Tuesday, April 11, 2006

Gordon and Alan under a Bush

There's no telling where the bizarre Gordon Brown-Alan Greenspan love-in might lead, not least if Ted Hall, writing on the op-ed page of Tuesday's Wall Street Journal (subs. req'd) has his way:

Like competition among computer operating systems, very few [currency] regimes will emerge as successful. Advantages from absolute scale and increasing returns created as additional participants join will define the winners. In this battle for scale, the U.K. has the enviable position of casting the $8-trillion swing vote. The euro needs it desperately. But for the U.K., the dollar may be more attractive, not least because of regulatory, legal, accounting, cultural and linguistic commonalities. The U.K. will likely find it easier to fashion a coordinated monetary policy with one compatible counterparty than with 15 countries with whom it agrees on wine but not on beef or Iraq.

In other words, dollarize the UK. There are various ways to outline the problems with this proposal. One scenario: would the British people really be happy to hold the future dollars with George Bush's visage on them and many zeroes in the denomination -- one likely consequence of Bush's insane fiscal policies? But more prosaically, a dollarized UK would destroy the one fiction that keeps London "affordable" for ordinary Americans: that if you pretend the units are dollars, the prices all seem reasonable. With a dollarized London, everything would be twice the price it is in the US, and a big chunk of the tourist market would collapse. On the other hand, it would be even clearer to British people how cheap Canada is, so one part of North America would be a clear beneficiary. But for the most part, let's consign this proposal to the irrational exhuberance preceeding the implosion of the Bush presidency.

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