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"Many Europeans will tell you that the problems of the European Union stem from a ‘democratic deficit,’ or a lack of citizen input into the decision-making process. But the ENA-trained technocrat would argue that this diagnosis gets the problem precisely backward: The problem with the European Union is a democratic surfeit at the national level, granting volatile electorates too much influence over policies that can succeed only if pursued with the requisite patience, to be ratified by voters only occasionally, and at moments judged opportune by the technicians." Well that's the problem in a nutshell. In a sense they are both right. The growing power of the authoritarian financial-bureaucratic center in Europe to define the governing parameters of the One Europe, in which there is only one permissible socio-economic model, with one unified set of rules governing one single market system and labor system, means that the scope for meaningful action at the local national level will be continually curtailed over time. All politics is political economy, and without meaningful control over economic policy there is no meaningful control over anything. Democracy and the sense of collective community control over one's destiny will erode further. But of course, from the point of view of that authoritarian center, even that curtailed remaining democracy will be too much democracy: just a source of episodic and obstructive spasms of impotent nuissance on the way to the end goal. I know Europeans have little interest these days in hearing about a United States of Europe. But unless they are willing to move in something like that direction, they are going to have to choose between authoritarianism or chaotic re-fragmentation. They will also find themselves under increasing, and increasingly successful, attack from the various kinds of euro-skeptics and the euro-phobes who can't afford to tolerate a weak and stagnating Europe.
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Yes, if an economy produced one hamburger one year and two the next year, it had 100% growth. No depression! Big deal. But Greece's economy is a total basket case. Look at the employment-to-population ratio, the productivity, the net capital formation.
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I don't know what you mean by "Keynesians" exactly. But if your point is just that central bank asset purchases are economically weak tea that works - to whatever extent it does work - from the top down, then I agree with you. Keynes argued for a "somewhat thoroughgoing socialization of investment", which contemporary central banks are not anywhere close to being involved in. So let's not besmirch Keynes's name with the 2015 bastard Keynesian rot that erroneously goes by his name. Beyond that, if we're talking about more radical or innovative monetary policies that go beyond the kinds of things that central banks are authorized to do, then let's recall that Congress can vote to extend its own powers to issue money any time it wants to. Central banks in their present form are only about a century old, and represent just one series of experiments in monetary mechanics.
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At least Baker is willing to admit how many economists there are are who are interested in reducing the real wages of American workers - and who support so-called "inflationary" policies (actually policies to raise the prices of goods without raising the prices of labor) for exactly that reason. Despite the fact that we live in a plutocratic dystopia in which working Americans have seen their real wages either stagnate or decline for many years while the returns to capital have gone up and up, there are many economists who believe American workers are still paid too much. Relieving the debt burden through inflationary policies certainly is a worthwhile goal. But economists frequently fail to notice - due to their muddled and inconsistent uses of the term "inflation" - that the debt-reduction goal is almost completely at odds with the real wage reduction goal. If consumer prices rise in nominal terms and there is no corresponding rise in nominal wages, then there is no real reduction in the consumer debt burden. (Another way of putting it is that the real value of the debt declines as the price level rises, but the real value of wage income declines by the same percentage, so there is no net change in the burden.) Baker himself has really been on the fence about this issue. He is one of the most prominent figures in the increased-exports-via-lower-real-wages camp. But then he also dips into the debt reduction argument.
Toggle Commented Jul 2, 2015 on Links for 07-02-15 at Economist's View
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Well, you might be right about the effect of a "Yes" vote. Syriza will probably be forced to resign, and then we'll be back where we were a few months ago - a new more centrist government and still nobody with any kind of realistic plan for pulling Greece out of depression. But on the side of the "no" vote, I don't see what impact that will have. As far as I can tell, Europe and the EZ are strongly united against Greece. It's 18 to 1 against. They don't care whether Greece is united or not, since their issue is not just with the present Greek government, but effectively with the Greek people themselves. If every man, woman and child in Greece shouted in unison, "We don't want want to owe $340 billion euros any more!", Europe would just quietly respond, "Tough. You DO owe $340 billion euros." If every man, woman and child in Greece shouted in unison, "We don't want want to change our economy is the way you are demanding in exchange for more European credit", Europe would just quietly respond, "Tough. You WILL change our economy is the way we are demanding if you want more European credit."
Toggle Commented Jul 2, 2015 on Links for 07-02-15 at Economist's View
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Frankly, this strikes me as a very poor rejoinder to a very weak argument. Marriage is "an institution of love"? It can be granted that most married people do love each other. But I don't think that formulation really captures all, or even most, of what underpins the institution of marriage, now or in the past.
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The referendum is meaningless. Since it's a murky partial phrasing of a proposal that isn't on the table now, the outcome of the referendum carries little meaning. The future of Greece might hand in the balance somewhere, but it doesn't hang on what happens with the referendum.
Toggle Commented Jul 2, 2015 on Links for 07-02-15 at Economist's View
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I listened last night to a London School of Economics presentation of a talk by Herman van Rompuy, the Belgian former President of the European Council: http://www.lse.ac.uk/newsAndMedia/videoAndAudio/channels/publicLecturesAndEvents/player.aspx?id=3143 All I can say is that Eurocrats think very differently than I do. The presentation was measured and professional, but very strange to my ears. From what I gather, Euocrats don't really care all that much about growth. They - and the publics they represent - seem to be astonishingly calm in the face of persistently low levels of growth, levels I suspect most Americans would find completely unacceptable. They know that deflation would be bad; but as long as they have non-deflationary, above zero growth rates, things are OK. They also don't seem all that worked up about unemployment. Of course unemployment can cause social disruptions and unrest, and that is to be avoided. But otherwise it is a socially manageable phenomenon that isn't inherently problematic. That's what the social state is for. The basic idea that high levels of unemployment indicate an economy that is producing far below its potential doesn't seem to register - perhaps because (see above) Eurocrats don't care much about growth. The main Eurocratic message seems to be: we already have a very successful social model, and we're sticking to it. Everything is fine. The storm is passed and the waters are calm. What other call "stagnation", Eurocrats see as "stability". They do accept that they have a problem in that they are getting a bit long in the tooth, so the next generation is going to have to do some modest adjusting of the social model, and be more flexible. Otherwise, they think they are managing things quite well, and their current pace is good enough. As far as I can tell, they have no real vision of material progress and transformation that inspires them beyond further institutional/bureaucratic integration of the European system. However, they recognize the world around them does continue to change, so they recognize the need for an ongoing modest level of investment to remain "competitive". In short, the Europeans are steady-staters. They have a vision of conservative fiscal and structural sustainability, and the indefinite perpetuation of a system they already believe to be close to heaven on Earth. The system is based on integrated European rules and values. There is, they believe, only one model, and they all agree on it. All but one: Greece is a problem child but will be brought on board with the application of a little more discipline.
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Agreed. There will always be attractive economic opportunities in Greece. Even if Greece defaults, there will be new investors willing to gamble that they wont default again.
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I don't think it's really entirely economic. They view the euro symbolically as a special European club membership, and don't want to be excluded from that club.
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Actually, governments have a great deal of power to disincentive the domestic use of other currencies and to encourage the use of their preferred currency. As Koenig points out, the euro has only been in circulation for 15 years. The idea that this short period of time has created an overwhelming social pressure or inertia in favor of the euro as a unit of exchange seems odd. Most living Greeks clearly remember a time when they used drachmas. Greece can nationalize the banks, including the Bank of Greece. Then "tax" all euro-denominated accounts at 100% and transfer all of those euros to government accounts. At the same time issue an equal number of drachmas and credit each of those accounts with drachmas through a direct transfer on a 1-1 basis. Everybody wakes up with drachmas in their accounts. Use the taxed euros to pay off euro-denominated government debts, and hold the rest as foreign reserves. Pass legislation that requires every labor contract and existing private domestic debt relationship to be re-interpreted in drachma terms 1-1. Companies will be compelled to accept payment for their products in drachmas in order to meet their own payment obligations to employees. Pass additional legislation by which the Greek government stands ready to assume all euro denominated debts owed abroad (credit card, whatever), and those private debts are then replaced with drachma debts to the Greek government. Basically, you submit your credit card bills and other bills from foreign firms to a government office. They pay with the taxed euros - then they charge the debtor a drachma debt on a government account. (What to to with those debts then becomes a matter of policy.) There are a lot of state run services in Greece. If Greece refuses to accept euro in direct payment for those services, or for payment of taxes, while offering euro-for-drachma exchange at par, they can reduce the domestic circulation of euro notes rapidly. If olive oil producers post a euro price for their olive oil for foreign customers and a drachma price for drachma-using domestic customers, and the price ratio doesn't reflect the euro-drachma market exchange rate, then market forces will compel the producers to re-price. And if most Greeks are being paid in drachmas, then obviously olive oil producers will be compelled to post drachma prices if they want to sell most of their olive oil.
Toggle Commented Jul 1, 2015 on Links for 07-01-15 at Economist's View
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His column today on crippling austerity is pretty good though. The problem, as he says, is the grip of the notion that leaving the Euro is "unthinkable". A lot of Europeans have gotten too tied to the idea that one country leaving the Euro is some kind of continental catastrophe. To read some of the hysteria - such as a recent Guardian piece - Greeks first leave the euro and then its back to Bolsheviks, Nazis, trench warfare slaughter or Mongol invasions or something. But the euro isn't the UN Charter or the Magna Carta or the Treaty of Versailles. It's just money. The unity of Europe does not stand or fall on whether a country decides to use a particular form of money. There are several EU members, in perfectly good standing, who do not use the euro. Big deal. I understand that most of the Greeks themselves cannot wrap their heads around this idea. But economists can easily. Anyway, Greece and the rest of the world have gotten themselve so tangled up in the obsessive attention to the secondary matter of the Greek "debt crisis" that they don't seem to have time to think about the primary crisis - the Nobody has a Job and Our National Output is in the Toilet Crisis.
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Krugman has been better than most in calling out some of the bad actors, but what is Krugman's plan for ending Greece's depression? Is it the same plan he would recommend to American leaders if America were in Greece's position? Would Krugman, an expert on depressions, advocate that the US run a surplus in a depression - just not a very big one - so it can pay its creditors?
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I'm not arguing against Greece collecting more taxes from the moneybags. But if Greece collects more taxes they should spend the money. Collecting more taxes to in order to export the cash to foreign creditors who are not investing the money in Greece is just another way of contacting the economy further.
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It's not surprising. European governments own most of the debt now and want to get paid; and they don't want any special deals that weren't available to them. And the Greeks themselves are in denial. They haven't yet come to grips with what it's going to take to rebuild their collapsed economy.
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"Dealing with tax evasion can come later. Greece needs to get back to full employment first." Bingo. Greece can't grow out of its debt if it is not producing anything. Put people to work. Pay them with anything. Pay them with IOUs; pay them with food coupons; pay them with subway tokens. Does Alex Tsipras - a supposed "leftist" - have any understanding of the first principles of classical economics: that new wealth comes from the application of human labor to existing wealth?
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And yet economists have been extremely slow to react to this massive economic derailment with anything close to the kinds of bold emergency recovery plans they would be ginning up if the same disaster was taking place in their own countries. Why aren't the kinds of figures Stiglitz just cited the headlines here? Why has the Great Greek Depression been treated by the media, and most economists, as though it is fundamentally just a disagreement between Greece and its creditors? What is the plan for putting the 20% of the Greek over-15 population that is not working, but should be working, back to work? Maybe people think that millions and millions of Greek people without jobs is just Greece being Greece? That profound economic dysfunction and failure is a case of "well, what do you expect from those people?" Economists seem to have been so zombified by the inscrutable bureaucratic rhetoric and psychopathic insanity of the Eurocrats, and the bumbling incoherence of the Greek government, that most of them aren't able to think clearly. The Euros have convinced them all that any outside-the-narrow-box thinking will cause chaos, panic, unraveling, The Unthinkable, the Complete End of Europe as We Know It and the Return of the Satanic Hordes. So they sit on sidelines hoping that someone will make some deal that allows Greece to keep paying forever, grindingly, in a way that isn't too, too, too, too painful. Part of the problem maybe is that mainstream economists have too many buddies in the Eurocracy. They can't believe that all those nice people they went to graduate school with have gone so bonkers. The situation with the Eurocrats reminds me a little bit of Alec Guinness in The Bridge on the River Kwai. A noble project (in this case, the Europe project) evolves over time into a demented and fanatical religion whose ultimate purpose is forgotten by its architects, who lose the capacity to adapt to evolving circumstances with common sense.
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Yes, the United States has mechanisms in place for doing ongoing fiscal transfers to poorly performing states - and also Puerto Rico. The Eurozone has no such mechanisms.
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It seems like a decent analysis to me. The difference is that Puerto Rico's debt will be restructured so that Puerto Rico can continue muddling along as before with their customary massive unemployment and underemployment and generally poor economic performance. The Eurocrats, on the other hand, are determined to make an example of Greece.
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Greece can nationalize the Bank of Greece and the commercial banking system, and then convert all of those euro deposits to drachma deposits. It's just a matter of changing the symbols. The problem is that Greeks don't want to do that. They love the euro.
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From a macroeconomic point of view it doesn't matter whether you collect more taxes by raising rates in an efficient tax-collecting system, or by keeping rates the same and being more efficient in actually collecting taxes. Either way you're draining spending power from the economy. What Greece desperately needs to escape from its depression is more spending, specifically on the investment side in the areas of capital development and hiring. Greece is not juts facing some government cash-flow problem. It's facing a massive overall deficiency in productive economic activity.
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I understand your feelings, but I think that at the end of the day you aren't going to get your money anyway. The Greek economy can't sustain its debt burden with its existing economy. All of this will be replayed in November.
Toggle Commented Jun 29, 2015 on Links for 06-29-15 at Economist's View
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Honestly I don't know what Yves Smith is going on about. The referendum isn't any kind of "gambit". Syriza has simply failed to get any kind of deal that falls within the scope of their electoral mandate. It's over. So they are throwing the only deal that is on the table back to the Greek people to decide.
Toggle Commented Jun 29, 2015 on Links for 06-29-15 at Economist's View
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Tsipras just doesn't want to lie down under the bus by himself. He feels he has no mandate to accept the deal. So he wants Greeks to vote on it and take ownership of it.
Toggle Commented Jun 29, 2015 on Links for 06-29-15 at Economist's View
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Yes, part of the mix. But I would really like to hear some of those Euro-geniuses come up with a real-world plan for ending the Great Greek Depression that doesn't reduce to having Greeks make matchbooks and print license plates in Herr Schauble's debtors' prison for a decade.
Toggle Commented Jun 29, 2015 on Links for 06-29-15 at Economist's View
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