Showing posts from February, 2015

The failure of macroeconomics

This is the text of a talk given at Manchester University on 26th February 2015 proposing the motion "This house believes that mainstream economics has failed". It was followed by contributions from Trina Watson of the Post-Crash Economics Society (supporting), Dr. Andrew Lilico and Dr. John Ashworth (opposing), and a lively debate. 

Since the financial crisis there has been growing criticism of “economics”. From the Queen’s famous question “why did no-one see this coming?” to the Occupy movement and now to the Post-Crash Economics society founded by students at this university, people have questioned the purpose of an economics profession that failed to see the disaster approaching and seemed to have little coherent idea what to do about it.

Nonetheless, a blanket condemnation of "economics" as having failed is I think too wide. I therefore wish to narrow the framing. There are many economists out there doing important work, both in industry and in academia, on la…

Greece and the EU: a question of trust

I have been mulling over the terms of the agreement between Greece and the Eurogoup. Initially, I thought that Greece had ended up with an appalling deal, getting almost none of its aims and losing control of EFSF funding for its banks. The retention of future primary surplus targets under the November 2012 agreement - only the target for this year is under review - seemed particularly harsh.

But then I listened to Pierre Moscovici explaining the thinking behind the deal, and suddenly the penny dropped. We've all been missing the point. Holger Schmieding of Berenberg Bank was on the right lines - he commented recently that the real problem in the Greek negotiations was that trust had broken down. Indeed it has. But not recently. Trust in Greece broke down a long time ago.

The most obvious breakdown in trust happened in 2010 when the extent of Greece's indebtedness was revealed - and the lengths to which it had gone to conceal its true position. With the help of Goldman Sachs…

The Battle of the Drafts

Greece's battle with the Eurogroup over its debt and bailout terms is heating up. And both sides have deployed a new and powerful weapon. The draft communique.

It all started with the draft communique presented to the Eurogroup finance ministers meeting by Jeroen Dijsselbloem. This was leaked to the press by the Greek delegation, complete with angry annotations, before the meeting even started. When the Greeks rejected it, therefore, the press already knew both the contents of the communique and the reasons for its rejection. Round 1 to the Greeks.

And Round 2, as well. After the meeting, Yanis Varoufakis held a press conference in which he complained that the draft presented to the meeting was not the draft he had discussed with the European Commission's Pierre Moscovici, which he said he had been "happy to sign". A draft purporting to be the "Moscovici draft" was duly leaked to Channel 4's Paul Mason. Unsurprisingly, it contains none of the commitme…

Reforms, bloody reforms

From the OECD comes this chart showing which countries have done the most since 2007 to reform their economies: (h/t London Analyst):

Isn't this marvellous? All those who say Greece hasn't done any reforms now have egg on their faces. Greece deserves hearty congratulations for its reform effort.

And as the headline says, all those reforms are paying off, aren't they?

From the OECD's Economic Outlook dataset for November 2014, here is the GDP growth of the five best reformers since 2007:

And here's the GDP growth of the five countries that have done the least reform since 2007:

Since the GDP growth in 9 of the 10 countries is actually lower in 2014 than it was in 2007, and the tenth country (the USA) has made no significant reforms, it is not evident from these charts that "reform" makes any difference at all.

Ah, you say, but that is because we have not allowed reforms long enough to work.....

But Germany made painful reforms in the early 2000s. Surely a…

My Favourite Greek Things

Fresh from the resounding success of "How do we solve a problem like Mario", lyricist-extraordinaire Brian Lucey has a new song for the delectation of those interested in all matters Greek.
Mario's Favourite Things

Haircuts on Greek bonds and ELA exploding,
LTROs and OMTs, liquidity flowing,
Wondering which of the lefties will win,
These are a few of my favourite things.

Deposits eroding and capital oozing,
Taxes evading and cronies a-schmoozing,
Yanis going cheap via German wings,
These are a few of my favourite things.

13-month salaries and no privatisation,
Structural reforms that are stuck at the station,
Coming the Troika - what will it bring?
These are a few of my favourite things.

When The Dawn comes,
When Putin rings,
When I'm feeling sad,
I simply remember my favourite things
And then I don't feel so bad.  But of course, this is a song.... so it has to be sung, doesn't it? Fortunately yours truly has the wherewithal....

Here is my rendition. Enjoy.

What on earth is the ECB up to?

The ECB has abruptly announced withdrawal of the "waiver" under which it was prepared to accept Greek sovereign bonds as collateral for liquidity. This created a considerable Twitter storm, with lots of angry people saying the ECB's action was beyond its mandate and far too precipitate: it should at least have waited for the Greek Finance Minister, Yanis Varoufakis, to meet his German counterpart, and it should not be acting as if the bailout programme was ended when negotiations were still proceeding. I admit, I was one of those people.

And I stand by my views. The ECB is acting far beyond its mandate in seeking to influence negotiations between Eurozone member states regarding the terms and conditions under which member states lend to their distressed partners. It has no business interfering in fiscal policy: if the Greek government decides to run 1.5% fiscal surpluses instead of 4.5%, hike minimum wages and create lots of government jobs, it is none of the ECB's …