Fri Aug 14th, 2015 at 01:33:38 PM EST
So old-timers will recall that I've spent countless electrons worrying about the lack of thinking about how centralising forces in our modern economies creates regional wastelands.
At least in the context of the Euro, it seems Krugman has noticed the issue:
The Downside of Labor Mobility - The New York Times
So what have we learned? I'd say that we've learned that Kenen trumps Mundell -- that in the absence of effective fiscal integration, labor mobility makes a currency union worse, not better.
I've said this before, but it seems worth emphasizing again in the light of this FT report on Portugal's "perfect demographic storm." The debt crisis in Portugal, it turns out, looks alarmingly like the trigger for an economic death spiral: a depressed economy is leading to large-scale emigration of working age Portuguese (also lower fertility, although this will take longer to matter), undermining the tax base, making an exit from crisis even harder. It's not easy to see how this ends before you're left with a rump nation of old people with no resources to care for them.
Regional economies in the US are less vulnerable to this sort of thing, although our imperfect fiscal integration means that it can still happen to some degree: Puerto Rico is also in a sort of death spiral of emigration and fiscal stress, but the degree of hardship is much less thanks to the national safety net.
But the point is that the Single European Act, which was among other things supposed to prepare the ground for a shared currency, may actually have interacted with the failure to integrate fiscal matters in such a way as to create a whole new kind of catastrophe.
Your cheery euro-thought of the day.
Of course credit to Migeru and JakeS in particular who led the ET discussion on how government investment rules condemned periphery economies to a low productivity future. The crisis has accelerated migration to higher productivity/higher wage regions to the point where Krugman has noticed it - but the forces were there even pre-crisis...