Friday, July 18, 2014

Exporting Stasis: Euro-zone Politics & Social Instability Seem To Be Inching Towards A Showdown

(Commentary posted by Roger Erickson.)

German Finance Minister Wolfgang Schäuble called on Italy to pursue its ambitious structural reform efforts if it wants to boost its economic-growth prospects. “Especially since growth forecasts for Italy have been reduced recently, it’s important to reform and cut the debt level convincingly,” he said. Italian Prime Minister Matteo Renzi has presented ambitious and broad-based reforms, he added. “The Stability and Growth Pact is the foundation for politico-economic cohesion in Europe,” said Mr. Schäuble.

Euro-zone politics & social instability seem to be inching towards a showdown over making a simple choice. Neuter the fiat? Or allow cultural growth? Seems like an easy choice, for those able to think clearly, so what, exactly is Schäuble demanding? Three distinct interpretations come to mind, but they're all guesses.

#1 Is Schäuble calling for every country to be a net exporter, like Germany? Really?

It's hard to imagine a collection of stereotypical engineers ... who nevertheless won't admit that the sources/sinks of production/consumption (not the dimensionless liquidity units) have to roughly balance in a growing global economic system.

There still seems to be a widespread inability to separate liquidity units from saving units. Schäuble isn't the only one blind to the obvious.

Fiat currency is NOT the right vehicle for stable, long-term savings.
That is WHY the linguistic terms "asset appreciation" & "interest rate" were invented!
Labor wages can't be the ONLY variable that "inflates!"

I blame our outmoded education system - & Germany's too - for not including something so fundamental as a basic part of education. There is a difference between dynamic & static assets, and how they are denominated. Failure to grasp that is half killing many aspects of policy.

#2 On the other hand, perhaps Schäuble is drawing a line in the sand & saying - for EEU "politico-economic cohesion" - that there can be only one .... net exporter? Fine. He still doesn't come out & acknowledge the required, running sectoral balance between production & consumption - and the tolerance limits for deviations from it, in the form of demand leakages (savings). Has anyone met this guy, and hence have any idea what he's really thinking?

#3 Do you suppose that Schäuble's master plan is to export static assets to the future? :) Instead of exporting increasing options to future generations? Perhaps he has a point worth considering ... for maybe 5 seconds. Just imagine where we'd be if our grandparents had put every Model-T into long term storage, instead of using them at the time. :)  Fine again! If Schäuble's message is really all that valuable, surely the Europeans should just put HIM into cold storage, and preserve his valuable message for some time in the future, when his descendants will clamor to stop doing whatever they're doing, and instead do less. :)

He might want to take an extra pair of pj's to the cryo chamber, in case the slumber party lasts longer than he expects. Good way to export pj's too! :)

All joking aside. It's no longer clear what structure Schäuble is keen on reforming, but his own brain circuits might be the best place to start. It's rumored that vigorous exercise of both body & logic ward off Alzheimers and preserve the ability to think clearly.

Exporting clarity & Context Awareness? What a novel thought!  :)  Now that might be a way for Germans to have their exports and increase their dynamic value too!


Matt Franko said...

roger this says it well from your post:

"It's hard to imagine a collection of stereotypical engineers ... who nevertheless won't admit that the the sources/sinks of production/consumption (not the dimensionless liquidity units) have to balance in a growing global economic system."

I dont care what anybody else says this is an important observation and I encourage you to stay on stuff like this.... and its not just engineers but like yourself it gets thru to anyone who has been trained in dynamic systems...

Take someone like Walker he is an accountant... trained in the science of tabulating and reporting stock measures not dealing with flows... he is UNQUALIFIED for any of this...

It would be like an engineer who studied statics but not dynamics getting involved with a system that is put in motion: DANGEROUS and negligent....

Walker simply DOES NOT understand dynamic systems or their operations.... he should just take his giant govt pension and the Peterson money and retire already... he and people like him should just stay the f out of this... they are not qualified...

rsp, matt

Roger Erickson said...

thanks for the encouragement, Matt

My gut tells me that we're churning out under-educated people faster than us old folks can keep up with remedial messages like this. For every person who actually wonders what we're talking about, there's another million graduating or flunking out of high school who are capable only of dull surprise and sullen resentment. Ditto for most with summa cum laud lawyer degrees. :)

Maybe our best strategy is to plant some revolutionary seeds in very young minds, to counter the flat-policy-space indoctrination they're facing.

Matt Franko said...

right Roger I deal with young people all the time and often try to point these things out to them about the current leadership... implore them to change up all of this when they eventually get there...