tag:blogger.com,1999:blog-582368152716771238.post8416142545993455056..comments2024-03-28T05:14:02.071-05:00Comments on The Grumpy Economist: Hope for EuropeJohn H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger17125tag:blogger.com,1999:blog-582368152716771238.post-63342829758985547542012-05-07T08:10:21.168-05:002012-05-07T08:10:21.168-05:00Olivier Blanchard also had written on Portugal in ...Olivier Blanchard also had written on Portugal in 2006, I found out during my search. (I'm sorry, I don't have the link ready.)Anonymoushttps://www.blogger.com/profile/18166330347795893291noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-67552786743559721692012-05-07T07:48:11.251-05:002012-05-07T07:48:11.251-05:00On Bad Ideas and Hope
John Cochrane probably und...On Bad Ideas and Hope <br /><br />John Cochrane probably understands just as well as I do that "bad ideas" aren't the cause of the European crisis, they are just means used in a political struggle by those who do not want to "waste the crisis" in their pursuit of more "political, regulatory, bureaucratic, and fiscal integration" (his own words in a WSJ op-ed). <br /><br />As the sovereign debt problems in the periphery of the Eurozone didn't come about overnight, and as they moreover corresponded exactly to the risks of which the sceptics of monetary union had always warned, I wondered why we hadn't heard of these problems building up during the time when they were building up. After searching a bit I found this:<br /><br />"Experience with government bond markets suggest that the disciplining role of financial markets may become less effective in EMU as investors have lost their most effective mechanisms for pricing default risk, namely the exchange rate premium. In particular, there is a possibility that country risk premia might respond in a non-linear way (i.e. responding sharply but late) to possible insolvency problems in a Member State." <br /><br />[From the European Commission's 2006/Q4 report on the euro area containing the focus on widening current account differences within the euro area, which very officially acknowledged the build-up since the beginning of EMU of imbalances in the periphery.] <br /><br />So it isn't as if they (ecofin ministers) hadn't seen it coming. They also knew that if something cannot go on forever, it has to stop one day. But they simply waited three more years for this day to come. And then started 'rescueing the euro' and blaming markets. (It is impressive in a way.)Anonymoushttps://www.blogger.com/profile/18166330347795893291noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-64454724446111719612012-02-27T13:24:20.730-06:002012-02-27T13:24:20.730-06:00Right. What do you suggest for Ireland, why don...Right. What do you suggest for Ireland, why don't we have growth? It's important to me as it's where I live.<br /><br />Ireland is seen as one of the most liberalized countries in the world and it is very easy to hire and fire workers. Ireland also has an already extremely high productivity per capita. As far as I know Ireland is the poster child of supply-side measures, yet somehow it's not really working out.Loupehttps://www.blogger.com/profile/05803197851808555357noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-23652818561341732802012-02-26T17:15:58.553-06:002012-02-26T17:15:58.553-06:00All economists agree that structural impediments, ...All economists agree that structural impediments, taxes and regulations on business should be a scant as possible. Pompous pettifogging on these points adds little to debates. <br /><br />Sure reform, I want reform, you want reform, we all want reform. (Except not my pension or tax break or protected industry). <br /><br />That said, if you starve an economy for money you will get deflation and contraction, no matter what. See Japan.<br /><br />Monetary policy must be growth oriented. Greece has a real problem in that they need structural reforms and a very bullish monetary policy---but they are no longer a sovereign nation. They do not control their money supply. <br /><br />Hard to see a way out for them. They will have to take the "pain but no gain" path. Ouch.Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-91032207343536980502012-02-25T01:54:03.785-06:002012-02-25T01:54:03.785-06:00"let it rot". Strong words, condescendin..."let it rot". Strong words, condescending and cruel. Not appreciated even by your Greeks fans!Athanasios Ghikashttps://www.blogger.com/profile/09834569854876185588noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-17536790137998472792012-02-24T07:00:29.176-06:002012-02-24T07:00:29.176-06:00As Italian, I totally agree with the post above. T...As Italian, I totally agree with the post above. The real problem here is mentality, at basically all levels of society. <br />Beside this, Monti's "supply-side" plan is all but decent. It really doesn't tackle any crucial matters, neither for services nor for professions.<br />It doesn't deal with state-run companies privatization such as ENI, Enel or Finmeccanica, just to name the most important.<br /><br />We just hope he will be doing good with labour market reforms, even if that is the toughest ground. You cannot understand from there how powerful are unions here. They are so strong to claim the right to discuss with any elected goverment about EVERY aspect of the economic life of the country. They are a metastasis for Italy's economy and industrial relations.Matteo Paternosterhttps://www.blogger.com/profile/13703307111655053587noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-87261184757375079442012-02-23T19:22:37.879-06:002012-02-23T19:22:37.879-06:00It gives me the creeps when anybody mentions Reaga...It gives me the creeps when anybody mentions Reagan/Thatcher in the same conceptual basis as Rajoy/Monti. <br /><br />These are European-conservatives which are equivalent to a moderate-Democrat in the US. Rajoy in Spain has concentrated on reducing spending, which is all fine, but he has also increased taxation, to "balance the books", and has not proposed in Parliament yet, much less pass, a single supply side policy. Same goes for Monti. <br /><br />Their labor reform is restricted to allow the firing of employees with lower compensation, but compensation, nevertheless, that would shock an American company. Both, Italy and Spain, have entitlement fortresses with moats around them. But even more difficult than these bastions of invincibility is the mentality of the people. They have grown to expect all their goodies as "rights", not as privileges. Try taking it away from them, and you will be running for your life before you say "supply side".John Galthttps://www.blogger.com/profile/01341516141700687089noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-69026824696858114802012-02-23T16:06:15.614-06:002012-02-23T16:06:15.614-06:00All this talk on the blogs about targeting NGDP, o...All this talk on the blogs about targeting NGDP, or stimulus spending tends to drive me nuts. Could we paper over some problems? Perhaps. But where do we get real growth going forward, how do we deal with the growth of government spending.<br /><br />I hate that so many want to argue that the choice is goosing the economy or austerity. What about structural changes?<br /><br />Thank you.DanChttps://www.blogger.com/profile/10750972837254927577noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-84760074261224859532012-02-23T15:29:01.555-06:002012-02-23T15:29:01.555-06:00Well, It's Signora Merkel's money, so she ...Well, It's Signora Merkel's money, so she can be tight if she wants! <br /><br />I agree I was painting a rosy picture of the possibilities for a huge deregulation more than a forecast. <br /><br />I think a lot of the decline does not have to do with Keynesian multipliers -- much of Italian and Greek government spending is simply wasted and could easily be cut without economic or true social harm. Rather, people are fleeing against the prospect of wealth expropriation. If you were in Greece, you'd be getting your money, business, and human capital out as fast as possible, because the austerity hounds are sure to try to tax it or grab it as soon as they can. I gather Italy is also instituting lots of new taxes, including taxes on property. <br /><br />This all goes in the opposite direction of "growth." The disincentives of ruinous taxation or expropriation can happen before the taxes, when people see them coming! That view argues for even more spending cuts, along with tax reform and lowering tax rates. <br /><br />Hmm. A topic for a new blog post... Greek decline, a multiplier or fear of expropriation?John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-63746082357318485532012-02-23T15:06:39.638-06:002012-02-23T15:06:39.638-06:00I just read an article relating how many Young, ed...I just read an article relating how many Young, educated Spanish are immigrating to South America, especially Chile, because they simply cannot find jobs. This is a bad drain of human capital that will have long term effects.kyle8https://www.blogger.com/profile/13299846346032212714noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-29093417199845504512012-02-23T15:02:16.911-06:002012-02-23T15:02:16.911-06:00You nation can survive high tax rates, but the rea...You nation can survive high tax rates, but the real killer is barriers to hiring. If your new government can actually reduce the regulatory burden then you might have a significant improvement in growth. My only doubt is that, if that happens, can it be sustained? The bureaucrats will certainly fight back and the pendulum will swing again.kyle8https://www.blogger.com/profile/13299846346032212714noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-34050372016492724752012-02-23T12:55:36.733-06:002012-02-23T12:55:36.733-06:00Dear Prof. Cochrane,
Crepi! (Litterally, "let...Dear Prof. Cochrane,<br />Crepi! (Litterally, "let the wolf die!", kind of "thank you, and let's hope for the best")!<br />Well, I'm also Italian, and not that optimistic too on how's going to end up with Mr. Monti's reforms. Some risk of dramatic social consequences holds too... But this is not my point.<br />On the one hand, you claim, clearly there is no space for a fiscal stimulus which, in any case, couldn't solve our problems in the long run. Fine. Yet, on the other hand, it looks like the EU & ECB are forcing quick debt reduction via, de facto, tight austerity. In Greece, this seems to make the deficit/GDP getting worse and worse. Something similar is going to occur in Italy. There's great debate in Italy about Germans and "la signora Merkel" being too tight. What's your opinion on this? OK, no Keynesian stimulus, but is fast debt recovery more urgent that re-starting to grow?mrsparrowhttps://www.blogger.com/profile/07738940532507025788noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-64395206198840047302012-02-23T11:29:41.806-06:002012-02-23T11:29:41.806-06:00Dear John, I am newcomer to your blog. Being spani...Dear John, I am newcomer to your blog. Being spanish and a LSE economist, I have long foreseen much of the mess we are in. The situation is the sum of wrong decisions taken by both government, business and citizens. Many of us warned tiredlessly about the fragile jobs in the building sector, the ponsi scheme of pensions, the lack of productivity gains, and still the economy raged, creating jobs and a huge wealth effect. So I do not share you analisis. Once you brake the plates, blaming the porcelain they were made off is short sited. And making stronger plates will not stop in the future, than another dumb generation feel they are "on top of the world" and smash them to pieces. When we find a way to rid economies of Business Cycles, then we may get on our high "economist" ground and lecture. As to the future of spanish growth, we need the construction sector, but the excess stock of houses is in the hands of banks, too afraid to sell them at market prices and write off their losses. As "true" liberal I despise the attitude of shifting the problem from the state to the private sector, without addressing the social norms that also aply withing business. You think you are grumpy... you havent met me :-)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-49622637556934494832012-02-23T10:52:30.179-06:002012-02-23T10:52:30.179-06:00Wow, Prof Cochrane, quoting St. Augustine, do they...Wow, Prof Cochrane, quoting St. Augustine, do they teach this thing at Chicago Econ or at Booth? Just kidding.<br />I read the Luskin piece last week. And yes it is encouraging.<br />But I think I have a slightly different take on how this "supply side" came about. Maybe I am wrong, but it seemed to me that Luskin and Kelly made it seem that European suddenly got a "Damascus conversion" (since we are using Biblical comparisons all over...) and suddenly they fell in love with Arthur Laffer and supply side econ.<br />No, I do not think it was like that.<br />It seems to me that supply side econ was forced upon them by the fact that monetary policy is no longer available to them. Individual countries cannot inflate/reflate their economies any more. And honestly, I do not think that politicians from Italy, Spain, Portugal, understood this at the time (in 1999). They thought they could continue borrowing galore, la dolce vita with inflation and reflation.<br />The *only* ones who understood this were the Germans. Which is why they implemented the reforms early on, as mentioned in the Luskin piece (the so-called "Hartz reforms I, II, III and IV", named after Peter Hartz, personnel director at VW). The Germans understood that they needed to become more competitive, and without monetary policy, fiscal policy and labor market policy would HAVE to be the way.<br />Which is why other experiments, like Argentina in the 90s, failed.<br />Politicians were simply not willing and able to undertake the reforms needed to make the model work.<br />But, at the end it does not matter why the Europeans do it. The fact remains that they do it, and as such it is encouraging.Manfred the mamoothhttps://www.blogger.com/profile/07516724901598949627noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-29118886575738505962012-02-23T10:35:04.685-06:002012-02-23T10:35:04.685-06:00Gio: Thanks for writing. I didn't mean all is ...Gio: Thanks for writing. I didn't mean all is great yet. Just a glimmer of possibility that Italy seems to be starting to talk about the right things. Yes, low marginal rates, simple, and collectable taxes are a crucial part of a "growth" policy agenda. "Pachydermic bureacracy" -- I'll have to remember that one.John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-76099327467676380172012-02-23T09:26:07.425-06:002012-02-23T09:26:07.425-06:00John,
I wish, as an Italian citizen, I could be ha...John,<br />I wish, as an Italian citizen, I could be half as optimistic as you are on Monti's job. If we separate facts from intentions (i.e. words) so far we have seen mostly austerity in the form of tax increases (with admittedly a long due reform of the pension system).<br />It's true, there is a lot of talks about cutting the tax rates and increasing the revenues by a tougher enforcement against tax evasion. This is great! But so far it is just words. The government, in the meanwhile was much quicker in acting when it came to raise IVA (the value added tax) form 20 to 22%. <br />Again, I am all for enforcement against evasion, however you also need to set up a system where it is actually possible to pay taxes both in terms of rates and in terms of ease to comply. The Italian system seems to be designed so that the Guardia di Finanza (the "Fiscal Police", yes I am not making this up, in Italy there is such a thing) can play gotcha with the tax payer.<br />Few interesting points in this report, just take a look at the time required to file and at the overall rates; Italy ranks 170th for rates and 127th in Time to Comply:<br />http://www.doingbusiness.org/~/media/FPDKM/Doing%20Business/Documents/Special-Reports/Paying-Taxes-2012.pdf<br /><br />Liberalizing is great but if it does not come with a significant shrinkage of Italy's pachydermic bureaucracy, it won't do much. Do we really think that Italy's last fifteen years of zero or negative growth come from horrible taxi, pharmacy and lawyer markets?<br /><br />The Labor laws are certainly a significant factor and I am glad that this issue is back on the table. But again, we have Sweden's tax rates and Ireland's welfare... not a good deal.Giohttps://www.blogger.com/profile/11595388892349007664noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-72478313276983976682012-02-23T05:00:24.032-06:002012-02-23T05:00:24.032-06:00One of the best pieces I've read on this blog ...One of the best pieces I've read on this blog so far.Anonymoushttps://www.blogger.com/profile/09571101087044445663noreply@blogger.com