence for several countries who share the Euro, Greece... Italy... Ireland.... and now they are borrowing even more because they couldnt pay back what they already owed..which is a form of logic which escapes me entirely. Maybe all the countries being held hostage by the IMF should just form their OWN group and tell the IMF (and the politicians who got them into the mess) to get lost. Shared economic specialty of being broke. :ph34r:

:P The problem lies in the qualification. Greece and Germany, for example, don't share the same set of economic specialties. No Greek automobiles or machine tools. Not much German tourism.

[mike777]

Productivity is a word I dont understand, in economic terms. It appears that the same value in terms of economic worth is given to the production of plastic toys for a McDonald's Happy Meal as the production of the wheat or potatoes used to make the meal. Also, present day robots could likely do pretty much anything most workers can do, German, American, Italian or whatever, as well as likely do it faster and cheaper, so what does it really mean?

 

Also, the whole business of trade between countries appears often to be simple (or not so simple) shenanigans. It is beyond belief that it can possibly be valid to pay less for apples imported from halfway around the world than for the ones grown next door. But that seems to be what much international trade is all about.

 

The confusion comes in the definition of your use of the phrase "pay less". I hope this helps.

 

 

?In economics, the law of comparative advantage says that two countries (or other kinds of parties, such as individuals or firms thereas) will both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods. Even if one country is more efficient in the production of all goods (absolute advantage) than the other, both countries will still gain by trading with each other, as long as they have different relative efficiencies.[1][2][3]

 

For example, if, using machinery, a worker in one country can produce both shoes and shirts at 6 per hour, and a worker in a country with less machinery can produce either 2 shoes or 4 shirts in an hour, each country can gain from trade because their internal trade-offs between shoes and shirts are different. The less-efficient country has a comparative advantage in shirts, so it finds it more efficient to produce shirts and trade them to the more-efficient country for shoes. Without trade, its opportunity cost per shoe was 2 shirts; by trading, its cost per shoe can reduce to as low as 1 shirt depending on how much trade occurs (since the more-efficient country has a 1:1 trade-off). The more-efficient country has a comparative advantage in shoes, so it can gain in efficiency by moving some workers from shirt-production to shoe-production and trading some shoes for shirts. Without trade, its cost to make a shirt was 1 shoe; by trading, its cost per shirt can go as low as 1/2 shoe depending on how much trade occurs.

 

The net benefits to each country are called the gains from trade."

 

 

http://en.wikipedia.org/wiki/Comparative_advantage

---

 

 

Keep in mind if you are growing and selling a huge amount of apples you need more than apples...you need land, water, stock seed, fertilizer, insect protection, transportation, etc etc....not just apples, you need to look at all of your costs and add them all up....:) The point being all of the above may be put to better comparitive use, more productive use, growing something else than apples. As a farmer I assume you want to maximize your long term profit for all the hard work you put in. Growing apples may not be the most productive use of your land, time and skill set.

[onoway]

The confusion comes in the definition of your use of the phrase "pay less". I hope this helps.

 

 

?In economics, the law of comparative advantage says that two countries (or other kinds of parties, such as individuals or firms thereas) will both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods. Even if one country is more efficient in the production of all goods (absolute advantage) than the other, both countries will still gain by trading with each other, as long as they have different relative efficiencies.[1][2][3]

 

For example, if, using machinery, a worker in one country can produce both shoes and shirts at 6 per hour, and a worker in a country with less machinery can produce either 2 shoes or 4 shirts in an hour, each country can gain from trade because their internal trade-offs between shoes and shirts are different. The less-efficient country has a comparative advantage in shirts, so it finds it more efficient to produce shirts and trade them to the more-efficient country for shoes. Without trade, its opportunity cost per shoe was 2 shirts; by trading, its cost per shoe can reduce to as low as 1 shirt depending on how much trade occurs (since the more-efficient country has a 1:1 trade-off). The more-efficient country has a comparative advantage in shoes, so it can gain in efficiency by moving some workers from shirt-production to shoe-production and trading some shoes for shirts. Without trade, its cost to make a shirt was 1 shoe; by trading, its cost per shirt can go as low as 1/2 shoe depending on how much trade occurs.

 

The net benefits to each country are called the gains from trade."

 

 

http://en.wikipedia.org/wiki/Comparative_advantage

---

 

 

Keep in mind if you are growing and selling a huge amount of apples you need more than apples...you need land, water, stock seed, fertilizer, insect protection, transportation, etc etc....not just apples, you need to look at all of your costs and add them all up....:) The point being all of the above may be put to better comparitive use, more productive use, growing something else than apples. As a farmer I assume you want to maximize your long term profit for all the hard work you put in. Growing apples may not be the most productive use of your land, time and skill set.

 

You know what? To me this is smoke and mirrors.

 

If you want to get into a discussion of what things should be grown where then you are getting into a very dicey area indeed. I don't know much about economics but I DO know quite a bit about growing food.

 

You might be interested in the Melbourne Peace Prize acceptance speech by Dr Vandana Shiva as to where your sort of thinking ended up getting farmers in India who were convinced that they would be better off listening to that sort of stuff. At least the farmers who didn't join the hundreds who comitted suicide when they couldn't sustain the farms doing what they had been convinced to do instead of what they had been doing.

 

You might read One Straw revolution by Fukuoka who watched as people abandoned their traditional crops in favor of what they were promised would be more profitable for them, and their subsequent struggles.

 

You might want to consider the Dust Bowl of the 30s which largely was a result of people farming the way business people (banks)told them to so they could make lots of money. The banks ended up with lots of farms out of that one.

 

And as far as that goes, you are wrong as far as needing fertilizers and pesticides etc; learn something about permaculture. I will point you in one direction..check out Joel Salatin of Polyface Farms. He was written about in Michael Pollan's book The Omnivore's Dilemma. He will not send anything further than 400 miles from farm to consumer and he is very successful no matter what terms you choose to use to define success. Or watch some of the videos on You Tube about Sepp Holtzer of Austria.

 

You could look up some of the projects being done by Geoff Lawton with desert being brought back to fertility without chemicals. Or Growing Power in the US founded and run by Will Allen. He claims something like a million pounds of food grown on 3 acres. Without chemical fertilizers or pesticides.

 

Of course, before the companies such as Monsanto managed to get patents on seed, farmers used to save a portion of their harvest to use as seed the following year; this has become illegal in many instances. Farmers have lost their farms for having such plants show up on their land even though the plants are proven to escape from planted fields and show up where they haven't been planted. So seed can be a cost.

 

Pesticides and fetilizers are most certainly required by such seeds, although both are becoming less effective.One of the costs not usually considered is the cost to the environment of using such things; in terms of the pollution of waterways from runoff in paticular.

 

Pesticides are now starting to give rise to superbugs in the same way that overuse of antibiotics has. You can check the growing concern about the corn borer in the States.

 

I am told that in the European Union it is now ILLEGAL to sell any seeds not on an approved list, most of which consists of seeds which must be bought each year. Freedom is a wonderful thing when it becomes illegal to sell celery and bean seeds unless they have officially been approved.

 

The other thing not mentioned is time. Some people claim that people in the first world countries are now working much harder and longer hours than was generally the case 80 or 100 years ago. that is..if they are working at all I suppose.

 

Fukuoka grew barley, rice and citrus trees and he had no machinery, no chemicals. He and the stores which carried his product could have got a premium for his produce but he refused to allow that, going so far as to boycott one store which he caught doing so. He also had the resources and free time to observe, to think, to teach, to write, to travel.

 

He had no debt. Very very few farmers could say that today.

[phil_20686]

Well, then the question is, why do Italian workers not become more productive? Is Germany (and most other N-European Euro countries) doing something special? Inflation is a terrible thing (as it is a hidden tax on assets, a pay cut and a pension cut at the same time) and it has been Germany's policy to have none of it. After all, they have seen what it can do more than once in the last 100 years.

 

Germany is very special, for lots of reasons, the problem is that becoming more productive is not easy. To make an economy more productive,you need to do one of the following things

 

(1) Better infrastructure - transport is basically always a dead weight loss to the economy, if you can reduce the price by building better roads rail and shipping ports everyone is a winner.

(2) Better healthcare - If you can save one sick day from a given illness you have significantly improved productivity.

(3) Better human capital - if your workforce is more highly skilled or educated, they will tend to be more productive.

(4) Better government - if your government is fair and efficient and has minimal bureaucracy, everyone's a winner. If taxes are levied in a transparent and non discretionary manner, everyone wins. Etc Etc Etc

(5) Better law enforcement - Not only is crime a dead weight loss to the economy, but co-orporations want to know that if a party defaults on its contractual obligations they have a far and efficient system to reclaim some losses.

(6) Better city planning - Strong management of cities, including transport and housing and education, can significantly improve productivity.

(7) Better savings rate - For a variety of reasons domestic savings tend to be made available to domestic companies for capital improvements, its no coincidence that the two countries with the highest savings rates, Japan and Germany, are world leaders in manufacturing technology. Increasing the capital available for businesses to invest leads to greater productivity.

 

I could go on, but here are seven things that Germany (currently) does much better than Italy, fixing them takes time, and some things are likely to be beyond the power of the Italian government. By my count the UK is on a roughly par with Germany on 4 of these categories. The real problem is that reform takes time. Italy does not have that time. It has stood still for a decade.

[phil_20686]

Productivity is a word I dont understand, in economic terms. It appears that the same value in terms of economic worth is given to the production of plastic toys for a McDonald's Happy Meal as the production of the wheat or potatoes used to make the meal. Also, present day robots could likely do pretty much anything most workers can do, German, American, Italian or whatever, as well as likely do it faster and cheaper, so what does it really mean?

 

Also, the whole business of trade between countries appears often to be simple (or not so simple) shenanigans. It is beyond belief that it can possibly be valid to pay less for apples imported from halfway around the world than for the ones grown next door. But that seems to be what much international trade is all about. Then you get the sort of tragic nonsense of a few years ago when the Canadian government paid farmers millions of dollars to slaughter healthy pigs so as to drive the price of pork back up and NONE of the meat was allowed to be used or sent to starving people because that would have violated trade agreements. Absolutely heartbreakingly disgraceful that hundreds of thousands of pounds of food just destroyed.

 

Productivity is best thought of as Value added. If I take steak and bread and salad, and turn it into a burger, people will pay more for the burger than for the ingredients - they are paying you for your time/work essentially, and that difference in price is your value added. If I make (and sell) ten burgers per hour I am more productive than if I make/sell only 8 burgers per hour. Automation lets one person make 100 burgers per hour. When henry ford got into manufacturing, thousands of workers were producing hundreds of cars in a given factory. Now dozens, or fewer works overseeing automated production lines make thousands of cars - their productivity is hugely increased.

 

The reason produce from far away is cheaper, is that labour is cheaper. Because an industry must attract its workers, salaries across all jobs* in the economy tend to have similar wages, however, productivity across industries are not similar. For example, Orchestra's have not experienced any productivity increase, and hence become relatively more expensive, because of increases in productivity in other parts of the economy. This is why Orchestra's are now seen as a rich man's game, when they were once the entertainment of choice for the poor.

 

Regulation has often resulted in absurd outcomes. In this case it was obviously the case that oversupply had led the price to become uneconomic. At that point, one way or another, the meat is going to be wasted. Oversupply is normally combated by driving the farmers out of business. For a variety of (good) reasons, governments protect their farmers, even at a cost to society. Partly because if they stop the farming it will drive food higher in the third world and lead to mass starvation. Partly because if there was a war being relatively self sufficient is a good thing, and partly because the inequality of labour costs across the world is temporary. In a hundred years wages will be broadly comparable across the world, but farming knowledge is largely local and you might not be able to get your efficient farming models back.

 

*This might not be true if a job requires an extremely restrictive set of skills, and as a result is open to only a few people, then demand for these few people can send wages very high