1. In econaria unemployment, already at historical highs a year ago, has persistently risen over the last year, by a full percentage point in all. Meanwhile inflation has fallen, somewhat erratically, over the past year. The public authorities are revising down their growth forecasts and warning of the risk of recession in the econarian economy in the coming quarters.
A: Economic policy is too tight and should be made more expansionary or less restrictive.
B: Economic policy is set just right.
C: Economic policy is too loose and should be tightened.
I suspect that at least 90% of first year students would choose A – and probably wonder why economics has the reputation of being difficult.The remaining <10% fail the exam. Either they read at least some of the course material before taking the resit or they consider a change of career.
Now ponder today’s numbers for the euro area.
SEASONALLY ADJUSTED UNEMPLOYMENT RATES (%)
Oct 2011 – May 2012 Jun 2012 Jul 2012 Aug 2012 Sep 2012 Oct 2012
10.4 – 11.3 11.4 11.5 11.5 11.6 11.7
Euro area annual inflation (HICP), %
Nov 2011 - Jun 2012 Jul 2012 Aug 2012 Sep 2012 Oct 2012 Nov 2012
3.0 – 2.4 2.4 2.6 2.6 2.5 2.2
And then the recent forecasts by the public authorities:
European Commission euro area growth forecast (November): -0.4% (2012) and 0.1% (2013)
OECD euro area growth forecast (November): -0.4% (2012) and -0.1% (2013)
Given that 90% of first year economics students would be of the view that economic situation described by these data implies a need for less restrictive or more expansionary policies, obviously the European Commission, in its Annual Growth Survey 2013 thinks that we are on the right track and the reform momentum must be continued:
The EU economy is slowly starting to emerge from the deepest financial and economic crisis in decades. However, although important action has already been taken and positive trends are beginning to emerge, we remain some distance from a recovery. To restore confidence and return to growth, it is essential that Member States maintain the reform momentum, and for this reason the Commission recommends focusing on the same five priorities that were identified in last year’s Survey:
The first of these priorities? Pursuing differentiated, growth-friendly fiscal consolidation…
The first AGS, for 2011, was an unmitigated disaster and played a central role in driving the austerity agenda across Europe. Its failure was predicted at the time. Alas, it seems little has been learned since. An alternative is urgently needed. Can a first year economics student please take over EU economic policy?