Re: Euro Rates Slashed

["John M. Legge" <jlegge@xxxxxxxxxx>]

Doug Henwood wrote:

>
>Dennis makes an interesting point - PPPs are consumption-based, but
Anwar
>Shaikh argues convincingly that exchange rates are determined by
relative
>productivity performance. The U.S. resident at the mean may enjoy a
higher
>consumption standard because of imperial privilege and a vast
low-wage
>labor force (domestic and foreign), but U.S. productivity growth was
still
>lagging Western Europe as recently as 1997, if I'm remembering the
BLS
>numbers right.
>
>Doug

The availability of cheap and malleable labour discourages the
investment and innovation-seeking that leads to productivity growth.
When New Zealand deregulated its labour market its rate of
productivity improvement dropped from poor to negligible.  By
contrast, Australia's regulated labour market including its high
minimum wage (PPP or ER) has encouraged large scale productivity
improvements over the last few years.

Funnily enough, one of the reasons the New Right give for advocating
labour market deregulation in Australia is to "improve the
productivity growth rate".  I don't know whether they are fools or
rogues in general, but some of the leading figures of Australia's NR
are certainly both,

JML