The value of a currency, measured in terms of other currencies, has consequences for the real economy. A more expensive lari, for example, makes it more profitable to import goods into Georgia. The importer has to pay the foreign goods with foreign currency, and when the lari is more valuable, fewer lari is needed to pay for them.

Fight of the Century? Well, that was Joe Frazier against Muhammad Ali, New York 1971, right? Wrong! For an economist, the Fight of the Century refers to the intellectual debate between the illustrious economists, John Maynard Keynes (1883-1946) and Friedrich August Hayek (1899-1992). A battle at least as hot as the boxing fight, if not even much hotter!

Last week I discussed the economic consequences of inequality. Contrary to a traditional tenet of economics, empirical research has shown that inequality may have adverse economic consequences. Inequality increases the risk of political instability in a country, posing a threat to investments due to the fact that political unrest is highly detrimental to the profits made from any economic activity.

Economics Nobel Prize winner Joseph Stiglitz, well-known for sharply criticizing the conventional wisdom of development economics, once summed up his views in a rhetorical question: “We have felt the pain, when do we get the gain?”

Why should we care about income inequality? According to Nobel Prize laureate Joseph Stiglitz and Harvard economist Jason Furman, “greater inequality leads to more political instability, and greater political instability leads to lower growth” (“Economic Consequences of Income Inequality”, Federal Reserve Bank of Kansas: Journal Proceedings, 1998, pp. 221-232).