tag:blogger.com,1999:blog-8764541874043694159.post6473985251758508343..comments2024-03-29T10:48:38.142+00:00Comments on Coppola Comment: A poignant reminderFrances Coppolahttp://www.blogger.com/profile/09399390283774592713noreply@blogger.comBlogger38125tag:blogger.com,1999:blog-8764541874043694159.post-40979546731380810662015-05-15T14:21:07.426+01:002015-05-15T14:21:07.426+01:00@Ralph. I don't feel competent to enter into d...@Ralph. I don't feel competent to enter into detailed discussions about banking, and certainly not on this blog! As far as my understanding of full reserve banking is concerned, it seems to me that it contradicts banking practices over the last century or longer, and severely limits the credit available to service a capitalist economy. It has the advantage of being completely safe, and the clear disadvantage of impeding economic development.<br /><br />Concerning the internal devaluation idea. Well, i suppose it is probably true that if you pursue an expansionary fiscal policy then you can compensate for much of the depressed demand caused by the reduction of wages. However, this will not be sufficient to compensate for the reduced local wages -- which ceteris paribus would lead to long-term exodus (emigration) of skilled workers thus damaging the quality of the indigenous labour force. Increased unemployment seems almost inevitable to me, as it would be very difficult to engineer appropriate new jobs for those who had lost their jobs, particularly ones appropriate for skills and experience of the redundant workers. This again would damage labour quality.<br /><br />The other major problem is that this is theoretical: the conditions under which governments would want such an internal devaluation are certainly going to be very serious macroeconomic conditions. In those conditions, without external financing (such as the EU), it seems unlikely that a government would be able to raise the money on international markets or to finance it from domestic sources.<br /><br />Putting these two problems together, I stand by my original claim that an "internal devaluation" is no substitute for conventional exchange rate devaluation. The latter is an adjustment (preferably market driven) that compensates for things like continued unbalanced trade, along with uncompetitive production costs. It addresses the traded sector and has a positive effect on the non-traded sector provided that consumers alter their buying patterns in line with higher prices of imported goods (and that the domestic sector is able to produce such goods). This is not the case with the internal devaluation, which is far too crude a policy instrument. <br /><br />Basically, when you join a monetary union you make a major structural commitment. This, the eurozone countries failed to realise. Pure amateurish economic management by politicians with no grasp of anything.Guest(xenos)http://www.mmo.grnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-55422775259162176492015-05-15T05:00:55.691+01:002015-05-15T05:00:55.691+01:00Hmm. Prior to the crisis, the European countries w...Hmm. Prior to the crisis, the European countries with the highest unemployment rates were mostly those that structurally prioritised permanent full-time posts and discouraged part-time positions. Two of these countries (Italy and Greece) also had high informal activity. <br /><br />But there are many other factors that account for different unemployment rates. One of them is the "natural rate" argument concerning economic structure. Another is something that has come up recently from CEDEFOP concerning overqualification of Europe's labour force, alongside skills mismatch. There are far too many graduates and those with postgraduate degrees who are looking for work compared with the jobs available. At the same time, there are unfilled specialised posts for which the employers need to recruit non-EU workers to fill them. The two mismatches are (according to models) expected to worsen significantly over the next decade, unemployment will rise while imported skilled labour will increase.Guest(xenos)http://www.mmo.grnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-77136458514984018222015-05-13T14:15:42.097+01:002015-05-13T14:15:42.097+01:00Fair enough, so the adjustment due to participatio...Fair enough, so the adjustment due to participation rate is approx. 0.5%. What puzzles me then is the big difference in the unemployment rate before the financial crisis. It's as if the "natural" unemployment rate is much higher in Europe permanently. What could explain that? Is it the informal sector of difference in treatment of part-time or seasonal employment? thetanoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-5409777862508379672015-05-13T10:29:40.050+01:002015-05-13T10:29:40.050+01:00Guest(xenos),
Re your first para, the exact exten...Guest(xenos),<br /><br />Re your first para, the exact extent to which internal devaluation would have a deflationary effect is not clear. E.g. one could argue that if wages are cut (as per my prescription) but prices and profits don’t fall pari passu then wage earners’ ability to buy stuff is reduced, ergo demand declines. On the other hand, that scenario automatically means that profits rise, and if entrepreneurs spend that extra profit, then the fall in demand could be less than might at first seem to be the case.<br /><br />But that’s all irrelevant because the state can perfectly well make up for any fall in demand by implementing stimulus.<br /><br />Re your second para, I agree that members of the Troika, and indeed economists in general are all over the place on this one. But then economists are all over the place on most issues!<br /><br />Re your third para, you refer to the fact that the Troika demands deflation so as to bring about internal devaluation, and claim that that conflicts with the above stimulus. My answer to that is: “not under the “accelerated” internal devaluation system I’m proposing".<br /><br />That is, the Troika’s form of internal devaluation consists of imposing deflation (high unemployment etc) for years on end in the hopes that that cuts wages and prices in periphery countries. So deflation and high unemployment is an inherent part of that system. By contrast, I’m saying: “why not just jump straight to the desired end result, i.e. reduced wages (and hopefully also profits)”. IN THEORY that could be done almost overnight with the result that years of deflation and high unemployment are not needed.<br /><br />Re your final para, I don’t disagree with much there. You say, “On my part, I believe that banks should have been allowed to go bankrupt and the West should have rethought the role of banking in advanced capitalism.” The problem with letting lots of banks go under with the EXISTING BANK system is that chaos ensues (witness Lehmans), which is one of the main reason those banks were saved. A much better alternative (one which I think also deals with your desire to “rethink the role of banking”) is to simply bump up bank capital ratios to WAY ABOVE their present level. Personally I favour a 100% ratio as advocated by many of those who back full reserve banking. That way it’s plain impossible for banks to go insolvent.<br /><br />If that system had been in place, the Euro authorities would have been able to stick two fingers up at the banks which loaned too much to Greece. The bank system WOULD NOT HAVE collapsed. Bank shareholders would have taken a big hit. Plus Greece would have got off more lightly. What’s not to like?<br /><br />I’ve looked at numerous complicated economic issues over the last year or two. In half of those cases the game ends with full reserve banking holding the trump cards, as it does with this “Greek” argument.<br /><br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-74224212745228032482015-05-12T17:11:46.102+01:002015-05-12T17:11:46.102+01:00Gary, your posts are the equivalent of a child sta...Gary, your posts are the equivalent of a child standing in a room shouting "la la la I can't hear you, you're all smelly".gastro georgenoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-61872854710391273902015-05-12T15:08:09.146+01:002015-05-12T15:08:09.146+01:00I know a statist when I see one.
Call it whatever ...I know a statist when I see one.<br />Call it whatever you like, you're all deluded.Gary Morganhttps://www.blogger.com/profile/09934552877086935070noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-66841995080372234472015-05-12T14:24:02.738+01:002015-05-12T14:24:02.738+01:00Gary,
Chris's remarks don't come from MMT...Gary,<br /><br />Chris's remarks don't come from MMT but from his own world view, which is highly original. It bears a passing resemblance to MMT, that is all. But if you understood MMT you would know that. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-69795354829240319832015-05-12T14:21:04.989+01:002015-05-12T14:21:04.989+01:00I would add that severe internal devaluation also ...I would add that severe internal devaluation also damages the supply side because it reduces labour quality and destroys domestic demand. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-61258371662025553382015-05-12T11:36:31.145+01:002015-05-12T11:36:31.145+01:00@Ralph. Regarding your two replies. The second fir...@Ralph. Regarding your two replies. The second first: although in theory an "internal devaluation" might have helped, there were twin issues concerning this. The first is a theoretical and actual one: that an internal devaluation does not have the same effect as an exchange rate devaluation because it affects the domestic and external sectors equally. That has the result (if the int. dev. is large) of a massive reduction in demand followed immediately by deflation -- leading most certainly to a recessionary downward spiral. <br /><br />Since Greece is the first victim of this idea of int. devn. one would have hoped that a strong theoretical analysis would inform the Troika. Far from it, they had no plan, and the IMF had very very poor models which contradicted the Greek models I was familiar with. The Greek models (from the state economics institute) predicted correctly the multiplier that the IMF got wrong, damaging the Greek economy very seriously.<br /><br />So, an internal devaluation probably also needs a fiscal stimulus, to avoid depressed demand. That means more government spending, which was the exact opposite of what the Troika wanted.<br /><br />And the answer to your first question is dependent on whether your priority is saving northern European banks or saving the Greek economy and the eurozone. The poiticians took appropriate action to save the banks and obviously had no interest in saving Greece. They pretend publicly the opposite, but the evidence contradicts their mealy-mouthed lies. On my part, I believe that banks should have been allowed to go bankrupt and the West should have rethought the role of banking in advanced capitalism. That is of course a risky approach, requiring real political vision and courage -- which they lack. Hence the mess we see now.Guest(xenos)http://www.mmo.grnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-32336222383875895852015-05-12T09:33:25.014+01:002015-05-12T09:33:25.014+01:00Guest(xenos),
You refer to Greece’s “overvalued e...Guest(xenos),<br /><br />You refer to Greece’s “overvalued exchange rate” that resulted from Greece joining the Euro, and the consequent influx of foodstuffs the Greeks had previously produced themselves. That supports my point that a big enough internal devaluation would solve the problem, surely?<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-71227998217850942362015-05-12T09:01:58.255+01:002015-05-12T09:01:58.255+01:00Guest(xenos),
Re the "poverty of austerty ec...Guest(xenos),<br /><br />Re the "poverty of austerty economics" to which your refer, you don't seem to have any better ideas.Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-8817732883762244852015-05-12T03:37:07.017+01:002015-05-12T03:37:07.017+01:00The OECD gives standardized unemployment rates for...The OECD gives standardized unemployment rates for almost all countries, anyway. It is not normally necessary to enter into this sort of debate, unless there is reason to think that there are serious new data deficits. The regular labour force surveys should pick up most of the major changes anyway, even if the official data are suspect.<br /><br />The only real problem with comparative unemployment data is in comparing types of employment, e.g. when part-time employment is involuntary and an extensive phenomenon. Or when the informal sector is rather large, and total economic activity does not match lower known employment levels. No simple answers to those.Guest(xenos)http://www.mmo.grnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-71896799407704425622015-05-12T03:28:26.026+01:002015-05-12T03:28:26.026+01:00Prior to joining the euro, Greece was self-suffici...Prior to joining the euro, Greece was self-sufficient in food and imported little. One of the really ridiculous effects of an overvalued exchange rate (the euro vs drachma) along with easier and cheaper access to credit was to fill supermarkets with imported fruit and vegetables, while domestic production collapsed. Moreover, the quality of the imported food was lower -- e.g. lemons from Turkey, very large and tasteless and rather dried up.<br /><br />At the behest of the Troika, Greeks did suffer a massive "internal devaluation" of wages ann pensions (not to mention jobs lost). Since this was done simultaneously with imposing new massive taxes on property, collected via electricity bills with the threat of disconnection if you didnt pay up, along with new tax demands and hikes in VAT... the result was a great depression. This was always very clearly going to be the rresult, since the objective of the Troika was to force the Greek government to collect additional taxes and cut expendiiture. There was no intention of reforming the Greek economy, or assisting it to survive the fiscal crisis of the state while promoting private sector competition.<br /><br />And that is where Greece remains to this day. Internal devaluation, or even conventional devaluation, has no meaning when an economy is in sustained depression. So-called reforms have no meaning either, in a hostile macroeconomic setting. This is the poverty of austerity economics, with Greece as the worst case but not alone.Guest(xenos)http://www.mmo.grnoreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-34544082702657827112015-05-11T21:31:06.201+01:002015-05-11T21:31:06.201+01:00Chris, I understand MMT perfectly well thank you, ...Chris, I understand MMT perfectly well thank you, so spare me the sanctimonious lectures. You guys forget that MMT is flawed in a global economy, and once demand for one's money vanishes, your little game is up. Watch out!<br /><br />You folk are all the same, you think government is basically a force for good. You believe creating money from thin air for government to spend on *investment* is a good thing.<br /><br />I believe you're all wrong, government rarely spends well, as the past shows, and the future will prove it again.<br /><br />Let's see shall we?Gary Morganhttps://www.blogger.com/profile/09934552877086935070noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-5781250939449252682015-05-11T21:19:14.646+01:002015-05-11T21:19:14.646+01:00Quite right Gary, the last thing we need is profli...Quite right Gary, the last thing we need is profligate spending. <br /><br />But we do need massive investment in productive assets such as decent, affordable housing for all and the transition to a low carbon economy (which makes more & more sense the higher carbon fuel prices get). We also need spending on productive people to care for us, educate us, keep us secure and so on. <br /><br />No government which is a sovereign currency issuer can ever run out of money. There is no reason whatever why a government should not fund such investment simply by creating and spending the necessary Treasury credit (aka modern money) into existence. This happens routinely in wartime, and of course continues on a massive scale to fund increasingly baroque weaponry and a completely useless nuclear deterrent.<br /><br />Having spent money into existence, the Treasury may avoid inflation either by taxing and retiring excess money or by mopping it up with savings instruments (eg War Loan in war time) to the extent that the private sector cannot attract savings. It is a misconception that the government stock which is issued to fund expenditure after the fact is debt - it is in reality dated credit not a million miles away from Preference Shares in UK Incorporated.<br /><br />But I digress. The point is that provided expenditure on productive people (and that does not necessarily mean productive of profit) and productive assets is professionally managed (and yes, government doesn't always get that right) there is no reason at all why the Treasury should not fund this expenditure either through direct expenditure or through the fiscal agency of its Central Bank.<br /><br />When you've learnt how a modern economy works in practice then you will be qualified to criticise Frances, but will in fact not feel the need. Until then, you're doing yourself no favours by displaying your ignorance in this forum.ChrisJCookhttps://www.blogger.com/profile/04210399176675359293noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-10520937588022973642015-05-11T21:06:27.495+01:002015-05-11T21:06:27.495+01:00Scandinavian countries have low debt/GDP generally...Scandinavian countries have low debt/GDP generally ( Sweden/Norway for example). Certainly smaller govt than Greece/Japan and others.<br /><br />High taxes do not necessarily equal big government, if taxes are used for welfare, rather than for feeding the govt pigs at the trough.Gary Morganhttps://www.blogger.com/profile/09934552877086935070noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-8032703474870192662015-05-11T20:51:39.435+01:002015-05-11T20:51:39.435+01:00Gary,
If “big government” is an important part of...Gary,<br /><br />If “big government” is an important part of the problem, how come there are many countries round the world which have as “big a government” as Greece, but don’t have Greece’s problems? Scandinavian countries spring to mind.<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-20816494204058950952015-05-11T19:10:21.923+01:002015-05-11T19:10:21.923+01:00Your prescription above was more printing, borrowi...Your prescription above was more printing, borrowing and spending. More of what went wrong in the 30s.<br />Classic view-of-the-times, QE doesn't work, deficits are too small, we MUST DO MORE. Kill the savers, the selfish savers, they must be robbed to pay for the debtors!<br />Yes, we will do more, so do not worry, your wish will come true (although not in Greece or the EZ, the Euro concept will thankfully hamstring you, and I don't see the feckless winning a referendum against the savers). Tough luck eh! Perhaps go and live in Argentina or Venezuela, where you will find Utopia awaits you.<br /><br />Today's misery will be like a party in 10 year's though, mark my words. And wait til the 2030s. <br /><br />Socialism must eat itself before it truly dies (for a long while).Gary Morganhttps://www.blogger.com/profile/09934552877086935070noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-68148669343693793722015-05-11T19:07:18.133+01:002015-05-11T19:07:18.133+01:00Ah, since he is amusing you I shall leave him alon...Ah, since he is amusing you I shall leave him alone!Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-40150545682083281422015-05-11T19:01:55.540+01:002015-05-11T19:01:55.540+01:00Very funny to see the view that the main lessons o...Very funny to see the view that the main lessons of the 1920s and 30s that we need to learn are that we need smaller government and lower taxes.<br /><br />I am always amazed at how any view can be justified using the same economic data. Some approaches are more rigorous than others obviously.Ari Andricopouloshttps://www.blogger.com/profile/00181838814176635218noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-87628465992841372912015-05-11T17:59:29.747+01:002015-05-11T17:59:29.747+01:00Frances, thank you for your concern, but I can onl...Frances, thank you for your concern, but I can only be offended by someone whom I have respect for. Gary is just funny.Ari Andricopouloshttps://www.blogger.com/profile/00181838814176635218noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-10355938373631993762015-05-11T17:17:58.883+01:002015-05-11T17:17:58.883+01:00Off topic? No it wasn't, it directly addressed...Off topic? No it wasn't, it directly addressed savings v inflation.<br /><br />Offensive...? <br /><br />Well, the Greeks are feckless, pay virtually no taxes, and have defaulted/devalued countless times. But if the truth offends, delete away. Gary Morganhttps://www.blogger.com/profile/09934552877086935070noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-61277649682785737712015-05-11T17:15:31.233+01:002015-05-11T17:15:31.233+01:00FDR was a centralist planner too though wasn't...FDR was a centralist planner too though wasn't he?<br /><br />You know, life is harsh, no one is guaranteed anything, much as the leftists would like that to be the case. Just look at the less-developed world.<br /><br />The only issue is whether the leftists can obtain power to grab as much as they can from the productive to pass to the unproductive. In the middle, always, a leeching government (and banks) or varying colours and size, but always leeching for its own purposes.<br /><br />One day humankind may awaken to the realities, but for the rest of your days Frances, nothing but misery awaits, as the mistakes of the 20s and 30s have already been repeated again, but to a whole new level of absurdity. <br /><br />Goodbye and good luck.Gary Morganhttps://www.blogger.com/profile/09934552877086935070noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-27789308613968453932015-05-11T17:03:45.507+01:002015-05-11T17:03:45.507+01:00Gary,
"Bewailing mass unemployment without u...Gary,<br /><br />"Bewailing mass unemployment without understanding the causes or the solutions".<br /><br />Clearly you are unfamiliar with my work. I have written extensively about unemployment in the Eurozone. Sadly neither the causes nor the solutions are as simple as you say.<br /><br />I doubt if FDR, whom I was quoting, would agree with you.Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-8764541874043694159.post-84450733961085219032015-05-11T16:56:27.060+01:002015-05-11T16:56:27.060+01:00Gary,
I refer you to my comments policy. You can ...Gary,<br /><br />I refer you to my comments policy. You can find this on "About this blog", tab at the top of the page. I do not accept comments that are off topic or that personally attack me or anyone else on this site. <br /><br />Your comment to Ari was both off topic and offensive. I must ask you to withdraw it. If you do not, then I will delete it. Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.com