"Today, as some wonder about the way forward out of economic recession and fiscal crisis, the answer once again is ‘Look to Poland,' " Mitt Romney declared in a speech in Warsaw yesterday. And, sure enough, Poland has weathered the financial crisis considerably better than the United States has.
Its economy grew by 1.6 percent in 2009, as the U.S.'s shrunk by 3.5 percent. But the secret to Poland's success, as Matt O'Brien and Matt Yglesias have noted, is aggressive currency debasement. Here, via O'Brien, is how the Polish currency, the zloty, has fared against the Euro since the crisis hit:
And it's not just Poland. There's a big correlation between the amount by which a country's 2011 GDP fell below potential GDP (that is, the highest GDP level possible without getting inflation) and how much they debased their currency. Poland, Sweden, Australia and Switzerland have done much better than peer countries since the crisis hit and, unsurprisingly, their currencies have been devalued more than the U.S. dollar:
While the Polish, Swedish and Australian currencies were all devalued relative to the Euro through 2009, the U.S. dollar actually rose in value, and has stayed relatively stable since then. Perhaps not accidentally, we've had a much weaker recovery than those countries. Israel has pursued a similar strategy; unfortunately the European Central Bank keeps much worse data about the shekel, but the approach has worked there as well.
The Poland comments aren't the first time Romney's team has hinted that currency devaluation will be a part of his economic strategy. His advisor Glenn Hubbard has suggested stimulating growth by pushing down the value of the dollar. If Poland, Sweden and Australia are any indication, that just might work.