March 8 Open Thread | 49 comments (48 topical, 1 editorial, 0 hidden)

http://www.newsneconomics.com/2008/06/about-nontuths.html

Yesterday I argued that Latvia's cost-cutting efforts are evident compared to a cross-section of European Union countries. Latvia's efforts, while commendable, were very much a function of the emergency IMF loan in December 2008 and the ensuing recession in 2009.
After an email exchange with Marshall Auerback, and thinking more about the cross-section of Europe, I now see a very scary trend emerging across Europe: the fight for exports.
...
Latvia's model: drop wages to increase export income. Greece: drop wages to increase export income. France, Germany, Spain, Portugal, etc., etc. It's impossible that the whole of the Eurozone will drop wages to increase export income. It's especially bad for countries like Latvia or Hungary, where the lion's-share of trade occurs withing the boundaries of Europe.
And what happens when export income does not provide the impetus for aggregate demand growth? Well, there's not much left. Can't devalue the currency (via printing money), and tax revenues will fall faster than a ten-pound weight: rising deficits; rising debt; rising debt service (via surging credit spreads). Sovereign default seems like a near-certainty somewhere in the Eurozone!

by Metatone (metatone [a|t] gmail (dot) com) on Mon Mar 8th, 2010 at 03:25:57 PM EST

Re: March 8 Open Thread (none / 0)

Oops wrong link:

http://www.newsneconomics.com/2010/03/end-game-for-europe-wage-cutting-and.html

by Metatone (metatone [a|t] gmail (dot) com) on Mon Mar 8th, 2010 at 03:26:46 PM EST
[ Parent ]

Re: March 8 Open Thread (4.00 / 6)

Hmmm.......

So the problem is that labor is too expensive, ergo those lazy bums that work on the line want to much money! It's envy I tell you.

And of course, it's absolutely not the case that the problem is that this fixation on cheap labor has stopped capital investments that could increase productivity.

That we ask them to make bricks without hay only shows that they are lazy, and undeserving of the bread and water we give them. Of course, it's not that we are causing the problem because we're trying to pump up our profits by asking workers the impossible. Because that would suggest that we are engaging in precisely the type of socially harmful rent-seeking behavior that we say that workers asking for a raise are doing. If this were true, our wealth would only come at a cost to society as a whole.

But, no. We are the innovators! If we go on strike, civilization collapses. We are the creators of value. (Note to self, must invent robot slaves.)

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Mon Mar 8th, 2010 at 04:03:26 PM EST
[ Parent ]

Re: March 8 Open Thread (4.00 / 7)

Why are low wages considered incentives for the poor, but not for the rich ? Am I missing something ?

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Mon Mar 8th, 2010 at 04:10:07 PM EST
[ Parent ]

Re: March 8 Open Thread (none / 1)

A damned good question, but we both damned well know the answer.

Do as I say, not as a do. The oldest rule in the book for people who want to stay in power when they can't get their shit together, let alone everyone elses.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Mon Mar 8th, 2010 at 04:22:25 PM EST
[ Parent ]

Re: March 8 Open Thread (none / 0)

Adam Smith has a pithy section on that. In brief, Smith's thesis is that the conditions that encourage low wages also encourage docile and servile workers. Which enhances the boss' power, though not necessarily his revenue. Bosses being the ones who make pronouncements on the state of business... well, you do the math.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Mar 8th, 2010 at 05:52:35 PM EST
[ Parent ]

Re: March 8 Open Thread (4.00 / 9)

Did someone mention robot slaves?

you are the media you consume.

by MillMan (millguy at gmail) on Mon Mar 8th, 2010 at 04:34:35 PM EST
[ Parent ]

Re: March 8 Open Thread (none / 0)

Hee heee

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Mon Mar 8th, 2010 at 04:41:41 PM EST
[ Parent ]

Re: March 8 Open Thread (none / 0)

Precisely!

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Mon Mar 8th, 2010 at 04:48:16 PM EST
[ Parent ]

Re: March 8 Open Thread (none / 0)

What would a eurozone-wide sovereign default look like?

by nanne (zwaerdenmaecker@gmail.com) on Mon Mar 8th, 2010 at 04:45:46 PM EST
[ Parent ]

Re: March 8 Open Thread (none / 0)

Gory. 80 million German heads would explode.

More seriously, it depends very much on how targeted it is. If you simply walk away from all sovereign bonds and let the chips fall where they may, then there's a realistic possibility that you'll break the global monetary system. And even if you don't, the hysterical children on the capital markets almost certainly would.

A more targeted default... that's a different kettle of fish, and depends very much on how you do it, how you justify it and how many of the hysterical children you manage to put out of business in the first blow.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Mar 8th, 2010 at 05:58:29 PM EST
[ Parent ]

Re: March 8 Open Thread (4.00 / 3)

JakeS:

there's a realistic possibility that you'll break the global monetary system.

Again.

How can you break something that already belongs in an asylum? I suppose you could have an extended period of Extreme Bad while something better had the chance to organise itself.

But I still think controlled demolition followed by a rewrite of the rules is the best way to avoid future crises.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Mar 8th, 2010 at 07:06:47 PM EST
[ Parent ]

Re: March 8 Open Thread (none / 0)

Without that extreme bad theres no incentive to do any better at all.

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Tue Mar 9th, 2010 at 06:51:39 AM EST
[ Parent ]

Re: March 8 Open Thread (none / 0)

Not "break the monetary system" as in "causing a prolonged depression."

I meant "break the monetary system" as in "causing wheat to not be shipped from Ukraine because the seller doesn't trust the buyer's escrow service."

Having the largest (and arguably most trusted) GDP on the planet simply walk away from its sovereign debt overnight is not "controlled" in any version of the English language with which my thesaurus is familiar.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Mar 10th, 2010 at 06:26:07 AM EST
[ Parent ]

Re: March 8 Open Thread (none / 1)

That's why, to answer nanne's original question, "an Eurozone sovereign default" is more likely to "look like" internal Euro inflation and external Euro devaluation.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Wed Mar 10th, 2010 at 06:34:26 AM EST
[ Parent ]

Re: March 8 Open Thread (none / 0)

That would not be easy on the countries who have debt denominated in other currencies.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Mar 10th, 2010 at 06:51:08 AM EST
[ Parent ]

Re: March 8 Open Thread (none / 1)

It depends on whether you understand "broken" as "not working as advertised" or "not working at all".

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Wed Mar 10th, 2010 at 06:35:15 AM EST
[ Parent ]

Re: March 8 Open Thread (4.00 / 2)

Or how optimistic you are about the overall stability of the system.

People still seem to think the system is not just workable, but almost the best of all possible worlds - even though it explodes regularly, with increasing oscillations.

I think that's quite an unusual point of view.

Wheat continues to be shipped from the Ukraine for the moment, but that's not a consolation if you're one of the long term unemployed in the US, or about to become one of the long term unemployed in Greece.

Politics aside, the most pressing criticism of the system is that it simply doesn't work for many people, and is close to not working for anyone.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Mar 10th, 2010 at 07:02:02 AM EST
[ Parent ]

Re: March 8 Open Thread (none / 1)

I don't entertain any illusions as to the stability of the current system, under the current management.

However, as much as the "nuke and pave" solution appeals to the part of my brain that's schooled in engineering, there is an appalling number of things that could go Seriously Wrong with that strategy.

And if you're in a political position to prevent disastrous fallout, you are also in a position to engineer a new system without having to nuke and pave.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Mar 15th, 2010 at 07:41:42 PM EST
[ Parent ]

March 8 Open Thread | 49 comments (48 topical, 1 editorial, 0 hidden)

Top Diaries

Newspeak to English pocket dictionary

Quantifying Utopia: A UBI Calculator for the USA

A Nomad's Life (A Farewell)

Standing on the Shoulders of Giants - Europe and the Mongol...

Simple Solar Principles

Rail News Blogging #24

Ferguson hates on Keynes

The Brussels Consensus: economic disaster in EU candidate...

Recent Diaries

Simple Solar Principles

Quantifying Utopia: A UBI Calculator for the USA

Newspeak to English pocket dictionary

Standing on the Shoulders of Giants - Europe and the Mongol...

Rail News Blogging #24

A Nomad's Life (A Farewell)

The Brussels Consensus: economic disaster in EU candidate...

Origins of German Neo-Austerianism

Ferguson hates on Keynes

Dionysian revels: Nice, May Day 2013:

Anglo Or Not, It's A Disease

The UK and the Euro

Free Energy: Solar and Dynamo LED Keychain Lights

Kruganomics 101

Gold

Corporate Profits and Aggregate Demand

VC Investment: Then and Now

An Ambush of Wishful thinking and Cargo Cult law.

The Intellectual Foundations of Austerity destroyed

Spring is Sprung - Photoblog

Occasional Series