from David Ruccio
The European: Four years after the beginning of the financial crisis, are you encouraged by the ways in which economists have tried to make sense of it, and by the ways in which those insights have been taken up by policy makers?
Stiglitz: Let me break this down in a slightly different way. Academic economists played a big role in causing the crisis. Their models were overly simplified, distorted, and left out the most important aspects. Those faulty models then encouraged policy-makers to believe that the markets would solve all the problems. Read more…
from Mark Weisbrot
It has become a ritual: every six months I debate the IMF at their annual meetings, most recently represented by their Deputy Director for Europe. It takes place in the same room of that giant greenhouse-looking World Bank building on 19th Street in Washington, D.C. And the IMF’s defense of its policies in the eurozone is not getting any stronger.
Maybe it’s because most economists at the IMF don’t really believe in what they are doing. The Fund is, after all, the subordinate partner of the so-called “Troika” – with the European Commission and the European Central Bank (ECB) calling the shots. And most Fund economists know their basic national income accounting: fiscal tightening is going to make these economies worse, as it has been doing. Those that have tightened their budgets the most, e.g. Greece and Ireland, have shrunk the most – as would be predicted. The Spanish government, which today announced a 52 percent unemployment rate among its youth, has projected that the planned budget tightening for this year would by itself take 2.6 percentage points off of 2012 growth. Read more…
10. Austerity, democracy, and economics
9. Emerging vs. developed countries’ GDP growth rates 1986 to 2015
8. Protest of the day
7. Keen, Krugman and National Accounting
6. Should the “heretic” demand a retraction from the New York Times? Read more…
from Dean Baker
After touting the economy’s strong growth over the last three months we are now seeing news reports warning that the economy is actually weaker than we thought. No doubt the double-dippers will soon emerge from underneath the bridge to warn us of the economic calamity that lies just around the corner.
The problem in this picture is that these analysts are literally worrying about the weather. The weather can have a substantial effect on the economy. Much of this effect is entirely predictable. We know that every summer tens of millions of people will take vacations and go to resort locations creating jobs in hotels, restaurants, and other vacation-related industries. Read more…
from Edward Fullbrook
7 May, Academic Spring: phase two
The world campaign to stop the annual siphoning of billions of dollars of taxpayer and charitable funds from research and education into the coffers of Elsevier, Springer and Wiley reached a major threshold yesterday.
from Ali Kadri
Between 1980 and 2010 the share of the rural to total population in the Arab world dropped significantly from about 60 percent to around 40 percent. In absolute terms, an estimated seventy million people left the countryside to urban centres at home. This conservative estimate is nearly equivalent to the total number of rural-urban migrants since the beginning of the twentieth century until 1980. While this exodus was occurring, the regional rate of unemployment was rising and the share of labour in the form of wages fell to around a quarter of national income. By 2007, the Arab League declared that more than half the Arab population was living at less than the two-dollar per day benchmark. Basic food production was decreasing and food imports were rising in this high per capita food dependent and scarcest-water area globally. Around half the population in the Arab world was spending more than half of its income on purchasing food. When speculation reached the commodity market and basic food prices rose, scuffles before bakeries in Egypt resulted in several fatalities. The agricultural sector was shrinking relative to the economy. The productive economy, in turn, was de-industrialising and retreating relative to oil and geopolitical rents. The deconstruction sustained by the agricultural sector, in particular, led to massive dislocation throughout the neoliberal age.
The explanation of this phenomenon afforded by the class of neoclassical economy models known as dual-economy models are unfitting tools for understanding why and how this process could undergo unchecked for three decades. Read more…
from Merijn Knibbe
Update: if you think that the third – fifth sentence is a hyperbole, well, it isn’t. Read this EU/ECB/IMF statement on Ireland.
Today, Eurostat published new data on EU government deficits, 2011. The implicit message could not be clearer. The ECB does not mind high deficits. The Irish deficit is the highest of the entire EU. But the ECB loves Ireland – as the money is ‘well spent’, i.e. used to bail out the banks. You don’t believe me? Look here and here for two speeches from a board member of the ECB who lauds the Irish example and emphasizes the importance of ‘bankaid’. And don’t tell me that this ECB guy did not have any idea about this high Irish 2011 deficit – he just did not care. Because the Irish do as they are told. By him.
Remarkable: the consolidated Eurozone deficit is, in a historical perspective, not really high and about half the size of the UK. USA of Japan one. Some tinkering with the quarterly data for the first three quarters (the fourth is not yet available) yields that the fourth quarter deficits is even less than 3%. At the same time, nobody talks about the end of the pound, the dollar or the Yen. But the break up of the Euro is a possibility… The Eurozone crisis really is a choice – and the troika (EU, IMF, ECB), dominated by the two banks, does not intend to waste it.
from Edward Fullbrook
Few large circulation periodicals are more rightwing and committed to defending corporate interests than The Economist. But below is the opening paragraph from an editorial in their print edition.
PUBLISHING obscure academic journals is that rare thing in the media industry: a licence to print money. An annual subscription to Tetrahedron, a chemistry journal, will cost your university library $20,269; a year of the Journal of Mathematical Sciences will set you back $20,100. In 2011 Elsevier, the biggest academic-journal publisher, made a profit of £768m ($1.2 billion) on revenues of £2.1 billion. Such margins (37%, up from 36% in 2010) are possible because the journals’ content is largely provided free by researchers, and the academics who peer-review their papers are usually unpaid volunteers. The journals are then sold to the very universities that provide the free content and labour. For publicly funded research, the result is that the academics and taxpayers who were responsible for its creation have to pay to read it. This is not merely absurd and unjust; it also hampers education and research. Read more…
from Mark Weisbrot
The Argentine government’s decision to re-nationalize its formerly state-owned oil and gas company, YPF, has been greeted with howls of outrage, threats, forecasts of rage and ruin, and a rude bit of name-calling in the international press.
We have heard all this before. When the Argentine government defaulted on its debt at the end of 2001, then devalued its currency a few weeks later, it was all gloom and doom in the media. The devaluation would cause inflation to spin out of control, the country would face balance of payments crises from not being able to borrow, the economy would spiral downward into deeper recession.
Nine years later, Argentina’s real GDP has grown by about 90 percent, the fastest in the hemisphere. Employment is at record levels, and both poverty and extreme poverty have been reduced by two-thirds. Social spending, adjusted for inflation, has nearly tripled. Read more…
from Merijn Knibbe
In November, Eurostat published a new statistic which, for the first time, enabled the calculation of ‘U-6’ unemployment in Europe (2010), a metric which not only includes unemployed people seeking work and (almost) directly available for work but also people who are not directly available as well as people who are available but do not seek and people with a part-time job who want to work more. Barely five months later they published the 2011 data. Eurostat does, for whatever reason, not use the data to calculate U-6, unlike the Bureau of Labor Statistics in the USA, so somebody else had to do it (graph 1 and 2). What does is show? Read more…
from Dean Baker
It is clear that we are not going to see any major action from the federal government to reduce unemployment any time soon. There is no hope that this Congress will support another round of stimulus and not much more hope from the next Congress, even if the Democrats somehow regain control.
What that means is that we are looking at a long, painfully slow recovery. Assuming that the economy continues to generate 200,000 jobs a month, roughly its average over the last three months, we will not get back to more normal levels of unemployment until somewhere near the end of the decade.
And it is certainly plausible that progress will be worse. That story assumes a recovery lasting for more than a decade, something the United States has never experienced. Read more…
Cinzia Alcidi and Daniel Gros call an 80% decline of construction orders in Spain ‘some’ adjustment… (4 charts)
from Merijn Knibbe
Help. Help! HELP!
“Spain faces high unemployment and slow growth. This column focuses on an important sources of those problems – its housing market. While some adjustment has occurred since Spain’s housing bubble burst in 2008, house prices and construction need to decrease more to slow Spain’s unsustainable accumulation of foreign debt.”
The authors compare Spain with Ireland where, according to them, adjustment was faster and more ‘succesful’. Are they right that adjustment in Spain was ‘too little to late’? NO. Their idea that Spain only had a ‘bustlet’, especially when compared with Ireland, is ridiculous (see the graphs, all data Eurostat). Yes, prices of new residential buildings declined less as well as less fast than in Ireland – but only because they also increased less as well as less fast as in Ireland. And calling an 80% (EIGHTY PERCENT) decline in orders ‘some adjustment’… be serious. EIGHTY PERCENT! Though production and labor use declined ‘only’ sixty and fifty percent – further decline seems inevitable. Read more…
from David Ruccio
Here’s Amartya Sen, from an interview with Olaf Storbeck and Dorit Heß.
Question: Professor Sen, do you have the impression that economists and economic policy makers are learning the right lessons from the most severe economic and financial crisis since the Great Depression?
Answer: I don’t think that at all. I’m quite disappointed by the nature of economic thinking as well as social thinking that connects economics with politics.
What’s going wrong? Read more…
from Merijn Knibbe
I just watched an INET speech from Jorg Asmussen, member of the board of the ECB. He still seems to be confident that the ECB has the right definition of ´inflation´ and the right inflation target, despite everything which happened to house prices (excluded from their data…). The ECB definition is outdated and obsolete – not just my opinion but also the implicit opinion of the Fed. Time to reblog an earlier post.
As part of the research for a small paper I visited the websites the European Central Bank and the FED. There turns out to be a very marked and remarkable difference in the way they define: ‘inflation”. The ECB very clearly defines price stability as an increase (sic!) in the ‘Harmonized Index of Consumer Prices’, the FED admits that there are more prices than just consumer prices. Note also the difference in tone…
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from Erwan Mahé (guest post)
Today I would like to briefly examine an issue that might seem to be a major point, but which cruelly exposes the current eurozone construction fault lines and which shows how much “image” can dissimulate reality.
In the last two years, we have seen many of our German friends express their dismay at the supposed adventurism of the ECB’s unorthodox measures, like the SMP and the easing of collateral eligibility for the second VLTRO. They have also denounced the supposed desire of certain governments to use the ECB as an instrument of fiscal policy by making it play a role incompatible with its restrictive mandate.
But yesterday we were treated to one more example of the saying, “do as I say and not as I do”, with the very mediocre results of the 10-year Bund auction in Germany when the Bundesbank again intervened to buy a portion of it in order to head of a big, fat flop! In effect, the German central bank bought €1.13 billion (22.60%) out of the €5 billion in Bunds put on sale! And that came after having served the entirety of non-competitive bids made by banks during the auction process, i.e., €2.257 billion or 55% of total demand. In reality, competitive bids, totalling €1.852 billion, represented just 37% of the total amount that the German government sought to raise. I don’t think I need to draw a picture of what would have happened if the Buba had not fulfilled its role as “protector” of the image of German debt. Read more…
from John Schmitt
Paul Krugman has reproduced an OECD chart that was featured in a recent post by Jared Bernstein. The graph of interest (below) contrasts the share of older and younger people in OECD countries that have the equivalent of a four-year college degree or more.
Source: OECD via Jared Bernstein. Read more…