What should the exchange rate be?

Bob Jones isn’t impressed with Labour’s monetary policy, with good reason:

The uncritical way the media have treated Labour’s ridiculous monetary policy proposal reflects its mood change. Despite its alluring symmetry, the concept is naive in the extreme. David Parker should be asked exactly what should the exchange rate be? That would be fun. Let us assume he succeeded in lowering the exchange rate drastically, for if not drastically, then why bother?

The effect: happy farmers and exporters (that is until they wanted to buy a new tractor, car and other spending), a reduced income for all houseowners other than the minority with floating-rate mortgages who stay neutral, and the return of inflation as virtually everything and not just imported goods leaps in cost. Ergo: back to the days of wage-costs cyclical increases and an end to stability.

A fall in the value of the dollar is not without costs – and for many people those costs could well be higher than those of a higher exchange rate.

Reducing the value of the dollar, reduces earning power in effect reducing the real value of wages.

But here’s the irony. For Labour to get up this year, they acknowledge they must capture the 30 per cent non-voting sector comprising mainly low-income people. Reducing their already tight incomes and adding to their consumption cost is an odd way to achieve that. . .

If Labour thinks they can sell a policy which would reduce people’s take-home pay by increasing Kiwisaver contributions while bemoaning the plight of the poor, they really don’t understand the people to whom they’re tying to appeal.

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