One of the difficulties is that there is about 50 years of mathematical economics that presents a complicated but moderately self-consistent model of how economies work, and any proposal for a policy change has to be run against that model--or it will be trashed in the professional economics journals and thus by the political establishment...
You can't just wing this stuff.
complicated and jury-rigged, but moderately self consistent -- kind of like Ptolemaic solar system mechanics? can one justify Keplerian mechanics in terms of the Ptolemaic model?
in other words, if a new paradigm is required to remedy the predictive and practical failure of the dominant paradigm, it is unlikely imho that it can be wrapped in the old paradigm tightly enough to keep the old guard happy... so trying to keep things palatable to the old guard sounds to me prima facie like a recipe for not solving the problem. The difference between theory and practise in practise ...
imho all the economics we have is a potty attempt to build a grand unified theory on top of false fundamental premises. the false premises are I think well known to all of us: infinity of sources and sinks, the concept of "externalisation of costs," the notion that all goods are quantifiable, the quaint notion that human behaviour is rational, particularly in groups, and the even quainter neoHermetic notion of predictivity from the micro to the macro and vice versa.
if there's a way out it's surely through complexity theory, chaos theory, and social theory (i.e. indices which are tied in some way to concepts such as biotic diversity and robustness, and/or to human security and happiness, such as the Gini index, Solari index, and other attempts currently viewed by orthodox economists as "crackpot") ... and not through same old linear mechanistic fantasies. I sometimes think of economists as denizens of Flatland trying desperately to conceptualise a Buckyball... but I digress as usual.
if we must remain within the terms of reference of wage labour, then we could start with the fundamental question of why employment is audited as a cost instead of a benefit; this was touched on in an earlier thread. if we take the neolib/trad line that employment is a cost to be minimised, then in a theoretically perfect world we end up with a maximally optimised economy in which no one is employed, which reduces labour costs to zero. at which point there is no one to buy goods, so clearly the idea of constantly reducing labour inputs and driving down wages as a process of optimisation or "cost reduction" or "efficiency" is as bogus as the idea that stripmining the ocean floor is an "efficient" way to fish.
I write in haste, about to leave the office, so these are off-the-cuff rantlets and not developed ideas. but tinkering with a system whose fundamental assumptions are flawed is not generally successful in the long run. one ends up having to invent anti-phlogistone and so on. The difference between theory and practise in practise ...
A basis point is 1/100th of a percentage point. In your example above the Eurorate change was from 1.55% to 1.5%.
If you want to know how monetary policy is set in the Eurozone you can go to here to start your research.
If you want to know about monetary policy in general, and a bit about the mathematical underpinnings, there is a wikipedia entry that can start you off.
Like, say cut taxes for the wealthy and pretend that the economy will grow so fast that you won't end up with a deficit?
Or, relentlessly push the meme that the only way to create jobs is to push more and more risk onto individual workers, with barely a shred of evidence to prove it.
Or, have a central bank dominated by a bunch of stodgy old Germans who think that another 1923 is just around the corner and the only goal of a central bank should be to zero out the inflation rate, jobs and wages be damned.
Look, since the problem in Europe is slow growth and high unemployment, one traditional way to deal with that is by cutting interest rates. That spurs investment and consumer spending and overall economic growth.
Sure, go ahead and plug this into the latest economic model and see what happens. I'm sure that the economists who wrote the draft have done that, and found that you get higher growth and more jobs and probably somewhat higher inflation by cutting rates.
Olivier Blanchard, a mainstream MIT macroeconomist, agrees that Europe needs a monetary stimulus. So does Nobel laureate Robert Solow, Harvard labor economist Richard Freeman, and others who are not wedded to neoliberal economic orthodoxy.
Is that good enough for you?
