Ken

“Mass imprisonment generates profits as it devours social wealth, and thus it tends to reproduce the very conditions that lead people to prison. There are thus real and often quite complicated connections between the deindustrialization of the economy—a process that reached its peak during the 1980s—and the rise of mass imprisonment, which also began to spiral during the Reagan-Bush era.”
― Angela Y. Davis, Are Prisons Obsolete?

“Alls I’m—or think about the Holocaust. Was the Holocaust a good thing? No way. Does anybody think it was good it happened? No way. But did you ever read Victor Frankl? Victor Frankl’s Man’s Search for Meaning? It’s a great, great book. Frankl was in a camp in the Holocaust and the book comes out of that experience, it’s about his experience in the human Dark Side and preserving his human identity in the face of the camp’s degradation and violence and suffering total ripping away his identity. It’s a totally great book and now think about it, if there wasn’t a Holocaust there wouldn’t be a Man’s Search for Meaning.”
― David Foster Wallace, Brief Interviews with Hideous Men: Stories

“The “German problem” after 1970 became how to keep up with the Germans in terms of efficiency and productivity. One way, as above, was to serially devalue, but that was beginning to hurt. The other way was to tie your currency to the deutsche mark and thereby make your price and inflation rate the same as the Germans, which it turned out would also hurt, but in a different way.

The problem with keeping up with the Germans is that German industrial exports have the lowest price elasticities in the world. In plain English, Germany makes really great stuff that everyone wants and will pay more for in comparison to all the alternatives. So when you tie your currency to the deutsche mark, you are making a one-way bet that your industry can be as competitive as the Germans in terms of quality and price. That would be difficult enough if the deutsche mark hadn’t been undervalued for most of the postwar period and both German labor costs and inflation rates were lower than average, but unfortunately for everyone else, they were. That gave the German economy the advantage in producing less-than-great stuff too, thereby undercutting competitors in products lower down, as well as higher up the value-added chain. Add to this contemporary German wages, which have seen real declines over the 2000s, and you have an economy that is extremely hard to keep up with. On the other side of this one-way bet were the financial markets. They looked at less dynamic economies, such as the United Kingdom and Italy, that were tying themselves to the deutsche mark and saw a way to make money.

The only way to maintain a currency peg is to either defend it with foreign exchange reserves or deflate your wages and prices to accommodate it. To defend a peg you need lots of foreign currency so that when your currency loses value (as it will if you are trying to keep up with the Germans), you can sell your foreign currency reserves and buy back your own currency to maintain the desired rate. But if the markets can figure out how much foreign currency you have in reserve, they can bet against you, force a devaluation of your currency, and pocket the difference between the peg and the new market value in a short sale.

George Soros (and a lot of other hedge funds) famously did this to the European Exchange Rate Mechanism in 1992, blowing the United Kingdom and Italy out of the system. Soros could do this because he knew that there was no way the United Kingdom or Italy could be as competitive as Germany without serious price deflation to increase cost competitiveness, and that there would be only so much deflation and unemployment these countries could take before they either ran out of foreign exchange reserves or lost the next election. Indeed, the European Exchange Rate Mechanism was sometimes referred to as the European “Eternal Recession Mechanism,” such was its deflationary impact. In short, attempts to maintain an anti-inflationary currency peg fail because they are not credible on the following point: you cannot run a gold standard (where the only way to adjust is through internal deflation) in a democracy.”
― Mark Blyth, Austerity: The History of a Dangerous Idea

“The chairman of the state board of medical examiners was a retired physician who thought that President Teddy Roosevelt was the only other man in the world besides himself who had not been made from a banana.”
― John Irving, The Cider House Rules