Back in the early days of the ongoing economic crisis, I had a line in my talks that sometimes got applause, usually got a laugh, and always gave people a reason for optimism. Given the experience of Europe and the United States in the 1930s, I would say, policymakers would not make the same mistakes as their predecessors did during the Great Depression. This time, we would make new, different, and, one hoped, lesser mistakes.
Unfortunately, that prediction turned out to be wrong. Not only have policymakers in the eurozone insisted on repeating the blunders of the 1930s; they are poised to repeat them in a more brutal, more exaggerated, and more extended fashion. I did not see that coming.…What was that about doing the same thing and expecting a different result?
Project Syndicate
Depression’s Advocates
Brad DeLong | Professor of Economics, UCAL Berkeley
Who says they expect different results? Besides them, OC.
ReplyDeleteWhat’s Brad DeLong talking about? The big mistake in the 1930s was failure to implement Keynsian deficits. Decent size deficits only came with WWII, and of course unemployment then plummeted. In contrast, the big problem in the EZ is that when a country loses competitiveness, it can only regain that competitiveness via internal devaluation, and that involves years of austerity.
ReplyDeleteThat apart, there is no evidence of deficient demand in the EZ in that Germany has hit the EZ inflation target over the last ten years. Inflation has fallen in Germany in the last 12 months, so if that’s not due to temporary factors, then a bit more EZ wide deficit would be in order. But that won’t solve the basic problem in Greece.
"there is no evidence of deficient demand in the EZ"
ReplyDeleteWhat an extraordinarily stupid thing to say.
Right Ralph, 11+% unemployment means the EZ has tons of demand.
ReplyDelete"Decent size deficits only came with WWII"
ReplyDeleteRalph to do a reserve drain you first have to do a reserve add...
Its the increase in the leading spending (then on warfare, yada yada...) that gets things going..
These people going all around saying 'Greece needs higher deficits!" are missing the mark... they are not exhibiting a complete understanding of these systems...
You have to analyze this in time domain... the NIA framework is as an accounting framework: EX POST
NOBODY works in EX POST...
You increase motor input via the motor controller and the motor can be seen to increase in temperature ex post (increase in thermal loss) but it is not the ex post increase in temperature that is causing the increase in the motor output...
If you need more gallons/minute of flow from an electric pump motor, nobody would run all around saying "hey! we need to make the motor warmer! the motor needs to be warmer!!!! somebody point a heat gun at the motor!!!!"
Don't fall for all of this 'increase the deficit' talk... rsp,