No Return To Normal - the Galbraith article | 96 comments (96 topical, 0 editorial, 0 hidden)

Re: Mmmm (none / 1)

Was he? Do you have a link?

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Fri Mar 20th, 2009 at 07:25:23 AM EST
[ Parent ]

Well (none / 1)

I saw in in the late night news yesterday that and he was addressing his talk to EU leaders; I'll have a brief search.

by Nomad (Bjinse) on Fri Mar 20th, 2009 at 07:27:15 AM EST
[ Parent ]

Latest column (4.00 / 3)

I´m without Firefox at moment...

Link: http://www.nytimes.com/2009/03/16/opinion/16krugman.html?_r=1

On the fiscal side, the comparison with the United States is striking. Many economists, myself included, have argued that the Obama administration's stimulus plan is too small, given the depth of the crisis. But America's actions dwarf anything the Europeans are doing.
The difference in monetary policy is equally striking. The European Central Bank has been far less proactive than the Federal Reserve; it has been slow to cut interest rates (it actually raised rates last July), and it has shied away from any strong measures to unfreeze credit markets.
The only thing working in Europe's favor is the very thing for which it takes the most criticism -- the size and generosity of its welfare states, which are cushioning the impact of the economic slump.

by Nomad (Bjinse) on Fri Mar 20th, 2009 at 07:33:42 AM EST
[ Parent ]

Re: Latest column (4.00 / 4)

Nomad:

On the fiscal side, the comparison with the United States is striking. Many economists, myself included, have argued that the Obama administration's stimulus plan is too small, given the depth of the crisis. But America's actions dwarf anything the Europeans are doing.

On this one I am not sure. Krugman seems to want to compare the EU to the US and EU member states to US states. On fiscal policy, that's just wrong. The EU budget is 1% of GDP and it doesn't raise its own taxes. EU member states raise their own taxes and have independent fiscal policies (subject to the Growth and Stability Pact - but that was "relaxed" in November). US states at most collect sales taxes at a rate about 1/2 of EU VAT. Nomad:

The difference in monetary policy is equally striking. The European Central Bank has been far less proactive than the Federal Reserve; it has been slow to cut interest rates (it actually raised rates last July), and it has shied away from any strong measures to unfreeze credit markets.

On the other hand, the ECB was a lot more proactive (and derided for it) than the US Fed and the Bank of England in the second half of 2007. European governments have been bailing out banks like the US has. I am not convinced that the EU interest rate needs to be nearly zero as the US one, but if it needs to, we still have room to move it there. The US has hit the "zero lower bound".Nomad:

The only thing working in Europe's favor is the very thing for which it takes the most criticism -- the size and generosity of its welfare states, which are cushioning the impact of the economic slump.

We still have idiots like Aznar and other EPP leaders advocating social cuts to balance budgets. But at least we have a generous welfare state.

I don't like what I read from Krugman about the EU, I think he doesn't understand it. But maybe I'm the one who doesn't understand the EU. He's the Bank-of-Sweden-Prize economist.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Fri Mar 20th, 2009 at 07:40:14 AM EST
[ Parent ]

Re: Latest column (4.00 / 3)

I think that, like many people, especially in the US, he falls into the trap of seeing the EU as a federal state because that's the only model he has for it in his head.

by Colman (colman at eurotrib.com) on Fri Mar 20th, 2009 at 07:42:36 AM EST
[ Parent ]

Re: Latest column (4.00 / 3)

It's also true of the federalist and anti-federalist groups within the EU.

by Colman (colman at eurotrib.com) on Fri Mar 20th, 2009 at 07:48:23 AM EST
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Re: Latest column (4.00 / 2)

I think you guys are assuming he's referring to the EU in places where he may not be. Certainly the ECB is relevant to the EU, but I read it as Krugman speaking about the national governments' fiscal policies.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Mar 20th, 2009 at 09:19:36 AM EST
[ Parent ]

Re: Latest column (4.00 / 3)

He has been comparing Spain to Florida for a while.

NYTimes.com: The pain in Spain ... (Paul Krugman Blog, January 19, 2009)

The pain in Spain ...
... isn't hard to explain. Spain was basically Florida, with a housing bubble inflated by both resident and holiday purchases, and now the bubble has burst.
But Spain is in worse shape than Florida, for two reasons -- reasons familiar to anyone who was involved in the great debate about whether the euro was a good idea.
First, Europe doesn't have a central government; Spain, unlike Florida, can't draw on Social Security and Medicare checks from Washington. So the burden of recession falls entirely on the local budget -- hence the country's declining credit rating.

To which I replied (but my comment didn't pass moderation) that Spain is a sovereign country with its own central government, taxes and fiscal policy and, yes, it could draw from its own "Social Security and Medicare". Spain's budget per capita probably exceeds Florida's "local budget" severalfold.

He's just wrong on what it is like to be an EU member state, and has been for two months.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Fri Mar 20th, 2009 at 09:33:51 AM EST
[ Parent ]

Re: Latest column (none / 1)

True enough, but Spain does have the SGP, which is where I think his -- admittedly very muddy, even with a generous reading -- main point would come in. Spain has a much larger budget than Florida, but what's that got to do with the price of eggs in Taiwan? I think he'd argue that Spain is under certain restrictions on what it can do fiscally, not wholly unlike state governments in America, but that also the EU can't do the kinds of things the federal government here can do.

Not as strict as what Florida must adhere to, but then I think the comparison with Florida has a lot more to do with the two areas having been boom-states for construction due to their warmer climates attracting Brits and Northerners.

The SGP is obviously not set in stone, and maybe that's where he gets tripped up. But that would be more a failure to understand the nuances of EU politics than a failure to grasp the main concepts.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Fri Mar 20th, 2009 at 10:49:24 AM EST
[ Parent ]

Re: Latest column (none / 1)

This is what Joaquín Almunia, European Commissioner For Economic And Monetary Policy has to say about the Stability and Growth Pact (25 February 2009)

...
The downturn, interventions in the banking sector and stimulus measures are all taking their toll on public finances. The government deficit is projected to reach 4.8% of the EU GDP in 2010, its highest level in 15 years.
...
This morning the Commission adopted opinions on the second batch of Member States' Stability and Convergence Programmes - the documents in which countries detail their budgetary plans for the next five years. Six countries foresee deficits above 3% of GDP and therefore, in accordance with the Treaty, the Commission has adopted excessive deficit reports under Article 104.3.
...
I want to stress that the Pact is not about sanctions; is about peer pressure and support for sound policies. It is about anchoring credibility for member states public finances - and that is particularly pertinent when we consider widening spreads and the pressure that some countries are being placed under by the markets.
...

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Fri Mar 20th, 2009 at 11:10:35 AM EST
[ Parent ]

it's a failure (none / 0)

to go beyond the Europe.Is.Doomed common wisdom, too.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Mar 21st, 2009 at 01:48:33 PM EST
[ Parent ]

Re: Latest column (4.00 / 2)

True, I think. I see some of the same misconceptions coming from another bright guy I respect, Simon Johnson, on his "Baseline scenario" blog.
He's right about the social safety net being a great assett for much of europe, but I never seem to see either of them pursue the question of how this hugely valuable asset came into being. An example of their Ideological blinders?

Capitalism searches out the darkest corners of human potential, and mainlines them.

by geezer in Paris (risico at wanadoo(flypoop)fr) on Sat Mar 21st, 2009 at 05:28:13 AM EST
[ Parent ]

Re: Latest column (none / 1)

On this one I am not sure. Krugman seems to want to compare the EU to the US and EU member states to US states. On fiscal policy, that's just wrong. The EU budget is 1% of GDP and it doesn't raise its own taxes. EU member states raise their own taxes and have independent fiscal policies (subject to the Growth and Stability Pact - but that was "relaxed" in November). US states at most collect sales taxes at a rate about 1/2 of EU VAT.

Well, the relative weakness of the EU is a valid argument. The EU states have presumably worked out the outlines of a stimulus plan among themselves, in terms of size, with a minor EU angle. The result will be a wildly divergent stimulus in terms of direction, with some implementation issues to boot.

The upside is that we're seeing more coordinated action in the EU than before, which is good for the EU in the longer run, and that the obstacles to collective action will save us from some of the more foolish decisions that the US seems to be making.

by nanne (zwaerdenmaecker@gmail.com) on Sat Mar 21st, 2009 at 08:28:41 AM EST
[ Parent ]

Re: Latest column (none / 1)

US states at most collect sales taxes at a rate about 1/2 of EU VAT.

Small point about this comparison. We pay about as much tax to the State and local government entities as to the Federal Govt. Sales tax (5%) is not the largest State tax. In Virginia we also pay a tax on income, a large estate tax, a tax on other personal property, and various other lesser taxes. The States also have their independent budgets and fiscal plans. I think, as an aside, that California is/was the world's fifth largest economy or some such. It's budget and government structure reflected that fact.

I can swear there ain't no heaven but I pray there ain't no hell. _ Blood Sweat & Tears

by Gringo (stargazing camel at aoldotcom) on Sat Mar 21st, 2009 at 03:18:38 PM EST
[ Parent ]

Re: Latest column (none / 0)

I remember when I was in California sales tax was about 8% and state income tax was paltry compared with Federal income tax. But of course, each state is different.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Sun Mar 22nd, 2009 at 04:15:59 AM EST
[ Parent ]

Re: Latest column (none / 1)

You are right, each State has its own taxing laws and not all States have an income tax (most do though). However, they are all fairly artful in extracting taxes from one source or another. Some depend on "natural" resources to provide most of their revenue, like Texas (maybe oil) and Florida (probably tourism), but they are not dependent on the Federal government for funding many of their services to citizens.
This site shows state taxes for 2007 by state as a percentage of income. Guess which State collects the higher tax by far (Alaska - shame shame Ms Palin). I don't know what is included in this "total" of taxes because Virginia only ranks 39th with 6.3%. I think this must be income tax and sales tax alone because property and other taxes we pay probably double this percentage.

I can swear there ain't no heaven but I pray there ain't no hell. _ Blood Sweat & Tears

by Gringo (stargazing camel at aoldotcom) on Sun Mar 22nd, 2009 at 10:02:30 PM EST
[ Parent ]

And also (none / 1)

Link±
http://en.mercopress.com/2009/03/18/nobel-prize-krugman-says-us-and-eu-stimulus-packages-insufficien t

Gotta run, hope it was helpful.

by Nomad (Bjinse) on Fri Mar 20th, 2009 at 07:36:30 AM EST
[ Parent ]

No Return To Normal - the Galbraith article | 96 comments (96 topical, 0 editorial, 0 hidden)

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