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A Tale Of Two OCAs?

by afew Mon Apr 20th, 2015 at 02:20:13 AM EST

Frances Coppola reposts these charts in an article on Pieria:

It was tweeted by RBS, who captioned it: One of these is an Optimum Currency Area. And the other isn't.

Not so simple, says Coppola.

Optimising the Eurozone

Robert Mundell, the inventor of the Optimum Currency Area (OCA) concept, defined the essential requirement for an OCA as free factor mobility. Since his rather vague definition, though, the concept has been developed further. Economists now generally agree that four criteria must be met for a group of regions or countries to qualify as an OCA:

  • regions/countries should be exposed to similar sources of economic disturbance (common shocks); 
  • the relative importance of these shocks across regions/countries should be similar (symmetric shocks); 
  • regions/countries should have similar responses to common shocks (common responses)
  • if regions/countries are subject to local economic disturbances (idiosyncratic shocks), they must be able to adjust to them quickly.

In practice, this means that regions/countries need a high degree of economic, political and cultural similarity to qualify as an OCA. 

It is now generally understood that the Eurozone does not qualify as an OCA.

But what about the USA?


Optimising the Eurozone

In this paper, Michael Kouparitsas of the Chicago Federal Reserve considers whether the USA meets the criteria for an OCA. He divides the USA into eight groups of states, which he calls "regions". Five of these are broadly similar in the kinds of shocks that they experience and their response to them, but the remaining three differ significantly from the other five. Kouparitsas therefore concludes that the USA is not an OCA. 

So neither of these charts depicts an OCA.

How then to explain the evidently greater homogeneity of unemployment rates among American states, compared to Eurozone member states?

Optimising the Eurozone

Firstly, the USA is a federation. Each state has its own government, but there is also a fully functional fiscal authority at federal level with tax and spending powers. Automatic fiscal stabilisers - unemployment benefit and income taxes - are harmonised across the federation (...)

In contrast, the Eurozone has no federal fiscal authority with tax and spending powers. Automatic stabilisers operate at state, not federal, level and there is little attempt to harmonise them - indeed attempts to harmonise tax rates are met with fierce resistance from member states. Similarly, budgets for pensions, education, healthcare and defence are set by the individual states without reference to each other (...)

Secondly, the USA is a transfer union. Richer states support poorer ones by means of federal fiscal transfers. (...)

In contrast, the Eurozone has little in the way of fiscal transfers: there is development aid to poorer regions, and systematic help for farmers in the Common Agricultural Policy, but that's about all. (...)

Thirdly, the USA has a monetary authority with a dual mandate. The Fed is responsible for maintaining both price stability and full employment. (...)

In contrast, the ECB is only responsible for price stability. Provided that inflation is under control, the ECB has no reason to do anything at all about high unemployment. (...)

Finally, the USA - although not an OCA - has a common language and free movement of people both in theory and practice (...)

No need to complete that with the final counterpoint, we all know that Europe doesn't have a common language or free movement of people in practice.

Optimising the Eurozone

So the high unemployment across the Eurozone and huge divergence in unemployment rates between member states is primarily due to the incomplete union. It isn't necessary to be an OCA to have low convergent unemployment levels in all states. It is merely necessary to have a sensible, coherent system of governance. That is what the Eurozone does not have.

Coppola says that completion of the union by addressing these points might be possible. However,

Optimising the Eurozone

I just don't see that the political will to create a workable union exists: all I see is a lot of countries pursuing their own narrow interests and refusing to support, or even cooperate with, each other. While such attitudes prevail, the union cannot be completed and will eventually fail.

That is, indeed, the most likely outcome.

Nothing here that we don't know or have not discussed on ET. But it's a good summary, if you need a downer.

Display:
So, waiting for the final act, here we sit like birds in the wilderness.
by afew (afew(a in a circle)eurotrib_dot_com) on Sun Apr 19th, 2015 at 12:06:28 PM EST
The EU is down now to 18 states?
by gk (gk (gk quattro due due sette @gmail.com)) on Sun Apr 19th, 2015 at 12:36:51 PM EST
Eurozone.
by afew (afew(a in a circle)eurotrib_dot_com) on Sun Apr 19th, 2015 at 12:45:44 PM EST
[ Parent ]

First blue average (9.8) is all EU, and the second (11.3) is Eurozone.

by fjallstrom on Sun Apr 19th, 2015 at 02:28:29 PM EST
[ Parent ]
Useful post, thank you.

A long time ago I did some figures on actual movement of people inside the USA, and as I recall, it doesn't add up to anything like the numbers required by the OCA model.

To me this has two implications:

  1. The other stuff (fiscal transfers, etc.) is even more important than people realise.

  2. This matches up with what we see in the USA, which is that while nice graph looks nice (unemployment between 3% and 8% ? across different US states) there remain significant and persistent wealth/poverty disparities between states.

As usual, this concerns me much more than it seems to bother economists, because it indicates to me that the free market and free movement isn't proving much good at solving this problem...
by Metatone (metatone [a|t] gmail (dot) com) on Sun Apr 19th, 2015 at 04:32:19 PM EST
Regarding what concerns economist, what you seem to be missing is the well-trained ability to filter out what it is possible to do. As long as you assume that all of that nasty stuff is beyond the reach of any effective government policy, then it is possible to "feel sad" that they exist, without it leading to any regret over the policies that help maintain and expand those problems.

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 Sun May 10th, 2015 at 03:51:35 AM EST
[ Parent ]
Fifty years after LBJ signed the Civil Rights Act racism remains, but it HAS been delegitimitated amongst a majority of those under 30 and the worst aspects, such as lynchings and cross burnings, are much less frequent and now are vigorously prosecuted.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun May 10th, 2015 at 05:43:40 AM EST
[ Parent ]
That is not the kind of thing that an Economist will be keen to argue it is impossible to change ...

... the increasing inequality of income, which meant for many blacks and whites alike that income gains made in the 1950's through 1980's are increasingly at threat of being stripped away ... why that is something that is just a "fact of nature", if you write the model the right way and ignore the simple facts presented to you by your lying eyes.

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 Sun May 10th, 2015 at 06:40:23 AM EST
[ Parent ]
There is less divergence than it appears between the US and EU writ large. EPI research increases the real unemployment rate from 5.5 to 7.4% when including workers missing from the labor force.Including involuntary part time aand marginally attached and you get a real US unemployment of 13-14%. I'd have to calculate state rates, but my guess is that there are certain  sections of the US where the real rate is comparable to the worst that the eurozone has to offer.

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 Sun Apr 19th, 2015 at 04:36:44 PM EST
This is true, and we have documented and discussed the weaknesses of the unemployment rate as a metric here on ET for years now. But the point of the comparison of those two charts is not the relative size of the (purported) US figures compared to the Eurozone, but their relative homogeneity. This is interpreted by the RBS tweet as evidence that the US is a genuine OCA, which Coppola disputes.

How much bumpier would the US chart look if the unemployment rate were properly calculated? And how much less bumpy would the EZ chart look?  

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Apr 20th, 2015 at 03:11:22 AM EST
[ Parent ]
Point taken.

To this point. I think that factor mobility is the issue more so than the spread. So the real question is whether there is a tighter correlation between unemployment disparities and people moving, aka labor mobility.

There are statistics for this. That would be a better answer.

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 Apr 20th, 2015 at 12:05:43 PM EST
[ Parent ]
As I have noted a number of times in a number of places, the euro is a quasi-sovereign currency not issued by an actual sovereign, whereas the US$ is a sovereign currency issued by an actual sovereign (Technically each of the states is a sovereign, and once upon a time several of them issued their own currencies.  This went less than well.).  The US is therefore in a better position to manage those issues that arise from monetary sources.  That said, 1) fiscal transfers are losing steam first because of the economy and second because the poorer states are proving to be buckets that can't be filled; 2) the only full employment mandate the Fed recognizes is for investment bankers; 3) dirty, little secret: the US doesn't have free movement of people in practice, either; and 4) any unemployment figures from the US are a joke because they don't include people whose unemployment insurance payments have ended but who have given up looking, and they don't include people who are "self employed" because they can't find work.
by rifek on Mon Apr 20th, 2015 at 01:27:06 AM EST
Re point 4: This is definitely a valid criticism to putting the two charts side by side. But are there significant variants between US states in how meaningless the unemployment figures are?
by gk (gk (gk quattro due due sette @gmail.com)) on Mon Apr 20th, 2015 at 01:44:17 AM EST
[ Parent ]
It's actually not a valid criticism.  Those workers are counted in the U4, U5 and U6 metrics.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Apr 20th, 2015 at 07:51:36 AM EST
[ Parent ]
OK. But it's still meaningless to put the charts side by side without saying which metrics you are using.
by gk (gk (gk quattro due due sette @gmail.com)) on Mon Apr 20th, 2015 at 07:57:13 AM EST
[ Parent ]
Agreed, but that's true of all stats.  Always a good idea to take a look at the notes to be sure of what you're reading.  Also why, in this case, it's a good idea to look at harmonized unemployment metrics across countries.  The BLS produces them (I think) either annually or quarterly.  The IMF produces them as well.

Most stats agencies are collecting the same stuff though.  It's just a question of whether they have the resources to collect the data (and the independence to do it properly).  Comparing stats from North America and Western Europe is usually a pretty easy task.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Apr 20th, 2015 at 05:07:14 PM EST
[ Parent ]
...adding:

And if the criticism is that the headline unemployment (U3) doesn't count those workers, I'd note the criticsm is as valid with regard to Eurostat as it is the BLS.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Apr 20th, 2015 at 07:52:54 AM EST
[ Parent ]
There may be some overlap between marginally attached and those that have been excluded from the labor force.  The problem is that the marginally attached definition requires that you have actively applied in the last year.  There are a lot of people who would be in the labor force, but haven't applied in the last year.  The way the Census trains for CPS, this very explicit.  They don't follow up to ask if you would have applied, but haven't because you haven't found an appropriate job.

The broader point is that there has emerged a secular divergence between Euro area labor force participation and that of the US.

What's going on? Europe and the United States face some of the same demographic and economic forces. Populations are aging on both sides of the Atlantic. Many workers in Europe, too, have stopped looking for work, discouraged by lack of opportunities.

There is, however, one big difference. In the euro area, the working rate of older women is still much lower than it is in the United States. Almost half of American women over 45 are in the labor market, compared to fewer than 40 percent in the euro zone. And European women are picking up the slack. So despite a severe economic downturn, the share of older women in the labor pool has been growing at a robust clip.



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 Apr 20th, 2015 at 11:57:22 PM EST
[ Parent ]
Europe panicked in 2009 over large deficits (due to automatic stabilizers) and pulled on the brake in 2010 (with the sovereign debt crisis). Then in 2011 you get the divergence from the US recovery, and Trichet raised rates for good measure causing a double-dip recession. Yay for Europe!

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 Tue Apr 21st, 2015 at 03:53:39 AM EST
[ Parent ]
Times have been tough these past five years in Europe, and many households who had been able to get by with a single income now need two. I'm guessing that the quality of the jobs (number of hours, hourly rate) added by increased female participation has been pretty low, with lots of mini-jobs.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Tue Apr 21st, 2015 at 06:43:23 AM EST
[ Parent ]
Another factor likely at play in Europe is that there were a lot of well educated German women available when the need for more labor emerged. These are the low hanging fruit of any increase in women's employment, especially considering the productivity gained.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Apr 21st, 2015 at 09:46:36 AM EST
[ Parent ]
The problem is that the marginally attached definition requires that you have actively applied in the last year.  There are a lot of people who would be in the labor force, but haven't applied in the last year.

Now this is at least to some degree a valid criticism.  A few points though:

The default outcome is two years, really, because in order to receive the two consecutive years of unemployment comp (thanks Bill!), you have to actively look for work.  The number of people who would refuse that is, I think we'd all agree, exceedingly small.

Once that runs out, you're going to run into very few people who have not applied for a job -- great ones, middling ones, lots of shit ones -- within a year-long period, because, simply put, they're going to be on the streets otherwise.  Nearly all in that scenario will wind up taking shitty part-time jobs and getting counted under the alternative measures.  Some older ones -- and this is true especially given the Boomer retirement we're going through -- will fold and take shittier retirements.  But most will be caught by the measure.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Tue Apr 21st, 2015 at 05:50:04 PM EST
[ Parent ]
...adding:  On the participation rate charts.

Eurogreen apparently had a similar thought to me.  The crisis in Europe hit the periphery, where you're going to find less development and (I suspect) more traditional, one-income households generally.  The hit to wages from the recession was also much more dramatic on the periphery than it was in the US or the EZ core.

The demographics are pretty similar.  Ignoring the crisis, you should actually see participation rising faster in the US, because stronger job growth here should induce more labor participation.  But incorporating the crisis into the analysis probably gives you a good chunk of the answer.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Tue Apr 21st, 2015 at 06:14:40 PM EST
[ Parent ]
Explain 3?
by Colman (colman at eurotrib.com) on Mon Apr 20th, 2015 at 04:10:55 AM EST
[ Parent ]
And (4), while we're on the subject.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Apr 20th, 2015 at 07:43:28 AM EST
[ Parent ]
U1 vs. U6?

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 Mon Apr 20th, 2015 at 09:10:05 AM EST
[ Parent ]
But we make the same type of calculation in Europe. It is perfectly fine to try to estimate 'people looking for work'. A high labor participation rate does not have to be a sign of a healthy economy.

Of course we should always look at several indicators. e.g. both U1 and U6 and so on.

by rz on Mon Apr 20th, 2015 at 09:12:53 AM EST
[ Parent ]
The US graph provided appears to be U3, and even if you get to U6, the number of marginally attached workers in the US are grossly underreported, and even U6 does not account in any reasonable fashion for the legions of "self employed" workers who self-classify as such and so are treated as employed but in reality are marginally attached workers.
by rifek on Tue Apr 21st, 2015 at 10:29:49 AM EST
[ Parent ]
Yes, presumably the chart is U3.  That's the metric most countries use for headline unemployment.

Again, on what grounds do you argue they're "grossly underreported"?

Also, you'll have to explain your rationale behind the self-employment stuff you're on about.

Not saying you're wrong on either count, necessarily, but 99 times out of 100, when people bitch about BLS's employment and inflation stats, they're spouting nonsense they read at ShadowStats or Zero Hedge or from some woo-peddling dipshit in the comments at Daily Kos.  Or they simply don't understand concepts like seasonal adjustment and chain-weighting and there being more than one measure for unemployment.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Tue Apr 21st, 2015 at 05:22:53 PM EST
[ Parent ]
In the UK we call them "zero hours contracts." Or maybe "IR35" if the freelancer isn't freelance enough.

Basically they're on-demand labour with zero security and benefits.

Some percentage will count as genuine independent contract work work for a number of employers. But a larger percentage will be semi-employed temps hired on a per-project or as-needed basis.

Thus not quite in the same realm as Graeber's bullshit jobs, but certainly not employed in the sense of  traditional economic definitions.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Apr 22nd, 2015 at 05:09:26 AM EST
[ Parent ]
There's some of that here, primarily in service provision for things like cable installation, electronics repair with retailers, and material delivery in construction (varies quite a bit by locality).  And professional wrestling strangely (I remember that being a big issue back when the WWF executive ran for Senate in Connecticut a few years back).  Financial planning jobs can be that way too.

Those jobs are generally shit, although the pay is a bit better than working part-time at the grocery store or something.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Wed Apr 22nd, 2015 at 05:57:36 AM EST
[ Parent ]
Insufficiently analytical for your standards, I'm afraid, but what I see in my law practice, and what I hear from other attorneys around the country, who used to get paychecks, don't get paychecks anymore, list themselves as self-employed because putting "unemployed" in your sales pitch just doesn't cut it, but are in reality just scraping by on sporadic income.

My best source on this is Chapter 13 bankruptcy cases.  Lots of self-employed people need them but can't qualify because their businesses don't generate enough income.  If they do happen to have enough income at the moment to get a plan approved, they can't keep it going for the 3-5 years required.  None of this information is being collected even anecdotally, let alone systematically.  The Chapter 13 success rate is a joke, and DOJ is doing no real research on the reasons; everything is just the "anecdotal" stories of those of us in the trenches.

This seems to be the pattern for data collection on the self-employed.  There is nothing close to the systematic data collection in place concerning wage earners and benefits recipients.  Even when data are collected, they seem to go nowhere.  A self-employed person applying for benefits has to jump through far more hoops far more frequently (so much so that a significant number either give up or are dropped, which creates its own data accuracy problem), yet the data collected seem to go nowhere other than some warehouse such as at the end of Raiders of the Lost Ark.

Consequently, I am compelled to conclude the status of the self-employed is not adequately accounted for in the statistics.  I'm also inclined to think this is not exactly accidental; if you don't bother collecting data on a problem, you can pretend it doesn't exist.

by rifek on Wed Apr 22nd, 2015 at 05:59:29 PM EST
[ Parent ]
Sorry, busy week, so just getting to this.

...[W]hat I see in my law practice, and what I hear from other attorneys around the country, who used to get paychecks, don't get paychecks anymore, list themselves as self-employed because putting "unemployed" in your sales pitch just doesn't cut it, but are in reality just scraping by on sporadic income.

I don't think attorneys are a great gauge of the experience of the typical worker anywhere, let alone a basis for compiling national statistics and producing reports on the experience of the typical worker (which is the aim of the headline numbers).  

Most workers aren't going to have heard the sociological and business studies on how it's better to be employed in some capacity -- part-time, self-employed, whatever -- than to be unemployed.  Even fewer would be able to put together a good explanation for such "self-employment" in a job interview.  Most are going to lose their jobs, sign up for unemployment comp and look for new jobs.

The ability to list oneself that way in any credible way in an interview is nothing if not a "first-world problem," as the kids on Twitter like to say.

It's generally foolish -- and really quite arrogant (in a way that, I think I can say with some credibility, is ludicrously common with lawyers) -- to assume that one of the 10,000 or so people in these stats agencies hasn't thought of the brilliant insight some lawyer has thought about.  People talk about this stuff all the time.  I know.  I've done it.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon Apr 27th, 2015 at 07:13:01 PM EST
[ Parent ]
OK, but it's not just about lawyers. As you note, the bulk of the workforce, and of unemployed people, is composed of salaried workers. But there is an enormous number of people in a very large number of "tertiary" or "service" lines of work who can credibly be either salaried or self-employed. And it is distressingly common to run into, for example, IT contractors in France who disguise large time-gaps in their CV through declared self-(un)employment.

Sure, the statistics functionaries will have thought of this. Doesn't mean they measure it, because it's hard to measure accurately.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Tue Apr 28th, 2015 at 08:24:27 AM EST
[ Parent ]
I guess Drew's key point is
The ability to list oneself that way in any credible way in an interview is nothing if not a "first-world problem," as the kids on Twitter like to say.


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 Tue Apr 28th, 2015 at 09:03:46 AM EST
[ Parent ]
I would note in my defense, since I'm tired of wasting my time responding to Drew, that I and most of the attorneys I'm in contact with around the country, do bankruptcies and small business reorganizations, and if you put us all together, we do thousands.  Actually a fairly reasonable sample size for misery.  We see a lot of faux self-employment and rampant underemployment.  As for what data agencies do and do not collect, having done my time in government service, I can say this: Agencies see, at most, what they have a legislative mandate to see.  If someone can show me how the growing collection of economic fringe dwellers is being accurately included in the stats, I'd be more than happy to look at it.  But I really don't think it is.
by rifek on Wed Apr 29th, 2015 at 09:58:16 AM EST
[ Parent ]
Sorry to tire you and waste your time, but:

I and most of the attorneys I'm in contact with around the country, do bankruptcies and small business reorganizations, and if you put us all together, we do thousands.  Actually a fairly reasonable sample size for misery.

That's not how sampling works.  And:

If someone can show me how the growing collection of economic fringe dwellers is being accurately included in the stats, I'd be more than happy to look at it.

You haven't established the premise here of a "growing fringe" to be "accurately included in the stats".

This is a bit more granular than what I asked Chris for a while back on QE and oil, but much the same principle.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Wed Apr 29th, 2015 at 05:50:04 PM EST
[ Parent ]
I have no idea what it is in the US, but it is certainly a strong phenomenon in the UK where

-People are pushed towards what I called self-unemployment from all sides, be it companies that more readily hire contractors, the fact that you don't even need to set up a company to do that (you would then simply report earnings as a sole trader -yes that then gives you unlimited liability but the client/employer won't mind), that slight tweaks to the benefit system have meant that it tends to be fiscally better for the first 12 months at least (and there was a sudden jump of about a million alleged self-employed in the quarter that such a measure was introduced) for whoever expects to log even a paltry number of hours

-Jobseeker allowance is so very near to zero

-They make sure you have to jump through hoops to get that very near to zero, to the point where it may not make economic sense. Some people have to spend tens of hours at the job centre that they could use for doing productive stuff such as fixing their house, looking after their kids...

And yes, it does not look great to put unemployed on your resume and, since it costs nothing to claim you were acting as a sole trader, many people did it. A one million boost in the data (while the hours worked did not hugely increase) is not negligible.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Fri May 1st, 2015 at 05:12:01 AM EST
[ Parent ]
The current stats themselves point to a growing fringe, and the problematic status of data collection for that fringe seems reasonably clear. Whether or not the growing fringe is growing faster than already indicated in current statistics is evidently not a question that can be answered using current statistics.


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 Sun May 10th, 2015 at 04:18:35 AM EST
[ Parent ]
Yeah I also do not get 3.
by rz on Mon Apr 20th, 2015 at 09:13:19 AM EST
[ Parent ]
State residency requirements? You may not access certain services until you've been registerad as a resident of the state for some time.

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 Mon Apr 20th, 2015 at 10:11:57 AM EST
[ Parent ]
That, plus a significant portion of U6 unemployed in the South and Midwest are too poor to afford to move to look for better paying jobs and don't believe they would get such jobs if they did move. And many probably would be right.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Apr 20th, 2015 at 01:13:09 PM EST
[ Parent ]
Outside of in-state tuition rates for college, I'm having trouble thinking of what residency would impact.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon Apr 20th, 2015 at 05:10:02 PM EST
[ Parent ]
While you don't need "papers" to move state to state, the disparities in benefits programs and costs of living often preclude relocation.  People in rural areas routinely can not get enough cash together to move where the jobs are.
by rifek on Tue Apr 21st, 2015 at 10:18:28 AM EST
[ Parent ]
A year 2000 paper, (PDF), by Mundel: http://digamo.free.fr/mundell61.pdf

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Apr 20th, 2015 at 05:46:06 AM EST
In general this is all true. But I do not believe that currently optimal currency issues are what is the problem for Europe. Lets look in inflation: the highest inflation rate is 0.9 percent in Austria.

The problem is insufficient monetary and fiscal stimulus everywhere.

Of course in Germany the industry is already complaining, since the Job market is such that for the first time that I can remember you do not to have to beg to get a job.

I recently read about some HR departments that believe the world is coming to an end, because they are only getting 20 applications per job! You know and not 200, like it has been for more then 20 years.

by rz on Mon Apr 20th, 2015 at 09:17:43 AM EST
Funny what a chart will do. Coppola only posted the chart to knock it down. Her line is that neither the USA nor the Eurozone are OCAs, and anyway OCAs don't matter (if ever such a thing might exist).

Yet the majority of the comments here are on the charts, the metrics, the meta... ;)

((scratch))

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Apr 20th, 2015 at 11:07:51 AM EST
OCAs seemed like a relevant idea when people could still pretend that monetary policy reigns supreme. What regions of the world can float on the Great Moderation together? As it turns out that is a stupid question.
by generic on Mon Apr 20th, 2015 at 11:30:29 AM EST
[ Parent ]
USA might not be an OCA (I think it is silly to suppose that an OCA could not even exist - we do use currencies. Everyone having his own does not work, having a single one would likely not work either - so there must be some reasonable point in between).

But it is clear that the Eurozone is much less so, and I don't see how this would fail to be relevant.
My take is that the biggest problem is the lack of fiscal transfer, and (but they are linked) the political acrimony between countries.
In the US, despite the history of a civil war, a massive political chasm between the southern states and the rest, pretty much nobody (certainly from the states providing net support) is proposing ending major fiscal transfers. Contras that with the attitude of Germany, and much of the EPP, towards the periphery. I don't see that you could turn that into an OCA even with a single language and totally free movement of workers.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Mon Apr 20th, 2015 at 11:42:38 AM EST
[ Parent ]
Cyrille:
we do use currencies

Indeed we do. But what examples are there of currencies that are not issued by sovereigns? The point about OCA theory is that it shows little interest in that. Mundell's theorising about it posited, one might think provocatively, that a nation state such as Canada might profitably be divided into two OCAs, East and West. This is not going as far as Hayek, (currency issued by private commercial concerns), but it is a neoliberal ploy to separate currency creation from sovereign nation states.

Whether it is workable or not depends on whether one thinks it possible for a non-sovereign to issue fiat currency. That is the experiment Europe is currently engaged in, and the outcome doesn't look too good. Building a single sovereign out of the multiple sovereigns of the EU should have been the horse before the cart. Instead of which, we have multiple sovereigns deprived of monetary and fiscal policy, and a non-sovereign attempting to enforce an OCA by means of "rules".

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Apr 20th, 2015 at 01:10:41 PM EST
[ Parent ]
Mundel grew up and went to grad school while the USA was on either the gold standard or the Bretton Woods 'dollar' standard with the dollar pegged to gold. It was the emanence of major gold flows in 1971 that compelled Nixon to 'close the gold window' and stop the exchange of dollars for gold. Mundel had proposed raising the peg to $45/oz to Nixon during a long plane flight during the '68 presidential campaign, but Nixon was too distracted to listen. Even so, raising the peg for gold would have been a hard sell. The very idea makes most 'gold bug's' heads explode. To them it undercuts the very point of a gold standard while appealing to the 'common sense' of a majority of the electorate.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Apr 20th, 2015 at 01:23:43 PM EST
[ Parent ]
The greedy bastards who created the Euro thought we'd be so happy with the way things would go with the new magic currency that sovereign states would be delighted to trust fiscal policy to Brussels.

The ensuing clusterfuck has increased interstate animosity to the point where most citizens don't trust Brussels or the Euro any more, effectively hamstringing the EZ economy (for Joe and Jane Average), at the same time as turning a blind eye to all the 'funny money' sloshing around the City, HSBC, the Libor scandal etc etc, ensuring bigger bonuses and salaries to the 1%, while leaving people who were able to make a decent living in the post war 'glory decades' now scuffling precariously for any job.

Nice to see Germans not having to beg for a job any more, but any hopes that this is going to ripple across the rest of the EU economy are fading as the calamities pile up.

By doing this EU thingy badly there's a real risk that any future desire or attempt to do it well has been delayed decades, especially if the whole mess comes unglued around a Grexit.

Orthogonal to the employment issue is immigration, with reports of nearly a million economic/war refugees poised to try and cross the Med from the Maghreb this summer.

This is a fermenting nightmare in Italy right now, with strong pressure to rewrite the Dublin agreement, as Brussels seems oblivious to the social tensions building with dwindling jobs for Europeans now accentuated by droves of refugees who are blocked in the country of entry, ie Italy for the most part. People who even have relatives in Germany to go to are stuck in detention centres here for a year or more with no language skills, no employment, no entertainment -they are given E5 a day for pocket money and even housed in 4 star hotels by mayors who have nowhere else to put them. Of course the media are having a field day with this, fuelling further tensions. Meanwhile the boats keep coming as warmer weather helps people survive the crossing in greater numbers.

Our lords and masters like how the immigrants lower wage costs, as they will work for almost nothing. If food were picked by Italians the prices at the supermarket would probably triple.

Everyone agrees that stemming this tide before they embarked is the answer, but to try and organise Libya? When they can't even organise Italy? Plus there are echoes of colonialism at play here too.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Apr 21st, 2015 at 07:14:47 AM EST
European policy:

  • leave the migrants in the first country of entry
  • do not organize rescue operations so as not to attact more migrants
  • organize a military operation to sink the boats of the people smugglers
  • "stabilize Libya"
  • collect underpants
  • ???
  • profit!


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 Tue Apr 21st, 2015 at 09:20:51 AM EST
[ Parent ]
Underpants collection is Serious business for Serious people.

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 Tue Apr 21st, 2015 at 12:36:27 PM EST
[ Parent ]
Underpants now on the front page.

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 Wed Apr 22nd, 2015 at 06:34:26 AM EST
[ Parent ]


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