debating progressive politics in Europe and beyond
Since the 1970’s, economists have warned that a monetary union could not be sustained without a fiscal union. But the eurozone’s leaders have not heeded their advice – and the consequences are becoming increasingly apparent. Europe now faces a difficult choice: either fix this fundamental design flaw and move toward fiscal union, or abandon the [...]
I was recently rather negative about the way the IMF frames the fiscal policy debate around the right speed of consolidation. In my view this always prioritises long run debt control over fiscal stimulus at the zero lower bound (ZLB), and so starts us off on the wrong foot when thinking about the current conjuncture. [...]
A government that does not tax sufficiently to cover its spending will eventually run into all manner of debt-generated trouble. Its nominal interest rates will rise as bondholders fear inflation. Its business leaders will hunker down and try to move their wealth out of the companies they run for fear of high future corporate taxes. [...]
Over the last decade, as the “great moderation” was transformed into the “great recession” it would not be a mistake to portray the growth process of the Turkish economy as “a gradually-deflating balloon, subject to erratic and irregular whims of the markets”. Yet, if so, the real question becomes: what is the source of this [...]
Carmen Reinhart and Kenneth Rogoff have defended their work of the public debt-growth against their critics in the New York Times. It is not convincing. They repeat their claim that they always insisted that they were talking about correlation, even if less careful or interested parties made strong claims about causation. But this is belied [...]
Last week the ECB published a report containing an incredible revelation: Cypriot and Spanish households are wealthier than German households.[1] How is this possible? We are dealing with an accounting fiction. Spain and Cyprus have a much higher rate of home ownership than Germany, and most household wealth consists of real estate. Both countries saw [...]
The debt sustainability analysis (DSA) along with other documents related to the program for Cyprus was leaked today on the wires first by Reuters and then the actual documents were published in the Brussels blog of the FT. The DSA is as expected based on massaging numbers and ignoring risks to arrive at a baseline scenario with [...]
I have just come across this video by Brown University Professor Mark Blyth (thanks @JamesHannahUK) who explained very well in five minutes why austerity, especially when everybody engages in it at the same time, is a very bad idea. The video is two years old but – unfortunately – is still up to date with [...]
In an earlier post, I reported some speculation by Coen Teulings on why politicians seem to ignore the majority of economists when it comes to austerity. (On the minority of economists that do support austerity, see here.) Mark Thoma responded that it was because austerity gave politicians the chance to pursue ideological goals, and of [...]
An interesting discussion at the Council on Foreign Relations. Willem H. Buiter, chief economist at Citigroup, discusses break-up risk, sovereign debt restructuring, bank creditor bail-ins, debt mutualization, austerity, and growth in the Eurozone.
With much of the global economy apparently trapped in a long and painful austerity-induced slump, it is time to admit that the trap is entirely of our own making. We have constructed it from unfortunate habits of thought about how to handle spiraling public debt. People developed these habits on the basis of the experiences [...]
Eurozone policy seems driven by market sentiment. This column argues that fear and panic led to excessive, and possibly self-defeating, austerity in the south while failing to induce offsetting stimulus in the north. The resulting deflation bias produced the double-dip recession and perhaps more dire consequences. As it becomes obvious that austerity produces unnecessary suffering, [...]
All Content