Commentary by Roger Erickson
Does this kind of feedback get back to the IMF, ECB, or banksters anywhere?
Portugal: fresh public spending cuts worth 1.3 billion euro
Consequence:
Portugal's fed-up youth pack and go as their nation slides into reverse
"The big concern is over lack of investment in education leading to more backwardness for future generations," said Dias, who teaches history in Freiria, a village 30 miles from Lisbon.
She says that standards have risen since she began teaching 25 years ago, "but now we're regressing 50 years. All that matters today is teaching the three Rs, not making people think." Some schools, particularly those in rural areas, are asking parents for money or raiding tuck shop takings to buy toilet rolls, Dias said. "And with more cuts this absurd situation could become widespread."
Portugal's PM says he's required to find "further savings."
??
What good is it to save fiat, while losing talented youth?
Roger Erickson makes a common mistake: blurring the distinction between the US and the Eurozone.
ReplyDeleteIn the US, austerity derives from economic illiterates like Rogoff and Republicans who think that fiat must be saved.
In the EZ it’s very different. Granted that the dominant power there, Germany, is prone to be cautious and do a bit of “fiat saving”. But the basic explanation for periphery austerity is that the periphery cannot devalue – at least not in a hurry. That is, the periphery cannot solve it’s lack of competitiveness overnight via devaluation. Instead, it has to get costs and prices down via years of austerity.
That’s the central explanation for Euro austerity.
I think the explanation of EZ austerity is the lack of a central fiscal authority. Imagine a United States with 50 state governments and a Fed, but no US Congress or Treasury.
ReplyDeleteI think the explanation of EZ austerity is the lack of a central fiscal authority.
ReplyDeleteThere is a good reason that there is no central fiscal authority. It would have required a referendum since it involve relinquishing political sovereignty in addition to currency sovereignty and it would not have passed and it still won't pass. It would have to be engineered through non-democratic means or else telling people that if they don't sign on to the United States of
Germany, they will starve.
I don't see much fundamental distinction Ralp, only in degree, and in spurious details available for all to see.
ReplyDeleteThe fundamental reason in both cases is lack of flat-out stupidity, which I argue stem from
1) lack of interaction;
2) feeding lack of system awareness;
3) triggering lack of targeted action
(hence the general decline, in the face of unprecedented capabilities)
Besides, no one except Ralph even mentioned US/eurozone distinctions.
ReplyDeleteWhy invent reasons to squabble, when there's plenty of fundamental issues to coordinate on?
Well, then that's Europe's present sad choice Tom. But for decades people said the idea of, first a European economic union, and then a single European currency, were absurd, pie-in-the-sky ideas. But they weren't. Forming a fiscal union with a democratically elected European legislature controlling a European treasury, collecting European taxes, and drawing on the power of a European central bank to power an integrated fiscal and monetary policy, is the next natural step toward European integration.
ReplyDeleteDan, that was the Eurocrats' Plan B when Plan A failed to get the votes. Moving to greater federalization under the circumstances seems to be to be ill-advised, given the American experience, where conditions were somewhat better but there was also a serious split between North and South. The last thing that Europe needs is the seeds of a civil war.
ReplyDeleteAll these comments remind that the original euro idea was fine, but that it's the actual methods that drive results.
ReplyDeleteThere's a relevant saying in oncology:
"Every cancer drug will eventually work. It's keeping the patient alive long enough that's the trick."
There has been no shortage of crisis in the past decades before this one and always were "solved" via devaluation and inflation and posterior bubbles. It's just that possibility is no more neither is the reversion of the euro contemplated ("the end of the world"), so a depression is the result.
ReplyDeleteGermany has imposed it's "hard money" philosophy over the south, believing that will make this countries more competitive over night or something like that. And the only way that can happen is by making these countries labour cheaper (the other way is way more slow and costly, as requires investment and development, and that would threat Germany hegemony too). Basically the trend is conversion in global labour costs, trending towards Chinese prices to stay 'competitive'.
For Germany staying competitive is continuing to run surpluses eternally (someday we will discover Martians to export to them real goods for nominal wealth, don't worry guys, and all humanity will thrive and joy), that way they can make external nations to cover the private sector desire for savings, instead of the government which can stay within "balanced budget" at worst or with a very low deficit (below projected inflation) at best.
Neither the solution before the euro were desirable (inflating and creating bubbles over and over to keep up with unemployment and CAD problems), neither are now (austerity and depression, emigration sky-rocketing, btw I'm one of the affected who had to flee from a depressed economy, lost decades, etc.).
But we will what happens, it's a complicate situation due to the politics involved (nationalist vs. centralist tensions).
" is the next natural step toward European integration."
ReplyDeleteIt's not natural because it's not desired by the people, specially in the centre/north european countries.
Any sign of that is meet with animosity. Also must I remember that all attempts towards more integration have been meet with scepticism and people voted No, and that was even before the crisis, during "the good years". Off course it has always been because the lack of fundamental democracy in building the current institutional arrangement first (this is a project of the elites and must be controlled by them), but also because the lack of desire of further integration (if the integration between western and eastern Germany was difficult, domestically, doing the same at continental level is going to be impossible).
They are forcing it and if we have to go by the precedents is not going to end well. The situation and circumstances are not even close to these of the foundation of the USA and I don't think it can happen.
DK:
ReplyDelete"an integrated fiscal and monetary policy, is the next natural step toward European integration."
Why do people believe that "European integration" or more of political union, in general, is a good thing on itself?
There are very good systemic reasons arguing that it is not intrinsically good (it may be or not according to the case) and indeed that it could be a very bad thing. For example:
http://pespmc1.vub.ac.be/REQVAR.html
So, why the belief is so current?
So Tom, your view is that the United States should be regarded as a model of political failure and an error to be avoided? Maybe we should break it up?
ReplyDeleteAll these comments remind that the original euro idea was fine
ReplyDeleteBut at the very beginning of the debate many pointed out that a monetary union was unworkable without a fiscal union. The eurocrats went ahead anyway, thinking that they could get a fiscal union down the line. If things worked out, that would gain support for the union. If not, there's always disaster capitalism.
So Tom, your view is that the United States should be regarded as a model of political failure and an error to be avoided?
ReplyDeleteThe American myth is a myth. There were big issues from the get-go and they are still not resolved, as we see today, with the country polarized along federal and confederate lines.
Maybe we should break it up?
I think the Civil War decided that, but many people still haven't gotten the message. The Civil War is still being fought in many ways, culturally and politically.
Columbus came with his proposal of navigating to India heading West, supposing an Earth's radius 1/3 of the real value, first to the Portuguese Court of João IV. The Portuguese knew the real value of the Earth´s radius and dismissed the proposal on the knowledge that navigating to the West a continuous ocean from Lisbon to India was a much riskier proposal for the countries resources than going East through coastal navigation of Africa.
ReplyDeleteColumbus than went to the newly denominated Spanish Court, who unaware of the real value of the Earth's radius, assigned the kingdom's navigation resources to his command.
Columbus got to America six years before Gama got to Asia.
This began a ferocious expansion of European peoples in America, Africa, Asia and then discovered Oceania. This expansion molded the reality of human nations covering Earth as we know it today, less of still conflicting migration currents.
How did a nation that once led European expansion become highly indebted?
Which skills were lost along the centuries? Which were gained?
The country is hemorrhaging new human talent, young, educated people, asphyxiated by an artificially created monetary peg crushing businesses.
It's just numbers in computers that make these young people go away taking with them the capability of creating wealth in which the country invested.
The future of the nation depends on an external event that shatters the euro peg allowing the national currency to float and provide useful feedback for people in the country. At the same time it will provide enough internal demand and competitiveness in exports the nation going to the more comfortable position of being a net exporter to repay debts and a growing economy to create futures for her youth.
I mean an external event. An external event must be internal for some country. But no one wants to be the first.
This makes the problem more of a global type, because the Eurozone becomes a drag for world economies. One discovers that some of the affected countries are also afflicted ones, only in a smaller proportion given the power shield of national floating currencies.
The same power that overrides Portugal in a wasteful debt drag overrides the United States in a wasteful net government spending limitation.
Contrary to this power, the first priority for the macro-economic policies of all countries over Earth is that full employment or full occupation be attained. The second priority is that human development index be augmented. This requires a harmonious coordination of the necessary decomposition of the universal concept of money into the different nation-state currencies.
The decomposition of money into different nation-state currencies becomes of necessity because happy nation-states are populations accepting to share public savings value (also called public debt) and going into continuous fiscal transfers inside sub-populations. There is little point in being in the same nation-state if this rule does not apply by choice or by force on all sub-populations.
On the other hand the rule also defines a stable nation-state – independently of size in population or area. Portugal, Germany, the United States of America are nation-states of increasing size: one can recognize that the rule quite applies, with highs and lows of course, over the population inside their borders.
For a stable solution of floating exchange rates to emerge the above condition must be satisfied for the countries adopting the priorities above – full employment and human development.
So, the challenge is truly global and is truly demanding. Either one is European, American, Australasian, Asian, African one is confronted with the defy of getting one's own country in full employment or full occupation with positive human development and tending to equilibrated trade balance in the limit, which also means with the right currency.
Paulo,
ReplyDelete"happy nation-states are populations accepting to share public savings value (also called public debt) and going into continuous fiscal transfers inside sub-populations. There is little point in being in the same nation-state if this rule does not apply by choice or by force on all sub-populations. .."
Good stuff here... wrt "sub-populations"
Paul Meli has referred to this as "the net liability cohort" within the non-government sector...
Also, suggest consider instead of using the term "public debt" switch to "Net Financial Assets" or what we often term here (in US) as "$NFA"...
There are sub-populations, or we might term 'the net liability cohort within the non-govt sector' that requires a constant positive flow of $NFA in order for the economic system to function successfully or worse avoid entry into a complete failure mode where asset liquidation becomes the main feature... (see the GFC of 2008 here in US)
Setting aside the human factors for a moment, the economic system WILL NOT FUNCTION unless this net liability cohort receives the correct level of $NFA flow...
and "Tax Cuts" wont work unless they come in the form of rebates where the govt credits bank accounts with additional positive balances...
I encourage you to stay on this concept of "sub-populations"... for both the human/social characteristics and the technical/operational characteristics of the system...
rsp,
Reading economics and these comments reminds me of recreating Aesop's fables.
ReplyDeleteOne parable is imagining a brain deciding the benefits "it" can achieve by:
1) walking across hot coals;
2) marching "itself" 100 miles through a hot desert;
3) killing wild bears with "it's" bear hands, for 7 days straigh, without food or water;
... all without monitoring feedback from the other 60 organs it can't live without.
Sure, the "royal we" may grant itself privy access to some data, but in the end, that data is meaningless without context. It's only a question of time constants - which royal-wee-brains seldom know about, precisely because they don't look.
There are infinite theories and paradigms. Only those selected by context survive. Ergo, it pays to get feedback from the "peon" sub-populations one can't survive without.
Another example showing how aristocracy & orthodox economics can't survive separately.
Looking what happens in even highly developed and educated countries like the US the analogy that comes to mind is an organism with different parts of the brain that are not coordinated and exchanging information with each other so that some organs get over nourished and fatty, while other organs are starved and wither. The necessary information is available but not used. As a result the flow of information and therefore energy is incoherent, the organism becomes dysfunctional, and can't figure out why or what to do.
ReplyDelete"the [culture] becomes dysfunctional, and can't figure out why or what to do"
ReplyDeleteThat's passe, and the norm, in biology. It's called Adaptive Life Spans. History says the surviving generations will figure it out, barely, and briefly.