A Little Sunshine

I don't know what happened today, but I clearly took a little stop on my trip towards Nervous Breakdown Alley and decided to turn back to Good Times Ville. There's still a crapload of work to be done and lord only knows what madness will ensue as I try every trick in my book to perfect this little world I keep trying to make myself, but whatever happened, I am back to me.

I had the best time at class tonight. I have been totally stressed over school, as the crazy-busy with work has been causing me to be consistently late or in another country. Har. In any case, tonight we had a big exchange rate discussion, chatting about whether we should be fixing ours to the US. Clearly, there are benefits to this, most of which come from the fact that the US is our top trade partner, to the tune of 80+%. And, according to today's discussion, at some optimal point, the costs of having a fixed exchange rate are outweighed by the benefits. In the opinion of our professor (and he is truly the most delightful of professors I've encountered in grad school this far -- the joy and excitement he finds in statistics has made me finally really get it), we're past that point. I, on the other hand, believe it's totally wacko to fix our exchange rate and thus make our own monetary policy makers utterly impotent. We lose all power to control our own destiny -- because, much as we're loathe to admit it, money makes the world go 'round, and inflation and interest rates affect every single one of us.

That said, I am generally a big fan of the market and its mechanisms -- I think it's cool as hell how we generally move to equilibrium where things are pretty much optimal for consumers and buyers alike -- but I don't believe that it is perfect. All social issues aside (and, believe me, I hardly take these lightsly, but it's too much for one conversation with people who all think politically differently), we can surely all agree that anti-trust issues alone are a perfect example of why the government sometimes needs to intervene. Look at monopolies and collusion and all those little market-imperfections that allow specific companies' profits to be maximized but don't allow the consumer to experience optimal efficiency. It's just a fact -- while it's totally dreamy and, as a rule, allows profits to consistently to be maximized, is it always forward-thinking?

For example -- if we are to believe that we're indeed in the position where my professor (and a certain Canadian Nobel Prize winner) says we are, and the benefits to fixed exchange are surpassing the risks, will we always be in that position? This situation may maximize our national profits for the time being -- and clearly, it does, or businesses would be trading with other countries -- but what about in twenty years? We've fixed our rates in the past, only to have to break off when our political differences caused major economic differences (see Vietnam for details) and suffer the consequences of getting back on our own. We've spent the last crapload of years getting through the tough times of managing monetary policy to bring our zero-inflation dream to life in the long term, you're saying that now we're going to just give up our controls because the US happens to be our top trading partner? To be sure, it's been that way for a long time -- but no-no-no-nothing lasts forever.

Theoretically, having one trading partner take up four fifths of our business is risky to begin with -- and that's something we need to address for the long-term implications. Perhaps the dollars would dictate that, at this time, the cost of encouraging economic integration with the US is exorbitant and unnecessary. After all, if it's more efficient to trade with others in the long run, won't that happen anyway? Doesn't the market fix itself? Sure. But don't we want to temper the blow of that transition? Isn't intervention worth it if, in the long run, it causes economic positives by reducing the economic negatives? And isn't this why we have to care about politics? Because there are so many bloody crazy questions and no one really knows the answer but it's so insane to imagine that we might figure it out or make it better?

So clearly, I got into a little frenzy of curiosity and begin with the question-asking, and next thing I know, we're having the most fun conversation! Anyway, I left and I still had a million questions in my head. And the fun just keeps on coming.