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Can't be happening. La-la-la!

by Colman Mon Jul 2nd, 2007 at 05:15:10 AM EST

Alex Harrowell on A Fistful of Euros summarises some optimism about the German and Italian economies on Eurozone Watch

For a start, Sebastian Dullein argues that a comparison of Germany today and the US after the early 90s recession shows that Germany might be on the brink of a productivity surge. Dullein argues that labour productivity growth at the moment is being depressed by the re-absorption of the long-term unemployed, which also happened in the US in the early 90s.[...]

He also criticises Wolfgang Munchau for arguing (in essence) that there had been no structural reforms that accounted for productivity growth, and therefore that there was no growth. At this, I think I heard J.K. Galbraith’s ghost chuckle into his martini - it is indeed a fine example of all that is wrong with economics as a discipline that one can argue that we must all reform because there is a crisis, the evidence of that crisis being that one’s reforms have not been adopted.

An alternative argument would be that there was not all that much wrong with German firms in the first place. It is suggested that R&D spending is too low, but Dullein argues that it’s picking up. And anyway, their products can’t be that bad, as the rest of the world wants to buy German exports more than anything else. He also notes that there has been a wave of capital investment since 2002.

How can their economy be improving if they haven't made the reforms that were being called for? It's unpossible! And Italy is apparently benefiting from the upturn in Germany.


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  1. it's cyclical
  2. it's temporary
  3. it's unsustainable
  4. it's wasted on wage increases
  5. expectations are so low that such numbers would count as 'poor' in any other part of the world


In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Jul 2nd, 2007 at 05:22:14 AM EST
6. It's wasted on improving public services in the "bloated" and "sclerotic" public sector.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Mon Jul 2nd, 2007 at 07:20:26 AM EST
[ Parent ]
7. It's wasted on financing an unsustainable welfare state

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Mon Jul 2nd, 2007 at 11:50:07 AM EST
[ Parent ]
He also criticises Wolfgang Munchau for arguing (in essence) that there had been no structural reforms that accounted for productivity growth, and therefore that there was no growth.

Munchau is off his rocker. Seriously.

Can the last politician to go out the revolving door please turn the lights off?

by Migeru (migeru at eurotrib dot com) on Mon Jul 2nd, 2007 at 05:39:56 AM EST
(as discussed in this diary) he suggests that the euro is doomed because of the following combination:

  1. France will have an unsustainable deficit (maybe true, Sarkozy seems to be doing a Bush - lower taxes for the rich and increase spending)

  2. Germany, which now has a better hold of its finances (after years of difficulties), will start scolding France for its indiscipline, to the point that it creates an institutional crisis in the EU

  3. the euro is fundamentally unsound anyway, so will break apart.

These people need to understand one thing: France and Germany have pretty much ALWAYS been poles apart on everything. What matters is whether they decide to work on finding a compromise (in the name of Europe) or not. So far, including the early start of Sarkozy, they have. Ironically, it was during the Schröder/Chirac period, when disagreements looked to be less violent, than it was harder to get the "engine" going - maybe because theneed for it appeared less urgent when the two countries were closer in their views...

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon Jul 2nd, 2007 at 05:47:31 AM EST
[ Parent ]
But I mean, seriously, he's saying:
  1. my theory predicts that structural reforms or a certain kind will cause higher growth
  2. moreover, my theory predicts that those structural reforms are necessary for growth
  3. the structural reforms I advocate have not occurred to my satisfaction, but growth is observed
  4. therefore: retain the theory and the claim that insufficient reform has taken place, and throw away the observation of growth
This disregard for empirical data is only matched by string theorists.

Can the last politician to go out the revolving door please turn the lights off?
by Migeru (migeru at eurotrib dot com) on Mon Jul 2nd, 2007 at 06:04:17 AM EST
[ Parent ]

This disregard for empirical data is only matched by string theorists.

Knowing your science background, I wodner who you're trying to insult the most there. ;-)

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Jul 2nd, 2007 at 06:11:26 AM EST
[ Parent ]
I'm just expressing my frustration.

Call it sour grapes.

Can the last politician to go out the revolving door please turn the lights off?

by Migeru (migeru at eurotrib dot com) on Mon Jul 2nd, 2007 at 06:16:43 AM EST
[ Parent ]
Kuznets must be rolling in his grave.

Can the last politician to go out the revolving door please turn the lights off?
by Migeru (migeru at eurotrib dot com) on Mon Jul 2nd, 2007 at 06:20:05 AM EST
[ Parent ]
I think eventually, possibly in another 30 years time, we'll see the absorption of the East German economy for the enormous task that it really was.

Jerome has written about some of the mistakes/choices made at the time, but I think that the right-wing-Anglosphere press has been entirely too keen to forget the strengths of the German model.

One of the sleights of hand of the "Washington consensus" crowd has been to implicitly work on a "post-manufacturing" model of the economy which automatically makes German and Japan look like "countries of the past, condemned to wither in the face of Chinese competition" whilst the Anglosphere is a centre of "innovation and industries of the future."

The key thing is, the future hasn't arrived yet, so whilst Munchau might believe it is impossible for Germany to become a US-style "service/design economy of the future" that shouldn't really be relevant to growth over the next 5-10 years...

by Metatone (metatone [a|t] gmail (dot) com) on Mon Jul 2nd, 2007 at 07:10:57 AM EST
And not just East Germany, but most of the former Eastern Bloc.

It would be like the US merging with Mexico and the rest of South America without bothering to invade and/or install torture-loving puppet rulers first.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Jul 2nd, 2007 at 07:16:42 AM EST
[ Parent ]
The accession of the countries from the former East block to the EU is not comparable to the reunification of Germany because these countries are joining a free trade area, and they retain their currencies and their national economic and fiscal policy. In the area of monetary policy, German reunification included valuing the East German Mark at parity with the Deutsche Mark whereas the new member states will only be able to join the Euro when they meet the Maastricht criteria; and East Germans became full German citizens while as we know the mobility rights of workers from the new member states are somewhat limited, especially and not surprisingly, in Germany.

Can the last politician to go out the revolving door please turn the lights off?
by Migeru (migeru at eurotrib dot com) on Mon Jul 2nd, 2007 at 08:49:45 AM EST
[ Parent ]
Do you believe that future is going to arrive? Because what I see happening is that the loss of manufacturing is followed by loss of design and that by loss of innovation, all of them causing loss of education as job prospects in technical fields dry up.

So the US economy is a shell of its former self, and when the Chinese and the Indians develop a financial services industry as they must eventually, they're going to eat NY and London's lunch.

Can the last politician to go out the revolving door please turn the lights off?

by Migeru (migeru at eurotrib dot com) on Mon Jul 2nd, 2007 at 07:23:20 AM EST
[ Parent ]
Manufacturing will come back eventually. It will have to when globalization of trade implodes. It not will not implode because of peak oil or other doomsday stuff like that, but because of more prosaic problems like
  • loss of confidence in every foreign currency after the dollar crash (and you need to trust each other's currency to trade, or going back to gold, seriously ??)
  • civil unrest and loss of capital invested in sweat-shop nations after US demand tumbles (and this will happen because no one will keep on fueling their debt bubble from abroad),
  • even more of it due to nationalism if the west continues its questionable foreign policies,
  • surge of demagogic protectionism throughout the western world (already happening)...

Of course, this "solution" is another problem: you can't have your crapware made at home, and have it cheap too. In other words, inflation will come back with a vengeance.

Pierre
by Pierre on Mon Jul 2nd, 2007 at 08:34:21 AM EST
[ Parent ]
The glib answer is that I think I've already made enough comments that I cannot pretend to be anything other than a sceptic, or someone will just link to some of my previous comments, but...

I'm still in two minds about what is going to happen. All my research into the "knowledge economy" suggests that the majority of commentators don't know what they are talking about, but seeing they are probably wrong isn't all that predictive.

To me, even absent Peak Oil and Global Warming, we're entering dangerous waters, because (as I've said before) I don't really see how our markets (as currently constructed) can continue to provide widespread (or "mass") employment even in China in an age of increasing productivity.

by Metatone (metatone [a|t] gmail (dot) com) on Mon Jul 2nd, 2007 at 08:39:17 AM EST
[ Parent ]
I've often written about how Germany has been running the marathon with the little brother on the back, and yet was still more or less in the pack.

Now it's selling all the capital goods that the growing emerging world needs (for as long as there is such growth, of course), and I expect the story of the "Wirtschaftwunder" to be reborn again soon in a new form - and Europe to be around.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Jul 2nd, 2007 at 09:36:32 AM EST
[ Parent ]
Excellent Diary, Colman.

I just love the circularity.

Oozlum Bird Economics.

ie like that mythical creature, it flies round and round in ever decreasing circles until it diappears up its own arse.

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

by ChrisCook (cojockathotmaildotcom) on Mon Jul 2nd, 2007 at 07:13:52 AM EST
I've always seen financial capitalism as the character that sucks everything and eventually itself in the Beatles' "Yellow submarine" cartoon.



"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet

by Melanchthon on Mon Jul 2nd, 2007 at 12:01:47 PM EST
[ Parent ]


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