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May 23, 2006
Cole - Economic Illiteracy [Updated]
I ran across a piece of illiteracy on Juan Cole's blog that bears correcting. :
Taheri's standards of reasoning and evidence have recently been slipping. In a recent article on Iraq, he gave as good news the stability of the Iraqi dinar. But in fact the dinar is artificially pegged to the dollar. Its "stability" is the same "stability" that the Egyptian guinea used to have in the 1960s and 1970s when the government just arbitrarily set its exchange rate. When you do that, you get some apparent stability, but you also create a black market and a preference in the country for other currencies. If the Iraqi dinar was allowed to float, it would not be worth very much.
Contra Cole's statement, which I find bizarre and puzzling (and tending to support his critics that his hatred of the Bush Admin is pushing him into the realm of unanchored opposition. A pity as whatever his tediously predictable and stereotypical Left politics, his ability to comment on Sunni-Shia politics in Iraq is rare and valuable. It would be good also if he learned to keep his trap shut about all things economic, as his understanding is embarassingly superficial, even for a Lefist academic in social sciences).
[NDLR: I would be extremely remiss not to note that I sent the Professor a note on the side regarding the very subject of this post, and he very graciously accepted correction. Given the rather poor record of blogs as a general matter on the issue of correction, and the rather nasty (and usually overdone axe-grinding) attacks on the man by his ideological foes, I think I should note this. It's a pleasure to see (although it deflates me cranky 'beat him about the head' post on the matter, so I preserve the record and leave it to readers to flog me if necessary for being unduly negative)]
First, the Iraqi Central Bank established the value of the current dinar off of a survey of then current prices and street (or black market) exchange rates.
Second, the Bank is running a dirty peg largely via market interventions (auctions) as well as - per the IMF - some occasional administrative interventions. Largely speaking the trading range has been reasonably market driven, and there does not appear to be any serious black market activity.
Cole's statements then about the Iraqi dinar then are at once factually baseless and incoherent. The dinar is not 'artificially' pegged, nor would the dinar collapse if it floated - by the signs available. It might lose value (in fact I would expect it would depreciate by some percentage but not collapse), but the idea that it would collapse appears to be solely based on Cole's ideological hostility to the entire Bush Administration and anything connected.
Further, I find it deeply ironic Cole is pulling out the (correct) argument on exchange rates re the Egyptian currency as had the Iraqis done a floating currency, Cole would have been fulminating about the Bush Administration's "neo-Liberal" agenda or some similar Left illiteracy.
The man should take a pause and do a bit of self-criticism about his own standards at present. It's a pity to let (understandable) dislike of the US Administration drive one to incoherence.
Posted by The Lounsbury at May 23, 2006 06:51 PM
Filed Under: Iraq War
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