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LQD: How Depressingly Right We Have Been

by afew Fri Oct 31st, 2014 at 09:15:10 AM EST

Anatole Kaletsky blogs on Reuters:

The takeaway from six years of economic troubles? Keynes was right.

Now that the Federal Reserve has brought its program of quantitative easing to a successful conclusion, while the French and German governments have ended their shadow-boxing over European budget "rules," macroeconomic policy all over the world is entering a period of unusual stability and predictability. Rightly or wrongly, the main advanced economies have reached a settled view on their economic policy choices and are very unlikely to change these in the year or two ahead, whether they succeed or fail. It therefore seems appropriate to consider what we can learn from all the policy experiments conducted around the world since the 2008 crisis.

The main lesson is that government decisions on taxes and public spending have turned out to be more important as drivers of economic activity than the monetary experiments with zero interest rates and quantitative easing that have dominated media and market attention. Fiscal decisions on budget deficits, taxes and public spending have mostly been debated as if they were largely political choices, with much less influence than monetary policy on macroeconomic outcomes such as inflation, growth and employment. Yet the reality has turned out to be the opposite.

Read and discuss.


Display:
The takeaway from six years of economic troubles? Keynes was right.
Thus the six years since 2008 have provided strong empirical support for the supposedly outmoded Keynesian view that government borrowing is more powerful than monetary policy in stimulating severely depressed economies and pulling them out of recession. In a sense, it is odd that the power of fiscal policy has come as a surprise - or that it continues to be categorically denied by the German government and the U.S. Tea Party. The underlying reason why fiscal policy is so important in recessions, and has now come to dominate over monetary policy, is a matter of simple arithmetic that should not be open to debate.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Oct 31st, 2014 at 09:14:45 AM EST
The problem is that elites on the right see any rehabilitation of Keynes as a direct threat to the present purchased consensus around 'Mainstream Economics' and political attitudes about the role of governments in societies. And that consensus constitutes a large part of their support for their current capitalization. Expect them to be willing to kill to preserve that consensus.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Oct 31st, 2014 at 09:57:48 AM EST
[ Parent ]
And Kaletsky is only talking about Keynes being right about fiscal stimulus, not even the euthanasia of the rentier (about which Keynes was right, too).

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Oct 31st, 2014 at 11:51:06 AM EST
[ Parent ]
What is there to be said any more?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Oct 31st, 2014 at 10:38:09 AM EST
Yeah, I know.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Oct 31st, 2014 at 11:37:25 AM EST
[ Parent ]
the French and German governments have ended their shadow-boxing over European budget "rules,"
and the Germans have won, and the Eurozoner is not part of Kaletsky's new "consensus" on fiscal policy.

Willem Buiter: Four rescue measures for stagnant eurozone (FT.com)

... The first is a proper AQR and stress test followed by a speedy recapitalisation of the capital-deficient banks and a wave of consolidation in the eurozone banking sector to bring higher profitability, and efficiency, to a banking sector with too many undersized banks. ...

The second measure is a temporary fiscal stimulus (say 1 per cent of eurozone GDP per year for two years, concentrated in the countries with the largest output gaps, that is, in the periphery), which is permanently funded and monetised by the ECB. To make the mechanics of this helicopter money drop more transparent, the ECB could cancel the sovereign debt it purchases. This third measure would be economically equivalent to buying and holding the debt forever (rolling it over as it matures), but rather more dramatic. ...

Finally, to achieve debt sustainability for the eurozone sovereigns, radical supply side reforms are required that boost the growth rate of potential output to at least 1.5 per cent in Italy, Portugal and other sclerotic countries.

To continue to be rightly depressed:
The eurozone's `no monetary financing of sovereigns' fetish hamstrings the ECB. The instinctive anti-Keynesianism of the Teutonic fringe emasculates countercyclical fiscal policy. Domestic political paralysis inhibits structural reform. The AQR stress test was a fudge. Good luck, eurozone.


A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Oct 31st, 2014 at 10:42:52 AM EST
REcently I found this interview with Hans Werner Sinn where he claims


 The Japanese have not cleaned the balance sheets of their banks, they have always brought new credit to repay the old credit, they didn't allow for the bankruptcies to happen. So Schumpeterian types of cleaning solutions were not chosen, and they couldn't get the economy going again.

So Schumpeter again. After Schumpeter destroyed the Weimar republic his disciples will destroy the EU.

Schumpeters claim that in a crisis you need to crush as much companies as possible, such that afterwards only the fittest would remain has been proven to be total bullshit one more. If it would make any sense the Greek economy should now grow like crazy after contracting (nominally) by 40%.

by rz on Fri Oct 31st, 2014 at 11:02:01 AM EST
[ Parent ]
It is not surprising Hans Werner Sinn would argue against solutions that would put his bank out of operation. It is not indebted but productive companies that should be put out of business, but the holders and creators of counterfeit debt. In Sinn's case these would likely be one and the same.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Oct 31st, 2014 at 11:18:25 AM EST
[ Parent ]
Sinn has a bank?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Oct 31st, 2014 at 11:27:49 AM EST
[ Parent ]
Maybe he meant the bank where Hans Werner keeps his money?

Anyway: It is in fact the case that Hans and his ilk want to let banks go bankrupt! Think about it. Right now things are bad, but how would the situation be if we had a couple of bank runs?

by rz on Fri Oct 31st, 2014 at 11:36:25 AM EST
[ Parent ]
Creative destruction, yay!
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Oct 31st, 2014 at 11:38:41 AM EST
[ Parent ]
Creative destruction is for the free market radicals what the revolution was for the communists. The mythical event where all that is wrong with the current world is wiped away and from the ashes a new better humankind rises.
by rz on Fri Oct 31st, 2014 at 11:43:28 AM EST
[ Parent ]
Sounds like the end of WWII.

OR...

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Oct 31st, 2014 at 12:11:23 PM EST
[ Parent ]
Doesn't Hans Werner keep his money in the form of gold ingots under his mattress?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Oct 31st, 2014 at 11:49:13 AM EST
[ Parent ]
Most probably.

I mean his fews on sound national investment policy is that all Germans should bring there cash to the Kanzleramt and stuff it into the mattress of Angela Merkel.

But more seriously: In read an interview with Hans Werner Sinn from 2009 where he pointed out that in fact there is no serious risk of inflation, but instead a serious risk on an Japan style deflationary trap. Yet, then he went on and advocated tirelessly for the last 5 years for policies that would push us ever deeper into exactly this trap!!

by rz on Fri Oct 31st, 2014 at 11:54:33 AM EST
[ Parent ]
It is likely a gross abuse of Schumpeter to imply that he would advocate turning up the dial on 'creative destruction' during a banking crisis. His view would more likely be that necessary steps should be taken and that the resolution of bad banks should take place when the situation had stabilized. He was one of the major influences Perry Mehrling cited for his own development and Perry would certainly never take such a view. The problem comes when sociopathic neo-liberals seize on his work to justify more looting.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Oct 31st, 2014 at 03:34:46 PM EST
[ Parent ]
I only know Schumpeters Ideas from secondary sources. However, I recently found that he was cited in the German Wikipedia article on Deflationspolitik.

There it says

Joseph Schumpeter veröffentlichte im März 1929 in der Zeitschrift Der Deutsche Volkswirt einen Aufsatz, in dem er erklärte, dass sich Deutschland wegen einer angeblich zu hohen Lohnpolitik und der Sozialpolitik in einer Depression befindet, die durch eine Mischung aus Lohn- und Preissenkungen sowie Austeritätspolitik bekämpft werden sollte. Dies war exakt das Konzept der Deflationspolitik Brünings.[6] Friedrich August von Hayek empfahl damals (auch den Vereinigten Staaten) eine Deflationspolitik, um die Lohnrigidität zu brechen.

Short Translation; Joseph Schumpeter recommended a policy of slashing wages and austerity (sounds familiar?) to fight the great depression in Germany.

The article also states that the general philosophy (not necessary directly related to Schumpeter) was

Die aus der Deflation entstehende Depression sei heilsam, gerade weil ,,untüchtige" Betriebe beseitigt würden.

Translation: The Depression was a good thing, because it would crush 'unfit' companies.

Now this does not specify banks. But clearly, the concept of creative destruction was right there and it was considered to be of particular importance during a depressed economic state.

by rz on Sat Nov 1st, 2014 at 10:01:45 AM EST
[ Parent ]
>Translation: The Depression was a good thing, because it would crush 'unfit' companies.<

Creative destruction is the core of his thinking. And in in discussions in the UK about demand stimulus to fight the great depression he ahd the same position: Nothing could be done.

by IM on Sat Nov 1st, 2014 at 10:44:00 AM EST
[ Parent ]
If anyone is left to write the history of this period, the way that individuals who were clearly delusional at best were able to define policy will fascinate future historians.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat Nov 1st, 2014 at 01:38:27 PM EST
[ Parent ]
You may well be right. I am certainly no expert on Schumpeter.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Nov 1st, 2014 at 11:06:43 AM EST
[ Parent ]
Schumpeter was another fool who thought the prolonged depression after The Panic of 1873 had nothing to do with hard money policies.
by rifek on Sat Nov 8th, 2014 at 09:44:46 PM EST
[ Parent ]
I misremembered and thought he was an official at a bank.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Oct 31st, 2014 at 03:08:19 PM EST
[ Parent ]
YOu must have mistaken Hans Werner (Un)Sinn for Axel Weber or Jürgen Stark (raving mad).

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Nov 1st, 2014 at 11:22:37 AM EST
[ Parent ]
Which is no shame. Just a few weeks ago Jürgen Stark and Hans Werner came together for a press conference about Hans Werners new book: Gefangen im Euro (Trapped by the Euro).
by rz on Sat Nov 1st, 2014 at 11:38:03 AM EST
[ Parent ]
Why don't they try getting Un-Gefangen and give us all a break?
by afew (afew(a in a circle)eurotrib_dot_com) on Sat Nov 1st, 2014 at 01:17:49 PM EST
[ Parent ]
Because they want to have their cake and eat it, too. IOW, they don't want Garmany's massive accumulated holdings of Euro-denominated foreign debt to devalue ralative to the new DM.

Remember Germany's current account surplus continues to accelerate:



A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sun Nov 2nd, 2014 at 03:38:34 AM EST
[ Parent ]
Yeah, I thought he was another bank official/economist.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Nov 1st, 2014 at 09:45:32 PM EST
[ Parent ]


A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Oct 31st, 2014 at 11:24:20 AM EST
[ Parent ]
Why is there a question mark?

He should say:
Japan shows that you can monetize debt for years with no adverse consequences!

by rz on Fri Oct 31st, 2014 at 11:37:12 AM EST
[ Parent ]
Ok, maybe my exclamation mark is a bit overdone.
by rz on Fri Oct 31st, 2014 at 11:38:20 AM EST
[ Parent ]
He's expressing his monetarist disbelief.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Oct 31st, 2014 at 11:48:20 AM EST
[ Parent ]
Schumpeter is alive and well in the Elysée
Hollande drops Keynes in favour of Schumpeter

Nicolas Sarkozy's Socialst challenger Francois Hollande will today unveil his economic proposals. According to Le Monde there are several circles of economists who have elaborated Hollande's economic policy proposals. Among the dominating figures are Harvard economist Philippe Aghion, Bruegel director Jean Pisani-Ferry, industrial policy specialist Elie Cohen and social policy expert Gilbert Cette, the paper reports. ,,The Socialists are today engaged in the transformation the Social Democrats in Scandinavia have already gone through several years ago", Les Echos quotes Aghion. ,,The Keynesian model of of relaunching consumption would today aggravate our external deficit. Our thinking is now much closer to Schumpeter who emphasizes the role of innovation for growth in the medium to long term."

(26 January 2012)

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Nov 1st, 2014 at 11:25:46 AM EST
[ Parent ]
And don't forget Jean-Baptiste "Supply side" Say earlier this year:

Supply-Side Hollande - WSJ

"We need to produce more, and better," Mr. Hollande told his country last month, while announcing plans to cut payroll taxes and rein in public spending. He added: "Action is therefore needed on supply. Yes, supply! This is not contradictory with demand. Supply even creates demand." Who knew Jean-Baptiste Say was French?

The Assimilation of François Hollande is Complete | Benjamin Studebaker

If the French thought their 2012 election of socialist François Hollande over former president Nicolas Sarkozy meant that they would have their Keynes and avoid austerity, they have been proven fatally wrong. Hollande has just announced plans for a €50 billion austerity package, a cut of 4% of France's GDP. He has promised to cut taxes on businesses by €30 billion, but this will come in the form of the elimination of a requirement that French businesses fund a family welfare program.

[...]

What is Sarkozy Hollande's argument? He makes appeal to Say's Law:

The time has come to solve the main problem of France: production. Yes, I said production. We have to produce more. We have to produce better. So it is on supply that we must act. On supply! It is not contradictory with demand. Supply creates demand.

Emphasis Added.

by Bernard on Sat Nov 1st, 2014 at 12:54:52 PM EST
[ Parent ]
So, why did this happen?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sun Nov 2nd, 2014 at 03:32:57 AM EST
[ Parent ]
The Socialists have always wanted to be recognized as Serious PeopleTM and this is the gospel Serious PeopleTM do profess.
by Bernard on Sun Nov 2nd, 2014 at 03:40:12 AM EST
[ Parent ]
Then we truly are fucked because the Socialists did the same in the 1930s.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sun Nov 2nd, 2014 at 03:49:08 AM EST
[ Parent ]
Hollande: France's answer to Tony Blair and Bill Clinton.
by rifek on Sat Nov 8th, 2014 at 09:31:14 PM EST
[ Parent ]
Merkel is nothing but a useful idiot for Sinn and his ilk.  She will never learn she can't run the country like her kitchen, and the Ueberklass doesn't want her to learn.
by rifek on Sat Nov 8th, 2014 at 09:28:53 PM EST
[ Parent ]
So, he wants to shrink the balances of a lot of banks and:

"Finally, to achieve debt sustainability for the eurozone sovereigns, radical supply side reforms are required that boost the growth rate of potential output to at least 1.5 per cent in Italy,"

so that doesn't sound that supply side to me.

 

by IM on Sun Nov 2nd, 2014 at 03:23:26 AM EST
[ Parent ]
The only way to realize Buiter's policy proposals is massive public investment monetised by the ECB. That's why he ends his article with "good luck, Eurozone".

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sun Nov 2nd, 2014 at 03:51:02 AM EST
[ Parent ]
If there is some need for modesty, must think about how depressingly wrong we might have been regarding the EU.
by cagatacos on Fri Oct 31st, 2014 at 02:36:37 PM EST
Touché
by rz on Fri Oct 31st, 2014 at 03:29:43 PM EST
[ Parent ]
Wynne Godley's Maastricht and All That is a constant reminder of just how wrong I was about the EU in 1992.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sat Nov 1st, 2014 at 11:32:32 AM EST
[ Parent ]
In particular on the macroeconomics.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sun Nov 2nd, 2014 at 03:51:35 AM EST
[ Parent ]
Depressingly right is a reference, basically, to Keynes v Austerity.

Depressingly wrong: I had no idea, before the financial crisis, of what a destructive device the single currency could be, and of what a horror France and Germany had created by binding everyone together by the currency supposedly in the interests of ever-closer union. Now I know.

It's probably no more than an expression of "leaning", or an emotional stance, but I'm still a federalist. That is, I think we're better together than each one to his own. However, what I once considered as something that would by and large end up as some form of federation, I now see as in all likelihood doomed. I could say, "I won't see it, but some day it will happen because it must". But there's no inevitability in history, or at least, it's an overrated notion.

I'm sad about this, because I feel more European than (insert whatever nationality). But I'd better get used to it. After all, I feel more human than (insert whatever nationality), and look what a fuck-up the whole world is.

by afew (afew(a in a circle)eurotrib_dot_com) on Sat Nov 1st, 2014 at 01:11:40 PM EST
[ Parent ]
That's because the Euro isn't a single currency - it's an excuse to force neo-liberal ideas about competition and 'reform' onto nation states.

It's a neo-liberal Trojan Horse - the exact opposite of the expression of pan-European popular solidarity it could have been, and some us (naively) hoped it would become.

The problem isn't the concept of a single currency, but the fact that its implementation was left to a nomenklatura of Wall St-inspired rapists and headbangers.

The latter are the problem, and progress will be impossible until they're swept from power.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sat Nov 1st, 2014 at 01:43:48 PM EST
[ Parent ]
I don't think people like Jacques Delors were motivated by neoliberal conspiracies to force competition and "reform" on nation states (which is not to deny the existence of would-be such conspirators, or that economic liberals were not in favour of the single currency). And I'm far from agreeing with you that "its implementation was left to a nomenklatura of Wall St-inspired rapists and headbangers". That description doesn't correspond to what I see of delusory French and pig-headed German elites, in 1992 or now.

As for "the concept of a single currency", the fact is more that the area concerned didn't (doesn't) correspond to requirements, and it's rather difficult to conceive of a large area that does, absent a couple of centuries and a civil war to settle things down.

I certainly agree that, now the failure of the experiment is patent, the big money-financed noise machine (in and out of public view) keeps up the beat in favour of destruction aka "reform". All we are doing here is registering the increasing number of those who speak out in the opposite direction, but the Serious™ people aren't listening.

by afew (afew(a in a circle)eurotrib_dot_com) on Sat Nov 1st, 2014 at 04:05:03 PM EST
[ Parent ]
afew:
I don't think people like Jacques Delors were motivated by neoliberal conspiracies to force competition and "reform" on nation states (which is not to deny the existence of would-be such conspirators, or that economic liberals were not in favour of the single currency).

Which reminds me of the Shock Doctrine and how the economic structure of South Africa after apartheid was written by a select few while the great number of people (including most of ANCs leadership) were busy with what seamed as the great questions of democracy.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sat Nov 1st, 2014 at 04:29:48 PM EST
[ Parent ]
I have a job relating the quasi-fascist, ultra-colonialist, resource-rich South Africa at the end of apartheid with Europe in 1992.
by afew (afew(a in a circle)eurotrib_dot_com) on Sat Nov 1st, 2014 at 04:46:39 PM EST
[ Parent ]
The two do not have to be equated for the comparison to fit.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Nov 1st, 2014 at 09:52:20 PM EST
[ Parent ]
Depends on how loosely one likes to think.
by afew (afew(a in a circle)eurotrib_dot_com) on Sun Nov 2nd, 2014 at 01:44:02 AM EST
[ Parent ]
It seems to me that, everywhere we have private banking, when it is time to make serious constitutional decisions, the economic structures and arrangements are usually decided by those with expertise in these subjects and to their benefit.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Nov 2nd, 2014 at 11:44:12 AM EST
[ Parent ]
Hm, ok.

I see a general pattern where you have politicians stuck in a business-as-usual frame, who produce complicated systems of economic regulations that just happens to be neoliberal dogma. The politicians may not mean to legislate neoliberal dogma into law, the politicians may be stuck in some other frame. But then as the pieces fall into place the system gets set into neoliberalism.

So if Delors et al did not mean for it to be neoliberal trap, then who wrote the damn thing? If it is similar to the examples in South Africa, Latin America and East Europe that the Shock Doctrine covers some economists with ties to the Chicago school are likely to have delivered it in some form. "You need a currency union? Here we have one, made just for you! Lots of boring details here that you don't need to know, what you need to decide is what to call it and what symbols to use."

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sun Nov 2nd, 2014 at 02:27:28 PM EST
[ Parent ]
After 1980 the consensus of the economic profession was "neoliberal".

Joseph Stiglitz in Globalization and its Discontents has an interesting description of how the IMF and World Bank gor gradually purged of their old Keynesian staff and replaced it with the "Washington Consensus" we know and love.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sun Nov 2nd, 2014 at 04:59:35 PM EST
[ Parent ]
I don't think people like Jacques Delors were motivated by neoliberal conspiracies to force competition and "reform" on nation states (which is not to deny the existence of would-be such conspirators, or that economic liberals were not in favour of the single currency).
It's not a conspiracy, it's a Zeitgeist.
And I'm far from agreeing with you that "its implementation was left to a nomenklatura of Wall St-inspired rapists and headbangers". That description doesn't correspond to what I see of delusory French and pig-headed German elites, in 1992 or now.
Let's see who has been in charge:
  • 1993-1994 Delors III
  • 1995-1999 Santer Commission
  • 1999-2004 Prodi
  • 2004-2009 Barroso I
  • 2009-2014 Barroso II

The problem reall has been that in 2009, with the crisis already under way, Merkel decided a puppet at the Commission was a good thing. Things started to go pear-shaped at the turn of 2010 with the mishandling of the Greek crisis.
As for "the concept of a single currency", the fact is more that the area concerned didn't (doesn't) correspond to requirements, and it's rather difficult to conceive of a large area that does, absent a couple of centuries and a civil war to settle things down.
Forget about Mundell-Fleming "optimal currency areas". What you need is 10% of GDP in a federal budget, and commensurate fiscal transfers (say, a 10x expansion of cohesion funds). A country such as Germany with a current account surplus of 7% should be transferring 4% of its GDP.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sun Nov 2nd, 2014 at 03:48:03 AM EST
[ Parent ]
Have you actually read the economic conditions set out in Maastricht?

The social chapter, such as it is, seems to have been added as a CYA afterthought, and has played a relatively minor role in policy since 1992.

As for Delors - surely one of the earliest faux-Socialists who was more interested in financialisation than in political and social progress?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Nov 2nd, 2014 at 02:29:38 PM EST
[ Parent ]
'It's become a neo-liberal Trojan Horse' is probably more the case.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Nov 1st, 2014 at 09:50:44 PM EST
[ Parent ]
The problem isn't the concept of a single currency, but the fact that its implementation was left to a nomenklatura of Wall St-inspired rapists and headbangers.
Between concept and implementation comes design, and the design was flawed. Without monetary financing of public debt (which Germany would never have agreed to) or at least a 10-fold expansion of the EU's budget, with federalization of taxation and fiscal policy (which France would never have agreed to), the Euro was doomed to fail as soon as a recession deeper than 3% of GDP hit. Which was ruled out by the faerie tale of "great moderation" after 2000, but remember this was not operative in the politicians' minds in 1992. We know the 3% rule was a completely arbitrary rule used by Mitterrand to rein in spending by his ministers in the 1980s.
The latter are the problem, and progress will be impossible until they're swept from power.
The "nomenklatura" includes a Brussels civil service which has adopted econospeak to an astonishing degree. Everything is "market", everything is "competition"...

And then a coterie of know-nothing politicians who embody the worse of the "common sense" of their voters.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sun Nov 2nd, 2014 at 03:31:20 AM EST
[ Parent ]
I'd like to agree, but from Delors onwards I'm not seeing much evidence of interest in enshrining progressive social values in European politics.

At best there's a certain reluctant acceptance that social welfare matters somewhat, and it's not always a bad idea to throw some cash at backward areas.

But all the important decisions have always been made on the basis of neoliberal monetarism by bankers, economists, and those with similar backgrounds.

The clues were always there, right back to when the EU's ancestor was called the 'Common Market' in the UK.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Nov 2nd, 2014 at 02:35:56 PM EST
[ Parent ]
And that it's a sovereign currency without a sovereign.  Because another thing that's been made clear is that the EU can not as a matter of law dictate policy and action to its members.
by rifek on Sat Nov 8th, 2014 at 09:58:51 PM EST
[ Parent ]
From that well-known leftie communist ragsheet, Business Week:

Why John Maynard Keynes's Theories Can Fix the World Economy - Businessweek

The big question is whether today's international financial architecture is up to the challenge of restoring balance to global trade and investment. The IMF, to its credit, has pivoted away from the austere prescriptions of the "Washington Consensus" that it championed through the 1990s and toward a more Keynesian perspective. "His thinking is more relevant at the current juncture than it had been in previous troughs of the global economy," says Gian Maria Milesi-Ferretti, deputy director of the IMF's research department.

But the IMF lacks the authority that Keynes's stillborn international clearing union would have had, and it's perceived in some quarters to be beholden to U.S. interests. Brazil, China, India, Russia, and South Africa are trying to set up an alternative. Germany isn't heeding the IMF much either as it presses France and Italy to take the same austerity medicine as Greece, Ireland, Portugal, and Spain. "Flash-in-the-pan, short-term stimulus programs" aren't the way to boost growth, German Economics Minister Sigmar Gabriel said on Oct. 20 in advance of a joint ministerial meeting in Berlin.

by Bernard on Sat Nov 1st, 2014 at 05:46:21 AM EST
I had to start a new diary.
by das monde on Mon Nov 3rd, 2014 at 11:31:56 AM EST
Masaccio: The Sorry State of Progressives on Economic Issues | naked capitalism
The progressives and their labor class supporters had some successes, but many of them were stolen by the Supreme Court [...] As legislative victories turned to dust, economic progressives became more aggressive. Leftist intellectuals and labor leaders turned to Socialism and Marxism as alternatives to bloody capitalism. Workers continued to strike and there was violence in the streets [...] The few public figures who espoused Socialism were subject to bad-faith prosecutions and jailed, among them Eugene Debs, jailed on specious charges on the watch of the Democrat Woodrow Wilson, and his horrid Attorney General A. Mitchell Palmer. This was an early example of Democrats running from the shadows of non-capitalist economic theory [...]

The economic elites suffered short term defeat in the 30s and 40s, but unfortunately, their views were not eradicated. The Republicans took over Congress in the wake of the war, and launched an assault on the Democratic party and its labor allies as infiltrated with communists and socialists. The attack on labor resulted in the passage of the Taft-Hartley Act, weakening the ability of unions to organize and setting the stage for further weakening of the union movement and the ability of the working class to protect itself. Majorities of both parties joined approving the bill and in overriding President Truman's veto.

It probably wasn't necessary to attack the Democrats, because they were purging themselves [...]

It turns out that the Socialists and other leftists never really had much influence on the economic policies of FDR. The actual policies were drafted by reformist Democrats, who believed that tight economic substantive regulation would solve the problems created by rampant capitalism. They and FDR effectively co-opted the activists seeking genuine change, people like the millions of supporters of the Townsend Plan who had to accept FDR's Social Security, a much weaker version of that proposal. It was easy for the Democratic party to dump the few real leftists and start their inexorable movement away from leftist economic issues and towards the American Celebration of Capitalism.

by das monde on Wed Nov 5th, 2014 at 01:21:19 AM EST
Centrists have been co-opting radicals in the United States since the Revolution.  Our political, economic, and social systems are based on it.
by rifek on Sat Nov 8th, 2014 at 09:50:18 PM EST
[ Parent ]
Labor was much more 'infiltrated' by Mafioso types than by Communists. Walter Reuther, John Lewis and Harry Bridges were close to what would have passed for Labour or Social Democrats in the post war period. Accusations of 'Communism' were a deliberate smear by politicians without principle, such as Joe McCarthy.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 28th, 2014 at 01:11:57 AM EST
[ Parent ]


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