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You are assuming that a transfer will be used to increase productivity. I argue that "it depends" and actually has decreased productivity in some cases. One example:

In Portugal, the massive transfer that was made when joining the EU was used to build a motorway network and destroy the train network. This on the view that trains are for poor people ("and we are not poor anymore, we are European(tm)") and that cars are more efficient than trains.

I think most people in this discussion are thinking in "economese" terms, whereas the local culture makes a massive difference.

Yes, a transfer can be used (should be used) to increase productivity, but that is not always the case.

Actually the neo-lib argument of the need for "structural reform" makes sense. Of course, the needed reforms have little to do with what neo-libs defend. Example, what the periphery needs is a dose of colectivism (e.g. more efficient public transport, more respect for public spaces), not more individualism (more cars...)

by cagatacos on Thu Aug 30th, 2012 at 10:25:28 AM EST
[ Parent ]
The point is not that transfers are sufficient. The point is that they are necessary. No transfers implies no solution. It does not from this follow that transfers implies a solution.

But that is an internal Greek/Portuguese/Italian/Irish matter, that is really not my business. (And designing an industrial policy from the ground up is a non-trivial effort, and I insist on being paid for non-trivial efforts.)

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Aug 30th, 2012 at 10:32:38 AM EST
[ Parent ]
It is not just an internal problem if the money is used to dig an even bigger hole, this further increasing the divergence.

Why should surplus nations sustain silly policies (other than the interest of sharing a devaluated/more-competitive currency)?

by cagatacos on Thu Aug 30th, 2012 at 10:55:41 AM EST
[ Parent ]
Why should surplus nations sustain silly policies (other than the interest of sharing a devaluated/more-competitive currency)?

Because they want surpluses and fixed exchange rates at the same time.

They're perfectly free to pick another pair of objectives from the set.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Aug 30th, 2012 at 11:12:04 AM EST
[ Parent ]
Under the police regime of automatic transfers from surplus countries to deficit countries, if they do not wish to sustain those silly policies, they only need to abandon the aggressively destructive strategy of pursuing a surplus.


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 Sat Sep 1st, 2012 at 01:31:43 PM EST
[ Parent ]

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