Yves here. Italy provides an intriguing example of how austerity inflicts damage on businesses. Here, one of the ways that the government is making its fiscal deficit look better is by paying companies that provide services to it slowly, or not at all.
Read more...Yves here. As Elizabeth Warren inches to the left on overall economic policy, one wonders if she’s actually shifting her views or responding to Hillary Clinton trying to rebrand herself as a populist. In fairness to Warren, it’s difficult not to be deeply inculcated in flawed economic thinking and thus hostage to false ideas like “We depend on China and Japan to finance our federal spending.” I look at my pre-crisis coverage and am embarrassed to see that sort of idea treated as obviously true. But if nothing else, the shift in Warren’s stance may be a sign that the Overton window is moving a smidge away from the right. After all, a big reason the Republicans so badly trounced the Dems in the midterms wasn’t just Democratic party fecklessness, but also that the Republicans kept their Tea Party extremists well out of the limelight and toned down the anti-women, anti-gay (and outside the border states) the anti-immigrant rhetoric. That actually amounts to a shift to the center, even if more for show than for real.
Read more...Whatever its flaws, the “Outright Monetary Transactions” policy is the closest thing to a safety net the Eurozone has. How to strengthen it?
Read more...There’s no capital investment in America or Europe. We’re living on the corpse of the economy that was left in 2008.
Read more...As things go from bad to worse in the eurozone the putative adults have begun to fight openly in front of the kids. The putative adults, of course, have refused to act like adults for six years and instead have lived in a fantasy world in which austerity – bleeding the patient – is the optimal response to a recession. As many of us have been warning for six years, this is a great way to create gratuitous recessions and even the Great Depression levels of unemployment in three nations of the periphery with 100 million citizens.
Read more...Yves here. Unfortunately, correcting Paul Krugman continues to be a staple at Naked Capitalism because he keeps asking for it.
Read more...Yves here. For US readers, the posture of the IMF may not seem like a terribly important topic. But most countries in the world face decent prospects of being subject at some point to its tender ministrations. And even those that would seem to be exempt, like Germany, nevertheless also are subject to its impact through how IMF programs affect its export markets and Eurozone arrangements.
The IMF’s policies received a great deal of attention last year as its chief economist, Olivier Blanchard, effectively admitted that austerity did not work. The formulation was that in most cases, fiscal multipliers are greater than one. That means that cutting government deficits, in an effort to lower government debt, is ultimately counterproductive because the economy shrinks even more than the reduction in spending. The result is that the debt to GDP ratio actually gets worse. This outcome is no surprise to anyone who has been paying attention, since the neoliberal experiment has produced the same bad results when administered in Greece, Latvia, Ireland, and Portugal, to name a few.
But what did this rare bout of empiricism mean for the IMF? This post gives that question a hard look.
Read more...The Modest Proposal will stem the European crisis without breaking any rules, without having the core countries pay one euro for the debts and losses of the periphery, and without any further diminution of national sovereignty.
Read more...Yves here. Bill Black shellacks a New York Times article that gives a big dose of unadulterated neoliberal propaganda supporting austerity. To give you a sense of the intellectual integrity of this piece, it including citing a Peterson Institute staffer without cluing readers in to the fact that the Institute has what is left of the middle class in its crosshairs.
Black stresses that one of the major lies behind the continuing for more, better hairshirts for long-suffereing Europeans is that the explosion in debt levels in Europe was the result of overly-generous social safety nets. In fact, as in the US, the tremendous rise in government debt levels was the direct result of the crisis. Tax revenues collapsed due to GDP whackage (and the costs continue as GDP is well below potential). And any economist worth their salt will also say that social safety nets ameliorated the severity of the damage, that those automatic stabilizers increased government spending when it was needed most, at the depth of the implosion, and prevented a spiral into a much deeper downturn.
Read more...Some older readers might recall that during 2010-2013 politicians and the media manifested great anxiety over the unmanageable level of the deficit and a disastrously high public debt. So how has that movie ended?
Read more...Corruption in the construction industry meant that spending in Obama’s stimulus package was skewed toward people less likely to stimulate the economy: Owners and immigrants.
Read more...Fed tapering was widely expected to push up US yields. Instead, US yields have fallen since the beginning of the year, raising the question of whether we’re seeing a new version of the Greenspan 2005 conundrum. Interestingly, a successful explanation of this new conundrum cannot just rely on a flight to safety explanation as it also needs to rationalize why 5-year yield and 10-year yield have diverged over the same period.
Read more...In the wake of the crisis, forward guidance has become a prominent tool of monetary policy. This column argues that central banks should go a step further, communicating to the public the internal policy debate that goes into monetary policy formation – especially regarding uncertainty. Since policy is determined contingent on a range of possible outcomes, forward guidance would become more effective by explicitly communicating how policy would respond along this uncertain path.
Read more...To understand trade dynamics in the modern world we must appreciate the financial dimension, which modern economists do not.
Read more...Why is Europe re-nationalizing the link between banks and governments? Why has the crisis failed to produce a Hamilton or an FDR?
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