Is the Greek crisis nearly over as the International Monetary Fund, the European Commission and the Greek government like to proclaim because of the sharp decline in Greek bond yields, the attainment of a primary surplus and an increase in foreign tourism? If so, what about the 27.2 per cent of the population that remains unemployed and the widespread poverty across the nation, the ever growing public debt ratio and the dismal state of Greek exports? And what about the United States? Is America on the way to becoming Greece as many Republicans claimed a couple of years ago? Dimitri B. Papadimitriou, executive vice president and Jerome Levy professor of economics at Bard College, and president of the Levy Economics Institute at Bard, who foresees Greece emerging into a debt prison and a rather gloomy economic future for the United States, discusses these questions in an exclusive interview for Truthout with C. J. Polychroniou.Truthout | Interview
Dimitri Papadimitriou, in Reuters’ “Great Debate” series:The Multiplier EffectThe U.S. needs an export strategy led by research and development, and it needs it now. A serious federal commitment to R&D would help arrest the long-term decline in manufacturing, and return America to its preeminent and competitive positions in high tech. At the same time, increasing sales of these once-key exports abroad would improve our also-declining balance of trade.It’s the best shot the U.S. has to energize its weak economic recovery. R&D investment in products sold in foreign markets would yield a greater contribution to economic growth than any other feasible approach today. It would raise GDP, lower unemployment, and rehabilitate production operations in ways that would reverberate worldwide.…For our R&D/export model, we posited a modest infusion of $160 billion per year — about 1 percent of GDP — until 2016. We saw unemployment fall to less than 5 percent by 2016, compared with CBO forecasts that unemployment will remain over 7 percent. Real GDP growth — instead of hovering around 3.5 percent, by CBO estimates, on the current path — gradually rose to near 5.5 percent by the end of the period.
Dimitri Papadimitriou, Gennaro Zezza, and Michalis Nikiforos have put together a stock-flow consistent model for Greece in order to analyze the path of that nation’s struggling economy and assess alternatives to reigning austerity policies. This is a macroeconomic model based on the New Cambridge approach of Wynne Godley and is the same sort of model used for the Levy Institute’s US strategic analysis series....
The troika’s (EC/IMF/ECB) “internal devaluation” strategy — based on the idea that forcing a reduction in wages will increase competitiveness and boost export-led growth — isn’t faring well.Multiplier Effect
How much fiscal stimulus would the government need to inject into the economy over the next two years in order to get the unemployment rate into the 5.5–5.9 percent range? In their newest strategic analysis, Dimitri Papadimitriou, Greg Hannsgen, and Michalis Nikiforos provide us with some harrowing answers.Multiplier Effect
Martin Essex of the Wall Street Journal flags Dimitri Papadimitriou and Randall Wray’s recent Policy Note on the eurozone, “Euroland’s Original Sin.” The Note traces the root cause of the eurozone’s struggles, including the solvency issues and bank runs in the periphery, to a fundamental design flaw in its setup: national governments gave up currency sovereignty by adopting the euro but retained responsibility for their own fiscal policy.
Essex chooses to focus on a footnote that quotes some early predictions by those associated with the Levy Institute, which is fine. But it’s important to note a couple of things here. First, the point is not that the euro project was predicted to run into trouble in general, but that in these quotations the problems were predicted to flow from a particular structural flaw: the separation between fiscal policy and monetary sovereignty. And this is important for reasons that go beyond a prescience contest. The predictions serve as a useful guide for figuring out what needs to be done to save the euro project
Getting it right isn’t about being able to say “I told you so,” but about having the credibility to say “here’s what should happen next” ....
Essex titles his post “Who Warned About the Euro First?” But the point of the Policy Note (and even of the footnote that forms the basis of Essex’s post) is not to stake some claim on behalf of the quoted authors to being the first to get it right; nor even to claim that only those affiliated with the Levy Institute got it right (hence, Garber). Whether you figured it out the month before Wynne Godley published “Maastricht And All That,” or last Thursday, the point is to understand as clearly as possible what’s going wrong in the eurozone and to use that understanding to help push for solutions—that’s where this conversation needs to go, and that’s where the Policy Note tries to take us.Read it at Multiplier Effect | The Levy Economics Institute Blog
The grand experiment of a unified Europe with a common currency has entered its endgame. If the current trajectory continues, the disintegration of the euro is inevitable....
In sum, the collapse of the euro project will break in one of two ways. Looking increasingly likely, and least desirable, is that nations will leave the euro in a coordinated dissolution, which might ideally resemble an amicable divorce. As with most divorces,it would leave all the participants financially worse off. Wealthier countries would be back to the kinds of tariffs, transaction costs, and immobile labor and capital that inspired the euro in the first place. Poorer nations could kiss their subsidies, explicit and implicit, good-bye.
Less likely, but more desirable, would be a major economic restructuring leading toward increased European consolidation. Thus far, the real beneficiaries of the EU bailouts have been the banks that hold all the debt. But with some restructuring and alteration of regulations, that would not need to be the case. The doomed rescue plans we are seeing do not address the central problem: countries with very different economies are yoked to the same currency. Nations like Greece are not positioned to compete with countries that are more productive, like Germany, or that have lower production costs, like Latvia. Any workable plan to save the euro has to address those differences.
The best structural changes would even out trade imbalances by "refluxing" the surpluses of countries such as Germany, France, and the Netherlands into deficit countries by, for example, investing euros in them. Germany did this with the former East Germany following reunification. This kind of mechanism could be set up very quickly under the EFSF if it had a deeper well to draw from, probably one trillion euros.Read or Download it at Levy Institute
Read it at Multiplier Effect
Dimitri Papadimitriou and Randall Wray deliver a second installment of their joint assessment of the risks that a renewed global financial crisis might be triggered by events in Europe or the United States. In their latest one-pager they move past disputes over etiology and lay out their solutions for both sides of the pond: addressing the basic flaws in the setup of the European Monetary Union (“the EMU is like a United States without a Treasury or a fully functioning Federal Reserve”) and outlining how to place the US financial system and “real” economy on more solid foundations.
