In this interview James Galbraith explains our Modest Proposal for Resolving the Euro Crisis, argues that the Eurozone’s dismantling is a bad idea, discusses money and debt (in the context of Modern Money Theory) and, finally, comments on current developments in the US social economy. The interview was conducted by Roger Strassburg.Yanis Varoufakis
James K. Galbraith on Europe, the US, debt and money – interviewed by Roger Strassburg
23 comments:
Essentially they're arguing for the periphery to be given more free money by the core (i.e. Germany). And that's something that Greeks in particular have proved very good at.
Varoufakis the Greek has pulled wool over Galbraith's eyes, but not mine.
They don't even mention the basic problem, namely lack of periphery competitiveness.
"lack of periphery competitiveness"
I don't even know how to respond to that. It just makes me feel annoyed really. The stupid hurts so much my brain can't even work properly.
y,
Just the natural geography of the Greek nation probably leads to a Greek economy that is less "productive" than the more "productive" nations over there imo...
Isnt "competitiveness" the real issue? Under the current arrangements?
Not saying any nations citizens are "better" than others....
Ralph could be just implying that the solution should address this basic "productivity" issue rather than just give the Greek nation "free money"... the Union could look at productivity enhancing investment as an alternative...
rsp,
y,
You often hear a lot of MMT oriented people say 'the EMU should be disbanded and the nations go back to their own currencies' type statements.. why?
Is it not at core because the different nations have different productivity/ productive potential?
rsp,
Competitiveness is a red herring argument...competition assumes a winner and a loser from the outset.
So Greece isn't competitive...it doesn't produce enough "stuff" per capita to "compete".
If they create more stuff someone has to buy it...the Greeks won't be able to buy it...so they must gain at the expense of another country.
It's a beggar-thy-neighbor game that everyone is playing...someone HAS to lose this game.
That should not be how modern economies are arranged and writing it off as "just the way it is" is being part of the problem, not the solution.
Greece cannot "produce more" or lower wages internally and call that "success". That's complete bullshit.
By “competitive” I mean that any Eurozone country’s external position has to balance in the medium/long term. I.e. exports must equal imports or at least flows of money out of a country must equal flows of money into the country over the medium/long term. Indeed, same goes for ANY country: the US, UK, Japan, etc.
That’s just simple maths.
At the moment, EZ countries are badly out of balance: Germany has a chronic balance of payments surplus, while the periphery countries cannot get their external position into balance other than by arranging for aggregate demand to be grossly inadequate.
The big idea behind deflation (in the inadequate demand sense) in periphery countries is that that should bring their wages and prices down in terms of Euros. That is the exact equivalent of a monetarily sovereign country devaluing its currency. Unfortunately wages and prices are falling EXTREMELY slowly in the periphery relative to Germany. So the pain will last some time yet.
This is like letting your car run out of gas and then have to walk 10 miles with a can instead of installing a fuel gauge imo...
rsp,
"By “competitive” I mean that any Eurozone country’s external position has to balance in the medium/long term.”
An unattainable goal under real-world conditions. Imagining this would ever happen is a pipe-dream, but if it doesn’t happen in the near-term (100% certainty it won’t) the eurozone will most likely collapse in chaos. So much for your devaluation project, which by the way, wreaks of Austrianism.
It is impossible to pull oneself up by the bootstraps…that is essentially what you are proposing as a solution. What continues to amaze me is that so many smart people seem to believe this very thing is possible.
"That’s just simple maths.”
You may have the math right but you have the system wrong. You are attempting to solve the wrong problem.
“…exports must equal imports or at least flows of money out of a country must equal flows of money into the country over the medium/long term. Indeed, same goes for ANY country: the US, UK, Japan, etc."
This is not necessarily true. Please define medium and long term. Please explain the imagined consequences if this “law” isn’t followed.
The US has been running a massive trade deficit for two decades and the end is nowhere in sight.
The Eurozone problem exists for one reason and one reason only…the Eurozone does not provide for fiscal transfers that satisfy the savings desires of the member citizens and businesses. It is impossible for a country in the Eurozone to have a gain that is not at the expense of another country.
No matter how many times one repeats “internal devaluation” the dynamic is unworkable.
Economics is meant to serve the citizens, not the other way around.
"Germany has a chronic balance of payments surplus, while the periphery countries cannot get their external position into balance other than by arranging for aggregate demand to be grossly inadequate.”
This isn’t going to improve as periphery countries go broke trying to compete while starving their citizens. Sure, let’s lower Germany’s income by impoverishing the people that buy their products, which created the surplus in the first place.
Again, politics will not allow this process, which would take well over a decade, to reach the conclusion you think it would reach, but would not. There would be upheaval. If not, people have become more cowed than I believed possible.
It is nearing pitchfork and guillotine time for the leaders and banking elites.
"Unfortunately wages and prices are falling EXTREMELY slowly in the periphery relative to Germany. So the pain will last some time yet.”
Wages will never fall enough to produce the outcome you seem to believe possible.That outcome is so unlikely it can be safely ignored and we can move on to a more plausible solution.
Yikes!
It's "Yanis," not "Yakis."
The way I interpret Ralph here Paul is that he is making the point that this issue cannot be "swept under the rug..." so to speak by just making periodic "redistributions" of the balances... we soon would find ourselves faced with the same imbalances.
rsp,
"That is the exact equivalent of a monetarily sovereign country devaluing its currency."
No it's not.
It is not the exact equivalent, because a devaluation of the currency is expansionary (net exports rise while internal demand need not fall) whereas a process of internal devaluation via austerity (the eurozone "remedy") is very contractionary.
In extreme cases of collapse of internal demand, such as Greece, it can cause a depression-level economic calamity.
""That is the exact equivalent of a monetarily sovereign country devaluing its currency."
No it's not." - Ralph
y…I had the identical response in my last comment but deleted it. :-)
Matt, That's not how I interpret what he wrote…Ralph is floating internal devaluation as a plausible solution to the problem at hand.
It's only plausible if we don't give a rip about the majority of a country's citizens.
Besides that, it can't even work mathematically and I have no idea what makes anyone think it would. There is feedback inherent with the dynamic that will prevent the "strategy" from succeeding as planned.
It's like digging under your own feet…the opposite of pulling yourself up by the bootstraps.
It's about as elusive as "cutting the deficit".
Productivity and efficiency appear to be the most misunderstood concepts in economic discourse…
GM (or anyone) might be ABLE to build twice as many cars a year, but no one would be able to buy them…faced with such an increase in productivity the manufacturer would relieve itself of half of it's employees and increase it's profits…
…but those gains would be short-lived because they just eliminated a significant subset of their customers. A businesses customers and employees are part of the same group. You can't hurt one without hurting yourself.
The race to the bottom only works for you if you are the only one in the race…when everyone does it there can be no winner.
Jose,
That requires a separate policy of fiscal expansion at the same time as the devaluation happens... which is NO guaranty...
I could easily see a country (say like Japan...) devaluing AND embarking on austerity VOLUNTARILY just like they are currently doing in Japan... Japan isnt in the Euro.... so how do you explain that policy??? I can explain it THEY ARE MORONS....
rsp,
If fiscal policy just stays put, a depreciation of the exchange rate will likely lead to:
1) an expansion of GDP
2) a decrease in the budget deficit
So it's enough that the government does not mess around with budget policies in order to have a nice increase in employment and production as a result of depreciation.
Sadly, no such option is available for the euro periphery.
'devaluation' is a term which applies to fixed exchange rate regimes, not to floating exchange rate regimes. A country is said to 'devalue' its currency if it changes the fixed exchange rate by diktat.
The term used in relation to floating exchange rates is 'depreciation'. This is a market occurrence which is not directly controlled by the government. The government can lower interest rates on its debt and increase the amount of base money, but this could be accompanied by an appreciation of the currency if demand for it increases nonetheless.
If the eurozone countries had their own currencies and floating exchange rates, it's not that the Greek currency would necessarily have to depreciate, but that the German currency (for example) would appreciate over time. This doesn't happen in the fixed exchange rate euro system.
It's "Yanis," not "Yakis."
Yikes is right. Sorry. Fixed.
The way I interpret Ralph here Paul is that he is making the point that this issue cannot be "swept under the rug..." so to speak by just making periodic "redistributions" of the balances... we soon would find ourselves faced with the same imbalances.
The US has the same imbalances among the states, less productive red other than Texas relative to more productive blue. No one notices the transfers owing to the economic and financial structure of the US.
Without a similar structure in the EZ, there will be continual economic imbalance leading to social dysfunction unless they go forward with a political union. I and others have argued that Europe does not seem ready for that culturally, historically, and institutionally, and forcing deeper union to solve one problem will just lead other worse ones. As it stands, either the euro goes or Europe remains in a steady of social, political and economic dysfunction for the foreseeable future. What can't go on forever, won't.
Galbraith wants to keep the euro (with the periphery firmly inside), give more powers to the (unelected) ECB and EIB and create a kind of European-wide food stamp program for those on the verge of starvation due to prolonged unemployment, etc.
And such lame proposals come from a left-leaning, heterodox, MMT-sympathetic economist.
Well - if this is the best that representatives of "alternative schools of thought" have to offer then it's no wonder the population at large still prefers to stick to the mainstream.
Frankly, even Krugman can often sound much more radical (and reasonable) than this.
No way to fix this without ending privilege, cronyism, and corruption, taxing away economic rents, and restoring labor bargaining power. Band-aids are not going to staunch arterial bleeding.
Paul Meli,
“The US has been running a massive trade deficit for two decades and the end is nowhere in sight.” That’s because the dollar is the world’s reserve currency. In contrast, Greek debt is regarded as a joke, so the Greeks have watch their deficit.
Re your claim that fiscal transfers would solve the Eurozone problem, that’s true. But the political cohesion just isn't there. I.e. Germans aren’t prepared to dole out endless sums to fund uncompetitive Greeks. And even where there are fiscal transfers between regions (e.g. in the US and UK) there are limits to the generosity of wealthier regions.
Next, why is internal devaluation “only plausible if we don't give a rip about the majority of a country's citizens.”? Internal devaluation involves cutting WAGES AND PRICES in the relevant country by roughly the same amount, thus the standard of living of “citizens” is not much affected.
What DOES HAPPEN is the imports become more expensive for those citizens, plus exports become more competitive. That tends to reduce the basic problem: imports being more than exports.
But to repeat, internal devaluation just isn't working in the Eurozone. So the only plausible solution I can see is abandoning the Euro. But does not necessarily mean going back to national currencies. The problem is (to oversimplify a bit) a Northern versus Southern Europe problem. So perhaps splitting the Euro into two currencies, a “North Euro” and “South Euro” might be some sort of solution.
They Europeans are beginning to test the political rhetoric for what must be done. They aren't ready for a common tax or common pension system, or even a job guarantee. But a youth guarantee gets the dialogue started. All kids in Europe deserve a equal chance and what not... Until the politicians can talk about a problem, they can't address it. They have to learn how to craft acceptable rhetoric to frame problems to get votes. They have to learn the spin that pulls at heartstrings and arguments that crush and obfuscate their opponents.
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