Home > Uncategorized > Links for today. Deflation delusionalists

Links for today. Deflation delusionalists

I was pleasantly surprised by this informed and moderate speech by Mario Draghi (though I do not agree with his suggestion that structural employment is 9,7%…). But then I read Billy Blog about the latest ridiculous nonsense by the European Commission (sanctioned by the ECB) and I was reminded that economic economic insanity lurks, well, not around the corner but has centre stage: “When policy becomes so distorted that nations with rampant deflation and elevated levels of unemployment (particularly youth) are held out as the “best-performing Member States” you know that reality has fallen off the cliff and neoliberal Groupthink is dominant.”

Summary of the blogpost: inflation in EU countries should be close to inflation in what the European Commission and the ECB consider to be the ‘best performing members’, even if this inflation is actually -1,6% (Spain) or even -2,5% deflation (Bulgaria). Billy Blog of course points out that this race to the bottom is incompatible with the official inflation ‘close to 2%’ goal of the ECB, which was recently forcefully restated by Mario Draghi in this speech.

From William Mitchell on Billy Blog:

The EC and ECB 2016 Reports are available as at June 7, 2016:

1. ECB Convergence Report 2016.

2. European Commission Convergence Report 2016

The ECB (and EC) methodology is as follows:

1. Calculate the annual percentage changes in the HICP for each monthly observation.

2. Average these monthly observations (annual inflation rate) over the period May 2015 to April 2016 which forms the reference period.

3. Select the three nations with the lowest ‘inflation’ rate, which might lead you to think that rate would have to be positive. You would be wrong. The lowest ‘inflation’ rate includes deflation. So in this era of deflation, The ECB and the EC were looking for the nations with the highest rate of deflation as their “best-performing Member States” according to Article 140.

4. Average the deflation rates of these three ‘superlative’ nations.

5. Add 1.5 percentage points to that result to come up with the benchmark for assessing the nations convergence performance to join the euro based on the ‘price stability’ criterion.

But hidden, pretty close to the surface of this arithmetical exercise is the ideology of the political elites that are destroying the prosperity of citizens within the European Union and the Eurozone, in particular.

 

  1. June 15, 2016 at 6:47 am

    Okay. You are such an arrow to the heart of the matter!

    Now how do we get back to using less than one planet and still prosper during the information and space age? The elephant in the room is environmental friction plus militant consumption.

    Autonomous democracy is modern idea and deserves thousands of suggestions and answers from economists, sociologists and scientific philosophers.

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