Bill Mitchell — It is (way past) time to dissolve the disastrous EMU experiment in an orderly manner

Sometimes there is clarity. Like when the Koch brothers-funded report on US health care came up with the ‘wrong’ conclusion – that is the right conclusion – $US2 trillion dollars worth of right conclusion. And like when a hard-core German economist breaks ranks and lays out the case for scrapping the Eurozone. Clarity. In the past week there have been some notable contributions to the debate about the viability of the Eurozone. Two German academics, coming from opposite directions, basically reach the same conclusion – the EMU is dysfunctional and prone to crisis and poor outcomes. And then in the same week, a third German, an economist basically breaks ranks with the Europhile reform lobby (neoliberal though it is) and sets out in fairly clear terms how the distrust between Member States is so high that reforms will always be cheated on and the intent derailed. He opposes the creation of a federal fiscal capacity because weak nations would overstate the extent of recession to get more money. Further, more money would be forthcoming to these nations as a perverse ‘reward’ for failing to deregulate their labour markets. His arguments demonstrate without doubt why functional reforms will not be possible in the EMU. It is time (way past that) to dissolve the disastrous experiment in an orderly manner.

For those paying attention to goings-on in the EZ. Bill catches us up on the latest iteration of the debate, which is starting to shift toward the "this is not working and isn't workable" POV. The Germans are still being Germans and insisting on ordoliberalism.

Bill Mitchell – billy blog
It is (way past) time to dissolve the disastrous EMU experiment in an orderly manner
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Simon Wren-Lewis — Neoliberalism: How Seeing Markets as Perfect Turned into an Ideology Justifying Crony Capitalism

That idea, that the market ensures that only the most efficient prosper, is a central message of neoliberal ideology, and it has held UK and US governments under its sway since the time of Thatcher and Reagan. But that ideology contains a large and deep internal contradiction, which applies particularly to large firms like Carillion. To see what that contraction is, we need to talk about ordoliberalism and Ronald Coase.

Ordoliberalism is widely known as the German version of neoliberalism. It too celebrates the benefits of the market. It, like neoliberalism, ignores many of the failures of markets that Colin Crouch eloquently outlines and which economists spend a lot of time studying. But ordoliberalism does recognise one potential problem with their market ideal which neoliberalism ignores, and that is monopoly. Crouch makes a similar distinction in talking about market-neoliberals and corporate-neoliberals.

Asymmetrical powers enable rent extraction.

One of the paradoxes of liberalism is that limiting the power of government limits corruption. But corruption is not limited to people in government. As Adam Smith observed, business people have not only an incentive to collude but also a tendency toward it if not restrained.

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. — The Wealth of Nations 1.10.82

Freedom entails responsibility, and responsibility depends on accountability.

Evonomics

Neoliberalism: How Seeing Markets as Perfect Turned into an Ideology Justifying Crony Capitalism
Simon Wren-Lewis | Professor of Economics, Oxford University

Thorsten Beck and Hans‐Helmut Kotz — New eBook: Ordoliberalism: A German oddity?

Free is good.

German economics and, as a result, German economic policymaking, appear to be a land apart. Critics have even suggested that German policymakers and academics live in a “parallel intellectual universe”. The conflict, for example, with US economic policy pragmatism is a hardy perennial in international debates – dating back long before the most recent struggles in the G20 context. Similarly, the Eurozone crisis has opened fault lines between German economists and policymakers and those in a number of Eurozone (in particular periphery) countries. This column introduces a new eBook explaining the historical development of the ordoliberal school of economics and its influence on German policymaking, and contrasting it critically with what we like to call the Anglo-Saxon-Latin pragmatism of economic policymaking. The contributors come from a wide spectrum of economic schools of thoughts and include both academics and (former) policymakers that have had to directly deal with the consequences of these fault lines.  

vox.eu
New eBook: Ordoliberalism: A German oddity?
Edited by Thorsten Beck, Professor of Banking and Finance, Cass Business School; Research Fellow, CEPR, and Hans‐Helmut Kotz, Resident Fellow, Center for European Studies and Visiting Professor of Economics, Harvard University; Program Director of the SAFE Policy Center, Center for Financial Studies (Goethe University Frankfurt)

Mark Schieritz — Gut Instincts – The World According to Wolfgang Schäuble

Ordoliberalism.

Zeit Online
Gut Instincts – The World According to Wolfgang Schäuble
Mark Schieritz

Conn M. Hallinan — Europe’s New Barbarians

On one level, the recent financial agreement between the European Union (EU) and Greece makes no sense: not a single major economist thinks the $96 billion loan will allow Athens to repay its debts, or to get the economy moving anywhere but downwards. It is what former Greek Economic Minister Yanis Varoufakis called a “suicide” pact, with a strong emphasis on humiliating the leftwing Syriza government. 

Why construct a pact that everyone knows will fail?

Dispatches from the Edge
Europe’s New Barbarians

Conn M. Hallinan is a columnist for Foreign Policy In Focus, “A Think Tank Without Walls, and an independent journalist. He holds a PhD in Anthropology from the University of California, Berkeley. He oversaw the journalism program at the University of California at Santa Cruz for 23 years, and won the UCSC Alumni Association’s Distinguished Teaching Award, as well as UCSC’s Innovations in Teaching Award, and Excellence in Teaching Award. He was also a college provost at UCSC, and retired in 2004. He is a winner of a Project Censored “Real News Award,” and lives in Berkeley, California.

ht Clonal

Dirk Ehnts — Monti to Obama: “For Germans, economics is still part of moral philosophy”

The New Yorker had an article on Matteo Renzi – the Demolition Man, they called him – in late June. Towards the end, there is an enlightening passage about the intellectual problems of the German political elite:

Monti told me that, when he was Prime Minister and visited Barack Obama at the White House, Obama admitted to being at a loss to know “how to engage Merkel on matters of economic policy.” Obama asked his advice, and Monti replied, “For Germans, economics is still part of moral philosophy, so don’t even try to suggest that the way to help Europe grow is through public spending. In Germany, growth is the reward for virtuous economics, and the word for ‘guilt’ and ‘debt’ is the same.”

At least the Germans admit this. Other economists are moral philosophers, too, but they purport to be value-free scientists. Their assumptions, stated and hidden, belie that.

econoblog 101
Monti to Obama: “For Germans, economics is still part of moral philosophy”
Dirk Ehnts | Lecturer at Bard College Berlin

Kenneth Rogoff — A New Deal for Debt Overhangs?

Rogoff outlines three alternatives for addressing the EZ crisis, or crises, and suggests one.

Project Syndicate
A New Deal for Debt Overhangs?
Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003

Kevin T. Baker — Why German Economic Thought Made the Greek Crisis Inevitable

Ordoliberalism explained.

Tropics of Meta
Why German Economic Thought Made the Greek Crisis Inevitable
Kevin T. Baker | Ph.D. candidate in History and Science Studies at Northwestern University
ht Brad DeLong

Brad DeLong — Must-Read: Karl Whelan: Alice In Schäuble-Land: Where Rules Mean What Wolfgang Says They Mean

The rules that Tsipras has broken are unwritten rules that reflect the power the euro area’s creditor states have to ruin any member states that don’t do as they are ordered.

The US holds this power of the global economy to various degrees depending on conditions. Self-sufficient countries are less susceptible but no country is completely self-sufficient enough to be entirely independent of the US unless it is a backward country. The EZ is a replication of that on a smaller scale.

WCEG — The Equitablog
Must-Read: Karl Whelan: Alice In Schäuble-Land: Where Rules Mean What Wolfgang Says They Mean
Brad DeLong

Yanis Varoufakis — Dr Schäuble’s Plan for Europe: Do Europeans approve? – English version of my article in Die Zeit

Ordoliberalism versus democracy and national sovereignty.

Yanis Varoufakis
Dr Schäuble’s Plan for Europe: Do Europeans approve? – English version of my article in Die Zeit

Yanis Varouofakis — Dr Schäuble’s Plan for Europe: Do Europeans approve? – Article to appear in Die Zeit on Thursday 16th July 2015

Pre-publication summary: Five months of intense negotiations between Greece and the Eurogroup never had a chance of success. Condemned to lead to impasse, their purpose was to pave the ground for what Dr Schäuble had decided was ‘optimal’ well before our government was even elected: That Greece should be eased out of the Eurozone in order to discipline member-states resisting his very specific plan for re-structuring the Eurozone.

Yanis Varouofakis
Dr Schäuble’s Plan for Europe: Do Europeans approve? – Article to appear in Die Zeit on Thursday 16th July 2015

Dylan Matthews — "For Germans, economics is still part of moral philosophy": why Germany won't help Greece

Meet ordoliberalism. Neoliberalism is amoral, but ordoliberalism is stringently moral. It's perhaps no coincidence that the German Schuld means both debt and guilt, and therefore sin. "Ordoliberalism" also indicates the German fixation on order and orderliness (rectitude). Were Americans would say, Everything is OK, Germans say, Alles ist in Ordnung.

This means it is going to be very difficult to get a workable deal with respect to Greek unsustainable debt that German politicians can stomach themselves and also sell to their constituency, since the only way to deal with debt that is not payable is to write at least some of it down. This is an underlying reason for the seemingly unreasonable demand for a level of austerity that makes debt repayment unsustainable for the Greek economy.

Vox
"For Germans, economics is still part of moral philosophy": why Germany won't help Greece

Dylan Matthews

Simon Wren-Lewis — Ordoliberalism, Neoliberalism and Economics

Why we should pay attention to ordoliberalism: It's superior to odorliberalism aka neoliberalism, Professor Wren-Lewis thinks. I'd say it stinks a bit less — maybe, depending on how its implemented.

Mainly Macro

Ordoliberalism, Neoliberalism and Economics

Simon Wren-Lewis | Professor of Economics, Oxford University