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Have I done that? I look sat taxation and the budget. And of course there a lot of countries with a balanced budget and account deficits. Like the US in 2000.
by IM on Sun Aug 14th, 2011 at 11:48:18 AM EST
[ Parent ]
Have I done that? I look sat taxation and the budget.

Uh, yeah. That's what you're doing wrong. If you want to argue that the Irish government should tax and spend more, then that's a perfectly valid argument. They should.

But if you want to argue that the Irish government should tax more without spending more, then you need to explain where that money is gonna come from. 'Cause the Irish private sector does not have any right now.

I guess the fallacy of composition isn't just for neoclassicals anymore.

And of course there a lot of countries with a balanced budget and account deficits. Like the US in 2000.

And that worked out so well for them.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Aug 14th, 2011 at 12:02:15 PM EST
[ Parent ]
Of course it does. That is why the level of taxation is low. In you logic taxes as a proportion of gdp can never rise.

And I did I say anything about raising taxes now?
Clinton, because you want to talk more about the example, did raise taxes in 1994. Conservatives  - and now you - predicted ruin. And?

truism like that private sector and public sector compose the economy don't change anything.

by IM on Sun Aug 14th, 2011 at 01:14:54 PM EST
[ Parent ]
Of course it does. That is why the level of taxation is low. In you logic taxes as a proportion of gdp can never rise.

Of course it can. What can not (sustainably) rise above a certain level is the sovereign's surplus as a fraction of GDP. Because the sovereign's surplus is limited by the rate of real capital investment plus net foreign inflows.

And I did I say anything about raising taxes now?

Um, if you want to make plans for ten or twenty years down the road (depending on how soon we stop this Austerity bullshit and start printing money in unlimited amounts to fund countercyclical spending) when this depression is over, then OK, that's a fun game.

But then talking about taxes is playing it backwards: You'll want to talk about what you want the Irish sovereign to do, figure out how much purchasing power you need to drain from the private sector to do it without creating shortages, and then decide upon the distributional profile you would like.

Clinton, because you want to talk more about the example, did raise taxes in 1994. Conservatives  - and now you - predicted ruin. And?

Actually he cut them back again in 1995 (of course those were a different sort of taxes - no points for guessing the overall distributional effect of those two moves), which may be more relevant to the stock bubble.

But anyway, no. The sovereign surplus did not cause the bubble. The bubble caused the sovereign surplus. Taxing the bubble was a perfectly sensible thing to do, but believing that those surpluses were sustainable (or that they should be sustained)... not so much.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Aug 14th, 2011 at 01:44:04 PM EST
[ Parent ]
You mean 1997 (capital gain taxes, of course) And no, in 1194 there was no bubble to tax. Deficits would shrink in the entire nineties from 1994 on.

But you are shifting the goalposts. Of course there is a limit to a government surplus. But that isn't an argument against higher taxes long-term to balance the budget. Furthermore prior to the start of the last crisis some countries - sweden, canada - had a surplus years in a row.

by IM on Sun Aug 14th, 2011 at 02:10:17 PM EST
[ Parent ]
If your economy is growing in nominal terms it will need more high-powered money, unless you want your financial system to become brittle from increasing leverage.

There is precisely one way to inject high-powered money into the economy: Sovereign deficits. So on average over the long run, the sovereign should run deficits.

The fact that you should sometimes run surpluses during the boom part of the business cycle does not change the fact that the sovereign has to be in the red on a cycle-averaged basis, any more than a cold summer disproves global warming.

If you're talking short-run, then attempting to run surpluses is counterindicated at the moment. If you're talking long-run, then surpluses are wrong-headed, full stop.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Aug 14th, 2011 at 02:56:23 PM EST
[ Parent ]
Sigh? Now that is an argument?

What is high-powered money supposed to be?

by IM on Sun Aug 14th, 2011 at 03:50:11 PM EST
[ Parent ]
High-powered money is money that is valid for the settlement of taxes and central bank clearing. Unlike low-powered money, which is valid for the settlement of private debts.

High-powered money is created ex nihilo when the sovereign spends, and destroyed when the sovereign taxes.

Various sorts of low-powered money is created by various sorts of private lending.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Aug 14th, 2011 at 04:15:18 PM EST
[ Parent ]
Wikipedia: the monetary base
(also base money, money base, high-powered money, reserve money, or, in the UK, narrow money) is a term relating to (but not being equivalent to) the money supply (or money stock), the amount of money in the economy. The monetary base is highly liquid money that consists of coins, paper money (both as bank vault cash and as currency circulating in the public), and commercial banks' reserves with the central bank.


Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Aug 14th, 2011 at 04:18:06 PM EST
[ Parent ]
IM:
Furthermore prior to the start of the last crisis some countries - sweden, canada - had a surplus years in a row.

Sweden is running a surplus by means of a trade surplus, sustained by keeping wages from following productivity. It is one way to slowly race the working class to the bottom, but it can not be ran by many contestants at the same time as someone has to have a trade deficit for someone else to have a trade surplus.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES!

by A swedish kind of death on Tue Aug 16th, 2011 at 10:35:29 AM EST
[ Parent ]
[Export to] Mars, bitches!

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue Aug 16th, 2011 at 10:46:58 AM EST
[ Parent ]
And just like in Germany, the main culprits are the labour unions, who accept very low salary increases just because their members have recieved big increases in disposable income due to tax cuts aimed at the middle class. I certainly support these tax cuts, but I don't support our useless labour unions rolling over on their backs. With an union membership rate of 80%, they don't need to do that.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Aug 19th, 2011 at 05:56:48 AM EST
[ Parent ]
I doubt that. They probably accept low wage rises because their leadership's loyalty is more to the party than to its members.

For example former DGB chairman

Dieter Schulte (Gewerkschafter) - Wikipedia

In die Medien kam der Sozialdemokrat Schulte zuletzt im September 2005, als er den IG-Metall-Vorsitzenden Jürgen Peters wegen dessen versteckter Wahlempfehlung für die Linkspartei.PDS in der Hannoverschen Allgemeinen Zeitung angriff. Dort hatte Peters spekuliert, es könne ,,am 18. September eine Mehrheit links von der Mitte geben." Schulte hielt dem entgegen: ,,Peters ist auf einem Irrweg. Gewerkschaften müssen ihre Positionen in die regierungswilligen Parteien tragen, statt eine Gruppe von Versprengten zu unterstützen, die lediglich auf der Hinterbank des Parlaments ideologische Schlachten austragen will. Ich habe erhebliche Zweifel, dass Peters mit diesem Kurs für die Mehrheit der IG Metall sprich

Now leading a party think tank and hating on the Left.

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter

by generic on Fri Aug 19th, 2011 at 06:34:39 AM EST
[ Parent ]
As if on cue: Toxo y Méndez ofrecen más años de moderación salarial (ElPais.com)
Los sindicatos piden por carta a Zapatero medidas para contener beneficios y una regulación temporal de precios
[The leaders of the Communist CCOO union,] Toxo and [Socialist Union UGT] Méndez offer more years of wage restraint
The [two largest] unions in a letter to ZP ast for measures to contain profits and a temporary regulation of prices


Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Fri Aug 19th, 2011 at 06:44:55 AM EST
[ Parent ]
These reminds me of a policy taken by the soc dems here in Sweden back in 1990. All salaries, prices, dividends and so on were frozen. It wasn't very popular or successful back then. But the wage restraint of the responsible labour unions during the crisis made certain sense then, during a national fiscal crisis, austerity, floating exchange rate and an export boom. Today it makes no sense at all... except in the periphery countries which do not have competitive wages compared to either the core or RoW! So I actually applaud periphery labour unions in showing wage restraint. The periphery countries had wage inflation much faster than productivity growth, which taken together with the fixed exchange rate of the euro, is what got us here in the first place.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Aug 19th, 2011 at 11:46:11 AM EST
[ Parent ]
Actually they didn't. They had profit inflation, and the core had wage deflation.

talos dug out some stats on that subject back when.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Aug 19th, 2011 at 11:48:43 AM EST
[ Parent ]
If that's correct, the periphery countries should be able to export themselves out of their problems. Well, they can't.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Aug 19th, 2011 at 11:58:08 AM EST
[ Parent ]
the periphery countries which do not have competitive wages compared to either the core or RoW!

But that is because of competitive wage deflation in the core and the RoW, not because of wage inflation.

Though this begs the question, wage deflation/inflation relative to what?

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Fri Aug 19th, 2011 at 12:05:37 PM EST
[ Parent ]
Relative to productivity, of course.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Aug 19th, 2011 at 12:16:40 PM EST
[ Parent ]
The periphery countries had wage inflation much faster than productivity growth, which taken together with the fixed exchange rate of the euro, is what got us here in the first place.

Um, what got us here in the first place was that the periphery financed its consumption though lending from the core. There was a massive private debt and asset price bubble, not a gross increase in profits and wages in the periphery. And a lot of inflation, with all this debt and asset price money slushing around.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Fri Aug 19th, 2011 at 12:09:00 PM EST
[ Parent ]
Of the three relevant labour unions in Sweden, the two smaller ones are politically independent while the big and strong one is essentially a part of the opposition Social democratic party. Or rather, the social democratic party is more like the political wing of the labour union, LO. So I fail to see why labour unions would feel any loyalty to the current centre-right government. If there is any example of the labour union feeling a greater loyalty to the (soc dem) party than its members, it's in their absurd resistance to the series of tax cuts which have been very profitable to their members. So what they should have done: support the tax cuts, support higher wages. What they did do: oppose tax cuts, oppose higher wages. Brilliant people, really.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Aug 19th, 2011 at 11:42:48 AM EST
[ Parent ]
I see it as NAIRU-policy working. Keep an army of unemployed and make sure to harass them sufficiently and the unions will act to keep their members from being umeployed rather then increased wages. Unions with a minimal unemployment among its members are still good at delivering pay increases. Of course, that is mainly unions for high-qualified personel and thus small unions, like for example the doctors union.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES!
by A swedish kind of death on Fri Aug 19th, 2011 at 05:20:57 PM EST
[ Parent ]
Not ten or twenty years. Three or five. I don't assume a recession lasting ten years or so.

Ant that is not a fun game, but the meat of policy.

by IM on Sun Aug 14th, 2011 at 02:12:46 PM EST
[ Parent ]
Not ten or twenty years. Three or five. I don't assume a recession lasting ten years or so.

Neither did Herbert Hoover.

Ant that is not a fun game, but the meat of policy.

Speculating about what might be ten years down the road is idle diversions when you cannot even be confident that the European Union exists ten years down the road.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Aug 14th, 2011 at 03:01:07 PM EST
[ Parent ]
Did you assume a crisis lasting 4 years, with no end in sight, in August 2007?

If not, it might not be an outlandish stress test to take your 3-5 years and double them. In which case you're looking at possibly 10 years.

Without having to bring up the Great Depression, the 1970s crises also spanned ~10 years.

With the current economic conventional wisdom I can't see how we can avoid at least another 5 years of stagnation.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sun Aug 14th, 2011 at 03:16:56 PM EST
[ Parent ]
Migeru,

So you assume a crisis lasting another ten years, ending in 2021? And as you should know, the seventies, for all the cries about stagflation, were a decade of considerable growth.

Jake,

I do know that in five years or in ten years governments must still be funded and a welfare state will be probably more necessary then now. So your argument there is a crisis so shut up about taxes is not very convincing.
And I don't think europe is doomed, to use an old but forgotten slogan of this blog.

by IM on Sun Aug 14th, 2011 at 03:34:57 PM EST
[ Parent ]
I do know that in five years or in ten years governments must still be funded

No, actually they mustn't.

Taxes do not enable sovereign spending. The sovereign, being sovereign, can spend as much as it likes, when it likes.

Taxes take away purchasing power from the private sector, so that it does not create scarcities, and slows or prevents the concentration of financial wealth with a few oligarchs.

You need taxes because you don't want oligarchs, not because you need them to "fund" government activities.

So your argument there is a crisis so shut up about taxes is not very convincing.

That's not my argument. My argument is that there is a crisis so you should shut up about sovereign surpluses. I am all in favour of taxing more to spend more. I am all in favour of taxing oligarchs to cut them down to size. But I consider it industrial-grade insanity to tax more in a futile attempt to hit a meaningless Grief and Stupidity Pact target based on cargo cult economics.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Aug 14th, 2011 at 03:45:42 PM EST
[ Parent ]
Taxes do not enable sovereign spending. The sovereign, being sovereign, can spend as much as it likes, when it likes.

That is very much a minority position.

And please don't make up my position for me: I never said anything about surpluses. I said balance and that was long-term balance.

by IM on Sun Aug 14th, 2011 at 03:53:36 PM EST
[ Parent ]
The sovereign, being sovereign, can spend as much as it likes, when it likes.

Not in the continent we live in, courtesy of the Maastricht Treaty.

Unless by "the sovereign" you understand the ECB.

We have managed to legislate ourselves into an absurd neoliberal/Austrian nightmare.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sun Aug 14th, 2011 at 04:14:36 PM EST
[ Parent ]
Tell that to Jake.

And of course the ECB is the sovereign. Another part of the european government.

by IM on Sun Aug 14th, 2011 at 04:35:47 PM EST
[ Parent ]
At some point we might stop talking past each other, though that seems unlikely.

What seems clear is that what Jake and I (but not only us) view as structural, political and economic problems, don't seem like really existing problems to you at all. So it is pretty pointless discussing policy at any level. Before we can talk about solutions we'd better agree on what problems we're supposed to be solving.

But from my point of view, the problems that are there cannot actually be solved within the institutional framework the EU has constructed, with the economic conventional wisdom of the people in charge or likely to be in charge (which is, from the point of view of conventional wisdom, pretty much self-perpetuating regardless of who wins elections). The drive to austerity demonstrates this - it's the only politically and institutionally possible policy in the EU right now, and it is already having disastrous consequences.  

Something's got to give, and I'm not sure what it's going to be.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sun Aug 14th, 2011 at 04:46:01 PM EST
[ Parent ]
It would perhaps be a good start if you admit that there are some problems in this world not caused by an particular institution residing in Frankfurt am Main.

And this institution is the ECB, not the Bundesbank.

by IM on Sun Aug 14th, 2011 at 07:14:55 PM EST
[ Parent ]
No, the ECB is not "another part" of the European Government. It is the only European sovereign.
The Eurozone rules, enshrined in the Maastricht Treaty (now part of the Lisbon Treaty), explicitly bar the ECB from giving credit to public entities or buying their bonds. This, quite simply, means the Eurozone member states now operate as local/regional governments under them used to. Lacking funding from a supranational entity since the European Union does not have its own fiscal resources, all states can rely on is their own tax income and they must run balanced budgets like a private firm or a local government in order to retain access to private credit. In the Eurozone, therefore, the State must be run like a private firm. What used to be a political slogan is now the only way to function consistently with the institutional framework. Even the Social Democrats admit it and propagate it.
You don't have to agree, in fact I don't expect you to.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Aug 14th, 2011 at 04:48:12 PM EST
[ Parent ]
How generous.

But as usual your linked blog post (very self-referential) is off topic.

The ECB is a part of the european government; but hardly the only one. There is the commission, the parliament, the council, the court. The ECB is not even the most powerful part: The council is equal in power, the court more powerful.

So if the EU is sovereign and I think it is, the ECB is one aspect of it. Not more or less.

by IM on Sun Aug 14th, 2011 at 06:30:49 PM EST
[ Parent ]
The ECB holds the power of the purse, not the parliaments or the governments, all courtesy of article 123 of the EU treaty.

And in fact, the ECB has on several occasions over the past year threatened to crash the banking systems of entire countries as a way to get neoliberal shock-doctrine reform packages implemented.

But don't take my word for it, just read Stiglitz's latest piece:

The discussions before the crisis illustrated how little had been done to repair economic fundamentals. The European Central Bank's vehement opposition to what is essential to all capitalist economies - the restructuring of failed or insolvent entities' debt - is evidence of the continuing fragility of the Western banking system.

The ECB argued that taxpayers should pick up the entire tab for Greece's bad sovereign debt, for fear that any private-sector involvement (PSI) would trigger a "credit event," which would force large payouts on credit-default swaps (CDSs), possibly fueling further financial turmoil. But, if that is a real fear for the ECB - if it is not merely acting on behalf of private lenders - surely it should have demanded that the banks have more capital.

...

Indeed, the most curious aspect of the ECB's position was its threat not to accept restructured government bonds as collateral if the ratings agencies decided that the restructuring should be classified as a credit event. The whole point of restructuring was to discharge debt and make the remainder more manageable. If the bonds were acceptable as collateral before the restructuring, surely they were safer after the restructuring, and thus equally acceptable.

This episode serves as a reminder that central banks are political institutions, with a political agenda, and that independent central banks tend to be captured (at least "cognitively") by the banks that they are supposed to regulate.



Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Aug 14th, 2011 at 06:52:02 PM EST
[ Parent ]
The ECB is a part of the european government; but hardly the only one. There is the commission, the parliament, the council, the court. The ECB is not even the most powerful part: The council is equal in power, the court more powerful.

The ECB is not subject to oversight from either. Another piece of obvious and manifest insanity that was instituted at the insistence of Helmut Kohl and the BuBa.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Aug 15th, 2011 at 05:28:06 AM EST
[ Parent ]
The ECB like the court is appointed by the national governments. That is a considerable power.

And of course in any legal conflict about the powers of the ECB the court would decide. Don't know if you can call it oversight in a strict sense.

by IM on Mon Aug 15th, 2011 at 08:41:58 PM EST
[ Parent ]
"National governments" is not "the Council."

And the ECBuBa isn't subject to any meaningful oversight from any court of law. Central bank "independence," remember? Will you at least concede that this is a stupid doctrine that needs to be killed dead and exorcised with garlic and holy water?

Sure, if Trichet commits embezzlement or rapes his secretary, he might be prosecuted (or maybe not - bankers have done worse and walked away in recent times). That does not mean that the courts can in any meaningful way provide oversight and policy direction to the ECBuBa (nor should they - that should be Parliament's job, through the Commission).

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Aug 15th, 2011 at 09:03:46 PM EST
[ Parent ]
"National governments" is not "the Council.

Of course they are. Who do you think constitutes the council?

But you got me there: The executive board is indeed appointed by the council, not the governments. They even use qualified majority voting.
(I was thinking of the way the commission and court are appointed)

The rest of the governing council is indeed appointed by national governments, namely the heads of the central banks.

And who can determine the personal of another institution has power over that institution.

And if the ECB is ever in a legal dispute, the European Court of Justice will decide. The court is probably the most powerful european institution and if you don't even know this, you have no business commenting on the EU.

by IM on Mon Aug 15th, 2011 at 09:33:25 PM EST
[ Parent ]
The ECBuBa can never get into any meaningful legal dispute, because its mandate explicitly includes protection from all democratic oversight. Central bank independence, remember?

Again: Will you at least grant that central bank independence is an idiotic doctrine and that the bank should be directly subservient to the Commission, just like every other EU civil service?

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Aug 15th, 2011 at 09:37:41 PM EST
[ Parent ]
a) will you at least grant that the court is more powerful

b) will you at least grant that the ECB is the ECB and not the Bundesbank?

c) will you at least admit that the national governments and the council determine the composition of the governing council of the ECB? Giving the federal republic about as much influence as larger german state had on the Bundesbank?

by IM on Mon Aug 15th, 2011 at 09:47:20 PM EST
[ Parent ]
a) will you at least grant that the court is more powerful

In most policy areas, yes. In economic policy, which is, after all, the area presently under discussion, no. There is no substantial judicial review of ECB policy decisions.

b) will you at least grant that the ECB is the ECB and not the Bundesbank?

De jure, certainly. De facto, I cannot point to a single material difference in policy before the past few days.

c) will you at least admit that the national governments and the council determine the composition of the governing council of the ECB?

Obviously, yes.

Giving the federal republic about as much influence as larger german state had on the Bundesbank?

a) That does not follow from the composition of the board.

b) The BuBa always was a state-within-the-state in Germany, so pointing out that the German government fails to control the BuBa representatives to the ECB board hardly proves that the BuBa is not still a cancerous state-within-the-state.

Now, do you or do you not believe that inflation targeting and central bank independence are moronic policies? Do you or do you not believe that states should be forced to pay interest on their own currency? I'd really like to know if we're even speaking the same language here.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Aug 15th, 2011 at 10:15:36 PM EST
[ Parent ]
Taxes do not enable sovereign spending. The sovereign, being sovereign, can spend as much as it likes, when it likes.

That is very much a minority position.

Not among economists. Although the cargo cultists of the neoclassical tradition (including New "Keynesians" like our friend Bofinger) claim that "unfunded" spending will inevitably lead to inflation. But then, they are the same people who think that everybody can be a net exporter.

And please don't make up my position for me: I never said anything about surpluses. I said balance and that was long-term balance.

That comes to the same thing: Long-term balance implies zero nominal long-run growth in the national asset base. This is very likely to prove unstable under current institutional arrangements. In fact, if the economy grows in real terms it will be deflationary, which is proven beyond any sane doubt to be unstable under present institutional arrangements.

Alternatively, one can imagine sustained growth under a balanced budget scenario. Since the only way to create new money (in the sense that most people understand the term, which is to say high-powered money) is to deficit spend, sustained growth under long-run budget balance means that the volume of government-issued money in the economy will approach zero as time goes on.

We tried that in the 19th century. That experiment is the reason we have central banks these days.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Aug 14th, 2011 at 04:26:24 PM EST
[ Parent ]
Well yes. If you define all other economists, including Bofinger or Krugman as cargo-cultists, leaving only the members of your sect as economists, then you have majority. Furthermore you seem to confuse the national asset stock with the national debt, a central bank with a fiscal deficit, monetary growth with a deficit, and so on. In this cause a balanced budget over the cycle would indeed be wrong, but I don't share your assumptions
by IM on Sun Aug 14th, 2011 at 04:55:03 PM EST
[ Parent ]
By the way, are your positions representative of the German Social Democrats? If so, there's really no hope for a change in Europe's economic direction.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Aug 14th, 2011 at 05:01:39 PM EST
[ Parent ]
Petty.
But you will  be delighted: Most of them are to my right, think like you in nationalistic term, swallow right-wing myths about the evil seventies and like deregulation and low corporate taxes. And don't think much of Bofinger. Just your sort of people.
by IM on Sun Aug 14th, 2011 at 05:13:44 PM EST
[ Parent ]
Alrighty then.

You're very fond of calling other people "nationalistic". Reading your commentary - and your apparently instinctive bristling whenever "Germany" is criticised - it might seem to a reader that you're projecting a little.

by Colman (colman at eurotrib.com) on Sun Aug 14th, 2011 at 05:19:00 PM EST
[ Parent ]
I give up. But perhaps you should think a bit about the fact that there are no german commenters on ET. Just a coincidence? Can't be the small number.

Look, I don't reduce everybody who dissents to a representative of his country or party.

And I don' think the roots of every economic problem in this world are in just one country. And I would be unhappy with permanent bashing of say the US too.

Do you really think our world can explained or hopefully changed by tracing every problem to a small circle in Frankfurt?

by IM on Sun Aug 14th, 2011 at 06:21:24 PM EST
[ Parent ]
Then we're in even deeper shit than I thought.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Aug 14th, 2011 at 05:19:19 PM EST
[ Parent ]
I think there are three different narratives at play in regards to the current crisis:

The dominant one: The crisis is caused by government deficits and must be solved by reducing government spending and raising taxes on the poor. Main problem is feckless poors and southerners.

IM's alternative: The crisis is caused by government deficits and must be solved by raising taxes on the rich.

Jake's & Mig's alternative: The crisis is caused by EMU rules limiting government deficits and must be solved institutional reform to allow deficit spending.

Please correct me if I am wrong when stating the positions, but if I am right paiting either side as collaborating with the right-wing narrative in one is unhelpful.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES!

by A swedish kind of death on Tue Aug 16th, 2011 at 02:14:12 PM EST
[ Parent ]
Close enough for corporate work.

There are two distinct but related problems. The first is that the EU as currently constituted lacks an investor of last resort. The second is that it lacks any means to ensure that internal current accounts imbalances do not become a political problem.

There is a variety of possible reforms that would solve these problems. A European treasury not subject to silly "debt brakes" would solve both problems, but may be politically unpalatable. Repealing the GSP and Art. 123 would solve the investor of last resort problem, but not (necessarily) the current accounts imbalances. A Bancor-type arrangement would solve the internal current accounts problem (or rather, signify political acceptance of the existence of otherwise unsustainable imbalances), but would not solve the problem that the GSP circumscribes the states' ability to perform investor of last resort functions.

Finally, the physical economy of Europe (in particular the periphery) has the problem that thirty years of neoliberal brain rot (twenty in the case of Eastern Europe, but with much weaker countervailing pressures) have rendered large swathes of Europe into a wasteland, industrially speaking.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Aug 16th, 2011 at 02:25:56 PM EST
[ Parent ]
Finally, the physical economy of Europe (in particular the periphery) has the problem that thirty years of neoliberal brain rot (twenty in the case of Eastern Europe, but with much weaker countervailing pressures) have rendered large swathes of Europe into a wasteland, industrially speaking.

Bingo.

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Tue Aug 16th, 2011 at 02:59:29 PM EST
[ Parent ]
But even if that were not the case, the €-Mark, as currently constituted, would not be viable.

Of course, absent neoliberal brain rot, nobody would have thought that a currency union could work without fiscal integration.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Aug 16th, 2011 at 03:43:10 PM EST
[ Parent ]
Of course:

the €-Mark, as currently constituted, would not be viable.

It doesn't matter if the debts are measured in Euros, DMs, Pesos, or the soon to be offered New Mexico Tamale.  If the people who owe the money can't make money to pay it off, they don't have the money to pay it off, thus, they can't pay it off.  

Maybe I'm the dumbest m/f'er on the planet, but this seems Real Simple.  To me.  

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Wed Aug 17th, 2011 at 12:51:33 PM EST
[ Parent ]
Well yes. If you define all other economists, including Bofinger or Krugman as cargo-cultists, leaving only the members of your sect as economists, then you have majority.

That is a quite apt description of what the neoclassicals have been doing.

Incidentally, I never claimed that I had a majority on the issue of whether subsidising private bondholders reduced inflation. I claimed that I was right as a matter of fact.

Furthermore you seem to confuse the national asset stock with the national debt,

Uh, no. What I said is that the quote-unquote "national debt" is the monetary base. If you eliminate the "national debt," you eliminate all state money in the economy. And that would be bad.

monetary growth with a deficit,

The two are the same.

In this cause a balanced budget over the cycle would indeed be wrong, but I don't share your assumptions

Those are not my assumptions, they are how fiat currencies work. Go check the Bank of International Settlements Working Paper 292, p. 19-21 if you don't want to take my word for it.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Aug 14th, 2011 at 05:21:15 PM EST
[ Parent ]
I don't think the debate of bank reserves in the working paper really lends much to your general world view.
by IM on Sun Aug 14th, 2011 at 06:13:36 PM EST
[ Parent ]
Really?

You don't think that the fact that central banks do not create new money - they merely exchange existing money for other forms of money with different term structures - has any bearing on the ability of the central bank to compensate for a total withdrawal of all sovereign money creation?

Did you understand anything in that paper?

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Aug 15th, 2011 at 05:27:19 AM EST
[ Parent ]
Since when did Central Banks not create new money?

They may create fiat currency either in paper or virtual (QE) form opaquely as de facto and unacknowledged agents of Treasuries, but they still do so.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Aug 15th, 2011 at 11:04:24 AM EST
[ Parent ]
Since they are not usually supposed to take equity risk onto their books.

Of course they do it anyway, but that's because they're busy usurping Treasury functions.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Aug 15th, 2011 at 12:42:05 PM EST
[ Parent ]
To be honest, I am not sure that you did understand anything in the paper.
by IM on Mon Aug 15th, 2011 at 09:09:12 PM EST
[ Parent ]
Then let me spell it out for you. This paragraph (emphasis mine):

By the same token, under scheme 2, an expansion of reserves in excess of any requirement does not give banks more resources to expand lending. It only changes the composition of liquid assets of the banking system. Given the very high substitutability between bank reserves and other government assets held for liquidity purposes, the impact can be marginal at best. This is true in both normal and also in stress conditions. Importantly, excess reserves do not represent idle resources nor should they be viewed as somehow undesired by banks (again, recall that our notion of  excess refers to holdings above minimum requirements). When the opportunity cost of excess reserves is zero, either because they are remunerated at the policy rate or the latter reaches the zero lower bound, they simply represent a form of liquid asset for banks.

This paragraph says two things. The first thing it says is that everything Bofinger thinks he knows about banks, banking and money is wrong.

The second, and for the purposes of our discussion, more important, is that the amount of base money in the system is irrelevant to the amount of bank lending, because the central bank always has the option to remunerate excess reserves at the policy rate, or extend rediscount facilities to banks that fail to meet liquidity requirements.

In other words, bank lending is equity constrained, not liquidity constrained. And since the central bank can not provide new equity (unless it is prepared to take equity risk onto its books, something you generally do not want your central bank to do, for a whole host of excellent reasons), the central bank can not affect the volume of lending, except by tightening and relaxing solvency requirements (something you definitely do not want to do).

Absent cash-for-trash programmes by central banks, private sector equity can come from precisely three places, as a matter of simple accounting identity: Private sector physical investment in excess of physical deterioration of the capital plant. A net foreign surplus. And government deficit spending.

Now, unless you wish to postulate that every country can run a foreign surplus (in which case you may want to look into repealing the rules of addition and subtraction), this means that sustainable private sector equity increases are equal to net expansion of capital plant plus sovereign deficit. Give or take maybe half a percent of the GDP of the countries you trade with, as a maximum sustainable trade imbalance.

Running a balanced budget, a responsible central bank rediscount policy, and balanced foreign accounts means that, asymptotically, the private sector's net financial position is zero. That is, the private sector will be unable to save up any high powered money in excess of whatever debt other parts of the private sector may owe the sovereign at any given time.

Why, precisely, is that a good thing?

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Aug 15th, 2011 at 10:05:03 PM EST
[ Parent ]
How exactly does the physical deterioration of the capital plant enter into this? A discount rate? I thought we were talking about nominal values?

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter
by generic on Tue Aug 16th, 2011 at 05:05:42 AM EST
[ Parent ]
Physical deterioration enters into it because private sector equity is equal to the total value of the physical plant, minus the net foreign debt, plus the net public debt.

Absent persistent fiscal deficits and unsustainable foreign positions, the private sector will still have equity (Robinson Crusoe can still stockpile coconuts). It just won't have any net financial position (Robinson Crusoe can't stockpile pound sterling).

Since the private sector usually wants to stockpile financial assets (particularly sovereign financial assets), to provide a cushion against future expenses in the only asset class that is guaranteed by law to cover certain types of expenses, not allowing it to obtain a net financial position is usually Bad.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Aug 16th, 2011 at 05:27:39 AM EST
[ Parent ]
Well yes. If you define all other economists, including Bofinger or Krugman as cargo-cultists, leaving only the members of your sect as economists, then you have majority.

But Krugman is an orthodox economist ~ the New Keynesians add some wrinkles to allow scope for active intervention "in the short run", but once the short run stickness has worked itself out, its the same basic model.

If that long run model is excluded, then all of its users are excluded in terms of their conclusions drawn from that model, irrespective of how much we may like their political views and their views of things when they do not rely on the falsified mainstream model.

And excluding that single model clearly does not limit the balance to a single model. There are a range of post keynesians, institutionalists, structuralists, a selection among radical political economists, general systems economics, and a number of other approaches not excluded by ruling out the repeatedly falsified long term model of the mainstream as being non-scientific due to its adherence to a repeatedly falsified long run model.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Aug 15th, 2011 at 02:26:15 PM EST
[ Parent ]
Although Krugman is usually quite good about not allowing his education indoctrination to get in the way of making more or less sensible policy recommendations.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Aug 15th, 2011 at 03:56:46 PM EST
[ Parent ]
Keep him in the short run, and he's free to make sensible policy recommendations. Stretch it out to the long run, and his model starts interfering. This is where the absurdity of the "intertemporal government budget constraint" enters in.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Aug 15th, 2011 at 04:04:35 PM EST
[ Parent ]
Fortunately for Krugman's ability to accurately describe the world we live in, "the short run" is likely to keep him preoccupied for much of the rest of his career as a public figure.

The rest of us may not find that fact quite so fortunate, but that's hardly Krugman's fault.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Aug 15th, 2011 at 04:34:13 PM EST
[ Parent ]
Are you guys into that MMT/Chartalism stuff?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Aug 16th, 2011 at 02:29:56 AM EST
[ Parent ]
Yes and no.

The MMT'ers are right when they talk about the financial side of things. But I find that they sometimes get so caught up in debunking financial BS that they pay too little attention to the needs of the physical economy.

In particular, a few of them argue that the US' foreign balance is of no particular concern since its import costs are all denominated in US$. I disagree with that position, because the US' foreign balance position means that if other people start demanding hard currency for their stuff, they risk cutting off the flow of goods and services on which the American society depends to be in a state of not-revolution. Since I rather like my society to be in a state of not-revolution, and since I assume that this disposition is shared by most well-fed, reasonably affluent people, knowing that my society's continued being in a state of not-revolution depended on the largess of foreign powers with possibly divergent geopolitical interests...

... would not improve the quality of my sleep.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Aug 16th, 2011 at 05:35:42 AM EST
[ Parent ]
The phrase that Bill Mitchell uses is, "so long as people accept the US dollar, ...", without delving into how long that might be and under what terms.

Which is true as far as it goes, and that is what you want from a theory on an aspect of the economy. After all, the problem with the underlying theory that Krugman uses is that its a closed model independent of money, and so the premise that money is neutral over the long term is built into the underlying logic of the model, entirely immune to falsification by empirical evidence. Grand Theory of Everything economic models have to date ended up being Grand Theory of Nothing In Particular models, running on false equivalences between the terms of the model and the actual phenomena observed in the real world.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Aug 16th, 2011 at 11:21:06 AM EST
[ Parent ]
I don't quarrel with his modeling approach. I just think that when he is formulating policy proposals, he should pay a little more attention to possible scenarios for other people beginning to not accept dollars than I usually see in them.

Of course, I realise that he's busy debunking sky-is-gonna-fall scaremongering about the dollar collapsing due to the sovereign deficit - which is entirely the wrong sort of deficit to cause a dollar collapse. So perhaps it is simply that he does not want to open himself to "gotcha" games by quote miners.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Aug 16th, 2011 at 11:46:16 AM EST
[ Parent ]
... accepting the US dollar. The terms of trade dropping, sure, but a floating exchange rate most commonly melts down when there is substantial debt denominated in foreign currency, and since the US is not in that position, a slide in the exchange rate without a meltdown would ensure that people keep accepting the US$.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Aug 16th, 2011 at 01:12:52 PM EST
[ Parent ]
A sufficiently substantial (and, more to the point, sufficiently rapid) deterioration of the terms of trade would be quite painful enough that you would want to avoid it.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Aug 16th, 2011 at 01:57:13 PM EST
[ Parent ]
How much disruption is caused if the US dollar drops in value, say, by 50% on a trade weighted basis ... and how much disruption is caused if the US$ is not accepted as payment ... are two categorically different questions.

In the latter case, you are talking about 2/3 of US petroleum supply no longer arriving, except on barter terms or by diverting funds from exports that have earned hard currency.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Aug 16th, 2011 at 06:50:26 PM EST
[ Parent ]
Whereas in the former, petroleum prices only go up by something on the order of 100 %.

Which couldn't possibly cause riots.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Aug 17th, 2011 at 04:03:55 AM EST
[ Parent ]
Precisely. We've had gas prices double several time in the past forty years, and it never caused widespread rioting. Recessions, sure, but not riots.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Wed Aug 17th, 2011 at 07:00:22 AM EST
[ Parent ]
Re: stagflation

If you're comfortable with "jobless recoveries" then you can have "considerable economic growth" while a large number of people experience considerable economic pain. Stagflation was not about stagnation in economic growth but about high inflation with high unemployment.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sun Aug 14th, 2011 at 04:21:02 PM EST
[ Parent ]
I am not sure, but wasn't unemployment too lower in the seventies compared to the eighties? Wasn't the term jobless recovery invented in 1991?
Anyway there was no permanent ten year crisis in the seventies.
by IM on Sun Aug 14th, 2011 at 04:46:06 PM EST
[ Parent ]
I am not sure, but wasn't unemployment too lower in the seventies compared to the eighties?

Yes. The great victory of the neoliberal brain rot was to first make the permanent crisis worse, and then redefine the permanent crisis to be normal.

Wasn't the term jobless recovery invented in 1991?

Correct. Prior to that the same phenomenon had been know as a "growth recession."

Anyway there was no permanent ten year crisis in the seventies.

Time series of oil prices, interest rates and unemployment disagree.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Aug 14th, 2011 at 04:54:27 PM EST
[ Parent ]
The great victory of the neoliberal brain rot was to first make the permanent crisis worse, and then redefine the permanent crisis to be normal.

Just like all the serious people talk about the "Great Recession" and nobody laughs in their faces.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sun Aug 14th, 2011 at 05:10:35 PM EST
[ Parent ]
Yes, my baseline scenario right now is the "Great Depression of the 2010s".

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Sun Aug 14th, 2011 at 04:21:51 PM EST
[ Parent ]
Which means the private sector is in net debt. Is that somehow more virtuous than public debt?

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter
by generic on Sun Aug 14th, 2011 at 12:24:49 PM EST
[ Parent ]
No. Do you think the public sector should never be balanced or in surplus?
by IM on Sun Aug 14th, 2011 at 01:18:41 PM EST
[ Parent ]
Long-run? Only if your economy is on a stagnant or negative nominal growth path. In a nominally growing economy, the sovereign should run moderate cycle-averaged deficits to accommodate the private sector's need for sovereign securities.

Short-run? Obviously, during a bubble you should tax until the bubble stops. Which means that you may be running a surplus for a while. But if you have bubbles on a regular basis then You're Doing It Wrong.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Aug 14th, 2011 at 01:51:53 PM EST
[ Parent ]

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