5 ms·

Care to explain the reason behind currently skyrocketing inflation and PLN devaluation then?

trasz 5y ago
https://tradingeconomics.com/european-union/inflation-rate https://tradingeconomics.com/european-union/inflation-rate. Also, while it's kind of hard to say for sure how Poland is doing, and while there definitely are some things that the current government is horrible at, it would be quite a stretch to say it's the "500+" program's fault. Especially given that "podatek liniowy" still exists.
lkrubner 5y ago
Poland is able to keep its unemployment somewhat down, by keeping the zloty weak relative to the euro, and therefore helping Polish exports. And before anyone says "Poland has a lot of unemployment" compare it to other weak Eastern European countries on the euro. Poland could end inflation if it wanted higher unemployment, but for now it accepts the higher inflation and weaker zloty so as to help exports and so limit how bad unemployment might get.
- lkrubner 5y ago
  I'm not sure why this is getting downvoted. If you believe there is no link between the currency, inflation and employment then you're engaging in a well known economic fallacy. See "The Doctrine of Immaculate Transfer": https://krugman.blogs.nytimes.com/2011/01/12/the-doctrine-of-immaculate-transfer/ https://krugman.blogs.nytimes.com/2011/01/12/the-doctrine-of... "The fallacy comes in when you say, “Well, given that it’s all about spending imbalances, exchange rate policy has nothing to do with it.” This is what John Williamson of the Institute for International Economics once dubbed the Doctrine of Immaculate Transfer. (Uh-oh, Erick Erickson’s gonna come after me …) It’s a popular fallacy, especially at the WSJ, although I’m not sure if it rises to zombie status."
  - mmarq 5y ago
    I can’t downvote yet, but you can indeed lower unemployment without rampant inflation or devaluations.
    - lkrubner 5y ago
      That's true, there are 2 main approaches, but they both have real costs, and neither is obviously better than the other. In the face of a severe economic shock, such as the global financial crisis of 2008 or the pandemic of 2020, you would expect to see unemployment increase. The two approaches to reduce that unemployment are: 1. Keynesian stimulus. The government could stimulate demand, either by increasing the purchases where it is the final consumer (military, education spending) or it could give money to citizens so they can spend more. It's important that the increase in spending is not initially offset by tax increases, so this means the government has to take on debt. 2. Devalue the currency so as to help exports. This way you avoid taking on debt, instead you rely on increased money from exports to stimulate the economy. But here, instead of debt, you pay for the stimulus via inflation, as imported goods are now more expensive. Keep in mind "increase exports" is relative to what your main trading partners are able to consume. The EU is the main trading partner for Poland. When the EU is in a deep recession, Poland's exports can be expected to fall, so "increasing exports" might only keep them at their previous rate (the rate that existed before the crisis). Whatever you do, there is some cost. Either you take on debt or you take on inflation. There is no way out of the crisis that is completely free.
  - trasz 5y ago
    You are right, but unemployment in Poland has been very low for at least a decade now, while the inflation is a recent thing.
    - lkrubner 5y ago
      The crisis is also recent. The Covid-19 pandemic arrived in Europe in early 2020. Please see the other comment that I just wrote in this thread. Poland has 2 paths out of the crisis, it can take on debt or it can take on inflation (or it can mix the two). But there is no free way out of the crisis. Whatever strategy it decides on will have some consequence that will take a few years to unwind. And that is mostly true of all nations, of course, though Poland's situation is somewhat unique, in that it is in the EU but has its own currency, which has tended to make devaluation an easy option for it. One can imagine an alternate universe in which Poland has been lead by progressives for the last 30 years, who make big investments in science research and education so that Poland came up to speed quickly on high-technology industries and so rapidly increased labor productivity. In that alternate universe, the government of Poland would be able to follow a policy of tight money, such that zloty would gain value against the euro. And of course, some of that happened, labor productivity increased. The zloty was 6 to 1 against the USA dollar in 1989 and then got to 2.5 to 1 around 2011 or 2012, before sinking again. One can imagine, in this alternate universe, Poland made such huge investments in science research and education that the zloty eventually got to be 1 to 1 with the USA dollar. But that isn't what happened. Poland has been governed by center-right and far-right parties who've limited government involvement in the economy and who have avoided big bets on future investment, outside of infrastructure investments. So, as a practical matter, devaluing the currency, and accepting inflation, has been the most convenient way for the Polish government to keep unemployment down.
p_l 5y ago
The 500 PLN extra for kids by itself was not necessarily going to cause skyrocketing inflation. I don't necessarily agree with how it was implemented, but it's true that we had a huge lack of important support for less wealthy. However, on top of that, you have a lot of simply bad management, and also ridiculous amounts of fraud by ruling party politicians. This means that a lot of money is leaking from the budget in various ways into pockets of people associated with current government, and another (possibly bigger) chunk of money is lost by mismanagement - including things as simple as replacing experienced people with nepotism-pushed ones who then fail to process documents for EU funds. This year we ended up with huge fines (increasing daily), with direct cause being continued operation of Turów surface mine. What is often missed in discussion is that Czech Republic didn't want it closed or fined - they requested that in exchange for continued operation, Poland funds waterworks necessary to ensure nearby villages & towns on Czech side of border have access to potable water, as the mine caused considerable lowering of water table. So rampant spending on often idiotic things, which also heavily goes into pockets of party nomenclature (so it doesn't even have the benefit of being "make work") results in considerable lack of funds in the budget...

https://tradingeconomics.com/european-union/inflation-rate https://tradingeconomics.com/european-union/inflation-rate. Also, while it's kind of hard to say for sure how Poland is doing, and while there definitely are some things that the current government is horrible at, it would be quite a stretch to say it's the "500+" program's fault. Especially given that "podatek liniowy" still exists.

lkrubner 5y ago

Poland is able to keep its unemployment somewhat down, by keeping the zloty weak relative to the euro, and therefore helping Polish exports. And before anyone says "Poland has a lot of unemployment" compare it to other weak Eastern European countries on the euro. Poland could end inflation if it wanted higher unemployment, but for now it accepts the higher inflation and weaker zloty so as to help exports and so limit how bad unemployment might get.

lkrubner 5y ago
I'm not sure why this is getting downvoted. If you believe there is no link between the currency, inflation and employment then you're engaging in a well known economic fallacy. See "The Doctrine of Immaculate Transfer": https://krugman.blogs.nytimes.com/2011/01/12/the-doctrine-of-immaculate-transfer/ https://krugman.blogs.nytimes.com/2011/01/12/the-doctrine-of... "The fallacy comes in when you say, “Well, given that it’s all about spending imbalances, exchange rate policy has nothing to do with it.” This is what John Williamson of the Institute for International Economics once dubbed the Doctrine of Immaculate Transfer. (Uh-oh, Erick Erickson’s gonna come after me …) It’s a popular fallacy, especially at the WSJ, although I’m not sure if it rises to zombie status."
- mmarq 5y ago
  I can’t downvote yet, but you can indeed lower unemployment without rampant inflation or devaluations.
  - lkrubner 5y ago
    That's true, there are 2 main approaches, but they both have real costs, and neither is obviously better than the other. In the face of a severe economic shock, such as the global financial crisis of 2008 or the pandemic of 2020, you would expect to see unemployment increase. The two approaches to reduce that unemployment are: 1. Keynesian stimulus. The government could stimulate demand, either by increasing the purchases where it is the final consumer (military, education spending) or it could give money to citizens so they can spend more. It's important that the increase in spending is not initially offset by tax increases, so this means the government has to take on debt. 2. Devalue the currency so as to help exports. This way you avoid taking on debt, instead you rely on increased money from exports to stimulate the economy. But here, instead of debt, you pay for the stimulus via inflation, as imported goods are now more expensive. Keep in mind "increase exports" is relative to what your main trading partners are able to consume. The EU is the main trading partner for Poland. When the EU is in a deep recession, Poland's exports can be expected to fall, so "increasing exports" might only keep them at their previous rate (the rate that existed before the crisis). Whatever you do, there is some cost. Either you take on debt or you take on inflation. There is no way out of the crisis that is completely free.
- trasz 5y ago
  You are right, but unemployment in Poland has been very low for at least a decade now, while the inflation is a recent thing.
  - lkrubner 5y ago
    The crisis is also recent. The Covid-19 pandemic arrived in Europe in early 2020. Please see the other comment that I just wrote in this thread. Poland has 2 paths out of the crisis, it can take on debt or it can take on inflation (or it can mix the two). But there is no free way out of the crisis. Whatever strategy it decides on will have some consequence that will take a few years to unwind. And that is mostly true of all nations, of course, though Poland's situation is somewhat unique, in that it is in the EU but has its own currency, which has tended to make devaluation an easy option for it. One can imagine an alternate universe in which Poland has been lead by progressives for the last 30 years, who make big investments in science research and education so that Poland came up to speed quickly on high-technology industries and so rapidly increased labor productivity. In that alternate universe, the government of Poland would be able to follow a policy of tight money, such that zloty would gain value against the euro. And of course, some of that happened, labor productivity increased. The zloty was 6 to 1 against the USA dollar in 1989 and then got to 2.5 to 1 around 2011 or 2012, before sinking again. One can imagine, in this alternate universe, Poland made such huge investments in science research and education that the zloty eventually got to be 1 to 1 with the USA dollar. But that isn't what happened. Poland has been governed by center-right and far-right parties who've limited government involvement in the economy and who have avoided big bets on future investment, outside of infrastructure investments. So, as a practical matter, devaluing the currency, and accepting inflation, has been the most convenient way for the Polish government to keep unemployment down.

p_l 5y ago

The 500 PLN extra for kids by itself was not necessarily going to cause skyrocketing inflation. I don't necessarily agree with how it was implemented, but it's true that we had a huge lack of important support for less wealthy. However, on top of that, you have a lot of simply bad management, and also ridiculous amounts of fraud by ruling party politicians. This means that a lot of money is leaking from the budget in various ways into pockets of people associated with current government, and another (possibly bigger) chunk of money is lost by mismanagement - including things as simple as replacing experienced people with nepotism-pushed ones who then fail to process documents for EU funds. This year we ended up with huge fines (increasing daily), with direct cause being continued operation of Turów surface mine. What is often missed in discussion is that Czech Republic didn't want it closed or fined - they requested that in exchange for continued operation, Poland funds waterworks necessary to ensure nearby villages & towns on Czech side of border have access to potable water, as the mine caused considerable lowering of water table. So rampant spending on often idiotic things, which also heavily goes into pockets of party nomenclature (so it doesn't even have the benefit of being "make work") results in considerable lack of funds in the budget...