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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

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.

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.