Bravo, Mr.Andor. Show the German 'elite' where the hammer hangs !

On September 21, an outrageous report appeared in the Frankfurter Allgemeine Zeitung (FAZ), Germany's equivalent of the Wall Street Journal (except that it doesn't come close to the WSJ quality of journalism). FAZ reported that, during an interview with the EU commissioner for social policy, Mr. Laszlo Andor had the audacity to state publicly that Germany carries part of the blame for the euro crisis ! 

Mr. Andor added that Germany needs to make a contribution to correct the imbalances in the eurozone by introducing minimum wages in all sectors of its economy and by ensuring that German wages are adjusted according to the increases in German productivity (which has not been done during the last decade --> see my post on Germany's Agenda 2010). He even had the nerve to suggest that Germany needs a quota for women on the executive boards of companies so as to open up opportunities for all the highly qualified women on the labor market ! When the interviewer pointed out that these demands would not receive standing ovations in Germany, Mr. Andor explained that the measures are necessary from a European perspective and that the EU commission has the means to take action against countries that refuse to cooperate. 

Holy macro, that took the biscuit ! The Schei.... hit the fan among the readers of the FAZ, the self-appointed 'elite' of Germany composed of bankers, entrepreneurs, management consultants, wannabe millionaires and the like: Three hundred and twenty-five ! commentators heaped nasty insults on Mr. Andor and his native Hungary, including the suggestion that he is still a communist and that Hungary only wants to get access to German money. 

I haven't read all the comments as I was already getting sick to my stomach after reading 10 of those arrogant, chauvinist, jingoistic invectives. What happened to the tolerant, open-minded, solidary, committedly European Germans I grew up with ? This sounds more like the Germany of the 1930s, just before the Nazis took over the Reichstag with a 44% relative majority of the popular vote. As a German citizen I say: stop this chauvinist smear campaign against other Europeans right now !!!!! We (committed European Germans and our European friends) will not allow you to take Europe into the abyss this time ! The recent demonstrations in Greece and Spain may seem like a walk in the parc compared to the social upheaval the eurozone will experience if the political and economic aggression from Germany does not stop. 

I congratulate Mr. Andor for having the courage to stand up against the German ‘elite’and openly call on them to cooperate in the European spirit. It is high time for Germany’s ‘Merkelantists’ [1] to stop dragging their feet on a number of issues that would help Europe’s economy while at the same time improving the lives of regular German folks:

1.) Support of Germany's internal market and reduction of implicit export subsidies through various measures:

• The reduction of value added taxes which are only imposed on domestic consumption, implying a relative subsidization of non-domestic consumption, i.e. exports. 

• The introduction of minimum wages and the adjustment of German wages according to productivity increases to (a) reduce the growing gap between rich and poor in Germany; (b) improve the incomes and living standards of Germany’s working population, and (c) last but not least, to reduce eurozone imbalances in unit labor costs and trade. 

• The implementation of restrictions on the use of lower-paid temporary workers (Leiharbeit) and precarious labor contracts to improve workers’negotiation power in salary negotiations and thus raise incomes and domestic consumption. 

2.) Improve the work/life balance for parents; raise women’s employment ratio, living standards, and participation in high-level decision-making by:

• introducing flexible working hours and/or home office work for everyone;
• investments in more childcare facilities instead of punishing people for not having enough children, making innocent citizens pay for politicians’ failed family policies of the last 30 years; 

• implementing quotas for women on Boards of Directors and other high-level posts. 

3.) Support of a European banking union, incl. a clean-up of the German banking sector

For reasons explained by Prof. Yanis Varoufakis “It’sthe German banks, stupid !”German finance minister Schäuble refuses to support a true European banking union with supervizory powers over ALL European banks, including credit unions and Landesbanks. 

4.) Elimination of austerity policies & implementation of pro-investment and pro-growth policies in the eurozone, with a focus on Southern Europe.

• see the Manifesto for Economic Sense
  
• see my posts “Non-Sense Economics and the deepening Greek crisis”, “Austerity causes capital flight and discourages investors”, “Austerity chickens are coming home to roost“, “Message to Mme La Chancelière: STOP this austerity non-sense, you are destroying the euro zone !”
  
• see Prof. Mazzucato’s Bloomberg interviews of September 2012 (see video).
  
  
  _________________________________________________________________________

[1] Merkelantism, lat. furiosa Teutonicorum insania. A contemporary German doctrine which holds that states, just like Schwabian households, should not spend more than they earn. An economic crisis will ensue if states continuously ‘live above their means’ by increasing their debt, because markets will begin to doubt their ability to service the debt. Therefore, to maintain or regain market confidence, states have to ‘save’ and implement reforms to cut public spending. [In this context, ‘reform’ is a code word for welfare cuts and the reduction of workers’ rights.] The aim is to improve competitiveness and increase export revenues so as to allow states to reduce their debt. This is the German guideline for economy policy in the eurozone and the economic conditionality for bail-outs or other financial assistance from eurozone institution. 

Speaking of benevolent leaders....

Obama: “I would say that your first and principal task is to think about the hopes and dreams the American people invested in you. Everything you are doing has to be viewed through this prism." (Obama's Way by Michael Lewis, Vanity Fair, October 2012)

I just wish Obama had thought more about the hopes and dreams of ordinary Americans, rather than the hopes and dreams of American banks/ters.

...in contrast to Jörg Asmussen, ECB Board member and one of the key German officials determining the economic conditionality for financial assistance from eurozone institutions:

"They have not sufficiently implemented the measures they have promised to implement,” he says simply. “And they have a massive problem still with revenue collection. Not with the tax law itself. It’s the collection which needs to be overhauled.” ... “They are also having a problem with the structural reform. Their labor market is changing—but not as fast as it needs to.” (Asmussen about the Greeks, in "It's the Economy, Dummkopf!" by Michael Lewis, Vanity Fair Sept. 2011).

I wouldn't want to be under his tutelage. Already his bald head and the way he's said to laugh scares the sh... out of me: "Instead of opening his mouth to allow the air to pass he purses his lips and snorts the sound out through his nose. He may need laughter as much as other men, but he needs less air to laugh with."

Yes, Europe needs a benevolent Germany to lead the eurozone - progressive men and women are working on it and need your support !

At the beginning of September, I began to draft a post entitled: "Europe needs a benevolent leader.... The unchristian, heartless Merkel government does NOT fit the bill ! "  I wrote the first three paragraphs while watching the US National Democratic Convention, then interrupted the post due to a leaked letter from the Troika to the Greek government and the return of the Troika inspection team to Greece, events that provoked my last three posts: "Non-Sense Economics and the Deepening Greek Crisis", "A Manifesto for Economic Sense", and "The Blueprint for Labor Reforms in Greece: Germany's Agenda 2010" on September 12.

Only then did I discover Mr. Soros' article of Sept. 7, "The Tragedy of the European Union and How to Resolve It" in which he argues that, to save the euro, Germany would either have to decide to become a benevolent leader or leave the eurozone. While I don't agree with the latter part of Mr. Soros' argument (Germany cannot be forced to leave the eurozone and will never do so voluntarily), I fully share his view that Europe needs a benevolent leader to end the unnecessary human suffering in the Southern periphery. I think that,  in addition to the ability to feel compassion toward fellow Europeans, this leader would have to be a competent and undogmatic economic policy maker so as to avoid  the non-sensical  economic policies based on ideology and the interests of a small elite. If Germany isn't up to this task, Europe may have to look for other alternatives.

Where can Europe find a benevolent and competent leader ?

While watching the party convention of the US Democrats I could not help but feel envious that, despite all the nutcases in US politics (mostly found among the Republicans), in US finance, and among the general populace, the country still produces some of the most charismatic, engaging politicians who combine a sharp mind with a good heart, genuinely caring for the fate of their compatriots. And to top it off, they look great in a suit ! Obviously, I'm talking about Bill Clinton and Barack Obama. I can hear the doubters say, "that's all show but no substance." Excuse me, but wasn't it Bill Clinton's policies that produced the longest economic expansion in US history, created a record number of jobs, stabilized the finances of the US social security system, and eliminated the budget deficit of the US government ? (see my post "How to raise public revenues, reduce public debt, and stimulate job-creating growth.")

Germany, on the other hand, seems to produce mostly politicians who combine all the worst character traits: incompetence and/or ignorance, arrogance and elitism, dullness and rudeness. And on top of this, many German politicians (especially some of the so-called christian democrats and christian 'socialists' - CDU and CSU) display a condescending and heartless attitude toward the peoples of Southern Europe.... Is it the fundamentally undemocratic nature of our party system that produces these types of politicians ? Career-driven, loyal party bureaucrats who don't truly care about the.people they serve ? Who are neither tested for their competence (as in US debates) nor for their empathy for the lifes of ordinary citizens, yet are appointed to important leadership posts mainly on the basis of their connections ? In their arrogance, they ignore the fact that Germany's political and economic power in Europe and the world rests on the hard work, creativity and ingenuity of its people and that it is these very people who can take the power away from politicians in a heartbeat, if and when they realize and put into action these simple words: "Wir sind das Volk" - "We are the People".

Germans are not quite there yet, as the majority does not (yet) feel the economic pain of the Southern European periphery. Also, the German corporate and banks/ter 'elite', in cahoots with the Bertelsmann & Springer media empires, has been very successful in indoctrinating citizens with their market-fundamentalist, supply-side ideology of austerity. Even German academics and intellectuels in this land of Dichter und Denker (poets and thinkers) have succumbed to the neo-liberal dogma which is still being propagated every day in the popular tabloid BILD, read by many high-level employees (as can be observed every morning in first-class ICE seating sections).

So successful has been this indoctrination that the majority of the German citizenry continues to assume (as reflected in the Maastricht Treaty) that only the public sector can produce chronic deficits and that the euro crisis was caused by public overspending and overborrowing.  And so, they follow the Schwabian housewife model of hard work, modesty and thriftiness, sacrificing wage increases and improvements in living standards for the well-being of a small 'elite', while blaming the suffering Southern Europeans for the euro crisis. It will take many years to repair the social and political damage this conservative German 'elite' has imposed on the eurozone, seriously endangering peace and security in Western Europe.

There are, however, progressive individuals and groups in Germany who vehemently oppose the unfair and economically idiotic austerity policies imposed on our Southern European friends and are actively working on alternative economic strategies. Also, thanks in part to articles and blogs by nobel prize winning US economists Paul Krugmann and Joseph Stiglitz, German economists Albrecht Müller, Heiner Flassbeck and Sven Giegold, financier George Soros and others, more and more people in Germany (yet, by far not enough) are beginning to comprehend the nexus of interests dominating economic policy making in Europe. Yet, from comprehension to active opposition, whether on the streets or at the ballot box in next year's parliamentary election, is a difficult and slow process in Germany. Still, now that Mario Draghi and his Big Bazooka have achieved a (temporary ?) monetary salvation of the eurozone, the time gained should be used for a U-turn in macroeconomic policies, away from the debt-deflationary austerity toward a more benevolent, growth- and employment-enhancing recovery path in the eurozone.

However, the hundert thousand dollar question is:

Does Germany have a benevolent leader with the courage and audacity to implement demand-side policies against the interests of the corporate and banks/ter elite?
Looking at current opinion polls for the next parliamentary election in Germany (Sept 2013), the situation seems less than hopeful for anti-austerians: chandellor Merkel's CDU continues to ride high in the polls and the opposition social democrats (with the second highest poll ratings) so far have not come forward with a chancellor candidate who is immune to the neo-liberal Zeitgeist [1], or who has the ability to free himself completely from this doctrine and think outside of the box. The same is true for the old guard of the Greens, the party with the third highest poll ratings. The remaining smaller parties, garnering between 4% and 8% in the polls, include the Linke (the only party that has continuously proposed policies to reinstate the deconstructed public pension and unemployment insurance system and protect the weakest in German society), the new and unpredictable German man's party (better known as the pirate party), and the free democrats who might not make it into parliament at all. So, knowing the Angst-ridden Germans, they will probably support a party combination that seems safe: either Merkel's CDU + the conservative wing of the social democrats, or Merkel's CDU + the conservative wing of the Greens. Both combinations would mean a continuation of the current austerity policies for Europe, albeit with a stronger focus on investments and growth.

The progressive groups mentioned above include people from the left wing of the social democrats and the Greens who, unfortunately, do not (yet) have the popular or financial support to push through a U-turn in economic policies this time around. However, Mr. Soros' and others' support could help educate the German populace about the true interests behind the policies of Germany's 'elite', the corporate welfare payments to European banks financed by taxpayers, and other 'ongoings' the corporate elite doesn't want the German citizenry to know about. Such support for regular public education is absolutely necessary as there are efforts underway to prepare the terrain for the next round of the neo-liberal policy agenda, including cuts in pensions, cuts in transfer payments for families and the unemployed, labor market liberalization, privatizations, and new restrictions on public expenses which would completely eliminate any discretionary spending by democratically elected representatives and further impoverish the public sector: Agenda 2020.

Is there an alternative to German leadership in the eurozone ?

I believe there is ! Mario Draghi has shown that, with the confidence that comes from economic competence and many years of experience in leadership positions on a national and international level, the Very Serious People of Germany can be cornered and their policies exposed as selfish, backward, and in some cases even psychotic. However, this is possible only with the backing of a large enough group of other eurozone nations and the courage to stand up against powerful German officials. The aim is not to 'gang up' against Germany, but to protect Europe (including the majority of the German population) from unnecessarily austere and destructive economic policies that serve only a small elite, but are unworthy of a rich continent with sufficient financial resources to provide a comfortable standard of living for every one of its citizens.

Europeans do not want a German Europe, but a European Germany !

(written by a committed European born and raised in West-Germany)

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[1] Mr. Steinbrueck, one of the possible social democratic candidates for chancelor, was asked in a recent interview why he had supported the liberalization of the German finance sector during his time as finance minister and responded that his actions were part of the Zeitgeist then. The question for me is: "Would I, as a German citizen, want a chancelor who follows the Zeitgeist or one who will question the Zeitgeist and make a decision based on what's best for the German people?" I think, the answer is obvious.

The Blueprint for Labor Reforms in Greece: Germany's Agenda 2010

As noted in my post of August 24 (see the lower part: “case study Greece”), the focus on nominal wage reductions to lower unit labor costs [1] and thus enhance the competitiveness of Greek products is a ‘structural’ measure close to the heart of the Schwabian housewives and -men in Berlin. Based on the simplistic assumption that the cost of labor is the only determinant of competitiveness (which is non-sense [2] and without any scientific foundation), this approach reflects the same supply-side bias as the German blueprint: the Agenda 2010, implemented in Germany between 2003 and 2005.

Just as Germany’s Agenda 2010, the labor reforms imposed on Greece encompass a number of employer-friendly measures, such as  

• the lowering of wage and non-wage costs (social security contributions);
• the reduction of unemployment payments;
• the shortening of the eligibility period for unemployment payments;
• the combination of social transfer programs with a requirement to work or attend training to increase the pressure on the unemployed;
• the downward adjustment of public pensions;
• the reduction or elimination of labor market regulations.

It is interesting to examine the political economy of Germany's Agenda 2010 in the context of my post "The role of crises for Troika shock therapy:  Twelve years after Germany’s 1990 reunification at an estimated cost of over EUR 1000 bln and a substantial increase in public debt levels from 38% of GDP to 62% of GDP (see chart below), Germany’s mainstream media, financed by powerful corporate interest groups, proclaimed the reunified country as “the sick man of Europe” due to an alleged lack of competitiveness, even though Germany’s trade surplus nearly tripled from EUR 55 bln in 1990 to EUR 133 bln in 2002. Apparently, despite Germany’s obvious export performance, an articifial crisis needed to be constructed to push through cut-backs in Germany's social security system so as to reduce the public debt, effectively passing on the reunification costs to lower and middle income groups.

At about the same time in 2002, Bertelsmann Trust, owner of 80.7% of the global media conglomerate Bertelsmann S.E.[3] headquartered in Gütersloh/Germany, published a catalogue of economic demands which magically found its way into the economic reform program for the second Schröder government, called Agenda 2010:

- measures to reduce wage and non-wage labor costs;
- cuts in unemployment benefits and social welfare payments;
- the relaxation of employee protection against dismissals;
- drastic cuts in public pensions;
- and other employer-friendly reforms.

Today, corporate interest groups and the mainstream German media claim that Agenda 2010 has been successful in reducing the rate of unemployment and laying the foundation for more dynamic growth in Germany. Don’t you believe it ! German economic growth increased and unemployment declined thanks to a booming global economy from 2005 until the 2008 Global Financial Crisis and, after a crisis-induced slump in 2009, from 2010-2011. During the crisis, German unemployment rates held steady as a result of a brilliant policy measure proposed by Olaf Scholz, the social democratic mayor of the Hanse-City of Hamburg: namely, the introduction of reduced working hours (Kurzarbeit) at reduced pay. This ingenious policy move not only held unemployment rates steady thanks to an immediate reduction in nominal labor costs, but also saved employers the turnover costs associated with the firing and re-hiring of workers, and ensured the immediate availability of trained, competent, and motivated employees when economic activity picked up again in 2010 and 2011. In 2012, however, as the global economy slowed down and the demand for German products declined due to the austerity policies in Europe, German economic growth has also been affected (see my post of August 2: "Austerity chickens are coming home to Germany") and German unemployment rates are creeping upwards.

Fact is, the supply-side measures of Agenda 2010 did attain an improvement in the cost competitiveness of German products, but at a steep price:

First, at the expense of a massive worsening of living standards for the German population, with broadbased declines in real wages, a transfer of non-labor costs and risks from the employer to the employee, the creation of a low-wage sector and the widespread use of precarious employment contracts formerly unknown in Germany, as well as the near destruction of the public pension system.

Second, at the expense of other eurozone exporters. The effective competitive real devaluation of German tradables resulted in mounting trade surpluses vis-à-vis other eurozone countries and is largely responsible for the huge economic imbalances that are at the root of the euro crisis.

Third, at the expense of financial stability: As German exports boomed, export revenues and corporate profits exploded, German banks invested the incoming tsunami of capital in US mortgage-backed securities, seemingly risk-free sovereign bonds, CDS, CDOs, and other toxic assets….and the rest is history….

Conclusion
For those who argue that Germany’s Agenda 2010 should be a blueprint for an improvement in competitiveness in other eurozone countries, allow me to cite Albert Einstein:

                    “The definition of insanity is doing the same thing over and over again
                                                         and expecting different results.”

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[1] Unit labor cost = average cost of labor per unit of output.
[2] Unit labor cost (the standard measure of competitiveness) can also be reduced by an increase in output (the denominator). While holding labor costs constant, output can be increased through productivity enhancements which in turn can be achieved by investing in human resources (education, work training) and the tools they work with (investment in research and development). Such investments would have the added benefit to increase aggregate demand, employment, and economic growth, exactly what Greece needs right now !
[3] Bertelsmann S.E. includes Bertelsmann Music Group, RTL, Random House, and other media companies, including part ownership of Gruner & Jahr and Time Inc.

A Manifesto for Economic Sense

As a follow-up to my last post "Economic Non-Sense and the Deepening Crisis in Greece" and before I review the German blueprint for the labor market reforms imposed on Greece in the next post, I think it is important to share with you a Manifesto for Economic Sense I recently found and signed.  Written and supported by some of the best economists on the planet, the Manifesto underlines the seriousness of the current economic situation and debunks the old 1930s style arguments put forward by the Very Serious People in power as a justification for their austerity policies and the massive suffering inflicted upon their peoples:

 

Manifesto for Economic Sense

[original text, mark-up added by this blog's author]

More than four years after the financial crisis began, the world's major advanced economies remain deeply depressed, in a scene all too reminiscent of the 1930s. And the reason is simple: we are relying on the same ideas that governed policy in the 1930s. These ideas, long since disproved, involve profound errors both about the causes of the crisis, its nature, and the appropriate response.

These errors have taken deep root in public consciousness and provide the public support for the excessive austerity of current fiscal policies in many countries. So the time is ripe for a Manifesto in which mainstream economists offer the public a more evidence-based analysis of our problems.

• The causes. Many policy makers insist that the crisis was caused by irresponsible public borrowing. With very few exceptions - other than Greece - this is false. Instead, the conditions for crisis were created by excessive private sector borrowing and lending, including by over-leveraged banks. The collapse of this bubble led to massive falls in output and thus in tax revenue. So the large government deficits we see today are a consequence of the crisis, not its cause.
• The nature of the crisis. When real estate bubbles on both sides of the Atlantic burst, many parts of the private sector slashed spending in an attempt to pay down past debts. This was a rational response on the part of individuals, but - just like the similar response of debtors in the 1930s - it has proved collectively self-defeating, because one person's spending is another person's income. The result of the spending collapse has been an economic depression that has worsened the public debt.
• The appropriate response. At a time when the private sector is engaged in a collective effort to spend less, public policy should act as a stabilizing force, attempting to sustain spending. At the very least we should not be making things worse by big cuts in government spending or big increases in tax rates on ordinary people. Unfortunately, that's exactly what many governments are now doing.
• The big mistake. After responding well in the first, acute phase of the economic crisis, conventional policy wisdom took a wrong turn - focusing on government deficits, which are mainly the result of a crisis-induced plunge in revenue, and arguing that the public sector should attempt to reduce its debts in tandem with the private sector. As a result, instead of playing a stabilizing role, fiscal policy has ended up reinforcing and exacerbating the dampening effects of private-sector spending cuts.

In the face of a less severe shock, monetary policy could take up the slack. But with interest rates close to zero, monetary policy - while it should do all it can - cannot do the whole job. There must of course be a medium-term plan for reducing the government deficit. But if this is too front-loaded it can easily be self-defeating by aborting the recovery. A key priority now is to reduce unemployment, before it becomes endemic, making recovery and future deficit reduction even more difficult.

How do those who support present policies answer the argument we have just made? They use two quite different arguments in support of their case.

 

The confidence argument. Their first argument is that government deficits will raise interest rates and thus prevent recovery. By contrast, they argue, austerity will increase confidence and thus encourage recovery.

But there is no evidence at all in favour of this argument. First, despite exceptionally high deficits, interest rates today are unprecedentedly low in all major countries where there is a normally functioning central bank. This is true even in Japan where the government debt now exceeds 200% of annual GDP; and past downgrades by the rating agencies here have had no effect on Japanese interest rates. Interest rates are only high in some Euro countries, because the ECB is not allowed to act as lender of last resort to the government. Elsewhere the central bank can always, if needed, fund the deficit, leaving the bond market unaffected.

Moreover past experience includes no relevant case where budget cuts have actually generated increased economic activity. The IMF has studied 173 cases of budget cuts in individual countries and found that the consistent result is economic contraction. In the handful of cases in which fiscal consolidation was followed by growth, the main channels were a currency depreciation against a strong world market, not a current possibility. The lesson of the IMF's study is clear - budget cuts retard recovery. And that is what is happening now - the countries with the biggest budget cuts have experienced the biggest falls in output.

For the truth is, as we can now see, that budget cuts do not inspire business confidence. Companies will only invest when they can foresee enough customers with enough income to spend. Austerity discourages investment. So there is massive evidence against the confidence argument; all the alleged evidence in favor of the doctrine has evaporated on closer examination.

 

The structural argument. A second argument against expanding demand is that output is in fact constrained on the supply side - by structural imbalances. If this theory were right, however, at least some parts of our economies ought to be at full stretch, and so should some occupations. But in most countries that is just not the case. Every major sector of our economies is struggling, and every occupation has higher unemployment than usual. So the problem must be a general lack of spending and demand.

In the 1930s the same structural argument was used against proactive spending policies in the U.S. But as spending rose between 1940 and 1942, output rose by 20%. So the problem in the 1930s, as now, was a shortage of demand not of supply.

As a result of their mistaken ideas, many Western policy-makers are inflicting massive suffering on their peoples. But the ideas they espouse about how to handle recessions were rejected by nearly all economists after the disasters of the 1930s, and for the following forty years or so the West enjoyed an unparalleled period of economic stability and low unemployment. It is tragic that in recent years the old ideas have again taken root. But we can no longer accept a situation where mistaken fears of higher interest rates weigh more highly with policy-makers than the horrors of mass unemployment.

Better policies will differ between countries and need detailed debate. But they must be based on a correct analysis of the problem. We therefore urge all economists and others who agree with the broad thrust of this Manifesto to register their agreement at www.manifestoforeconomicsense.org and to publically argue the case for a sounder approach. The whole world suffers when men and women are silent about what they know is wrong.

View All

Signed By

Aaron Goldzimer - Stanford Graduate School of Business / Yale Law School
Alan Manning - London School of Economics
Alan Maynard - University of York
Alan S. Blinder - Princeton University
Alasdair Smith - University of Sussex
Alfonso Lasso de la Vega - Former Deputy Director in UNCTAD
Ali Rattansi - Professor, City University, London
Andrew Graham - Oxford University
Barbara Petrongolo - Queen Mary University and CEP (LSE)
Barbara Wolfe - University of Wisconsin-Madison
Barry Bluestone - Northeastern University
Barry Supple - University of Cambridge
Charles Wyplosz - The Graduate Institute, Geneva
Chris Pissarides - London School of Economics and Political Science
Christian Kroll - University of Bremen / Jacobs University
Christopher Allsopp - Director, Oxford Insitute for Energy Studies, Oxford
Colin Thain - University of Birmingham, UK
David Blanchflower - Dartmouth College
David Hemenway, economist - Harvard School of Public Health
David Sapsford - Edward Gonner Professor of Applied Economics (Emeritus), University of Liverpool
David Soskice - University of Oxford
David Vines - Oxford University
Demetrios Papathanasiou - The World Bank
Donald R. Davis - Columbia University, Dept. of Economics
Eric van Wincoop - University of Virginia
Erzo F.P. Luttmer - Dartmouth College
G C Harcourt - University of New South Wales, School of Economics
Gary Mongiovi - St Johns University, New York
Geoffrey M. Hodgson - Professor, University of Hertfordshire, UK
Geraint Johnes - Lancaster University
Gianni Zanini - World Bank (Consultant; former Lead Economist)
Hannes Schwandt - CEP/LSE and Universitat Pompeu Fabra
Heinz Kurz - University of Graz, Austria
J. Bradford DeLong - U.C. Berkeley
Jan-Emmanuel De Neve - University College London & LSE Centre for Economic Performance
Jeffrey Frankel - Harvard University
Jeremy Hardie - LSE Centre for Philosophy of Natural and Social Science
Joan Costa Font - London Sschool of Economics
Jocelyn Boussard - European Commission
John H Bishop - Cornell University
John Van Reenen - Centre for Economic Performance, LSE
Jonathan Portes - National Institute of Economic and Social Research
Joseph Gagnon - Peterson Institute for International Economics
Justin Wolfers - Princeton University
Kalim Siddiqui - Business School, University of Huddersfield, UK
Ken Coutts - Faculty of Economics, University of Cambridge
Kevin ORourke - University of Oxford
Larry L Duetsch - Emeritus Prof of Econ, U of Wisconsin - Parkside
Lesley Potters - European Commission
Marcus Miller - Warwick University
Mariana Mazzucato - University of Sussex
Mark Setterfield - Trinity College, Connecticut
Mark Stewart - Warwick University
Max Steuer - London School of Economics
Michael Ambrosi - Professor Emeritus, University of Trier
Michael Graff - ETH Zurich and Jacobs University Bremen
Michael Waterson - University of Warwick
Nathan Cutler - Harvard Kennedy School
Nattavudh Powdthavee - University of Melbourne and Centre for Economic Performance, London School of Economics and Politcal Sciences
Nicholas Rau - University College London
Olaf Storbeck - Handelsblatt - Germanys Business and Financial Daily
Oriana Bandiera - London School of Economics
P.E. Hart - Emeritus Professor of Economics,University of Reading
Patricia Rice - University of Oxford
Paul Anand - Open University/ HERC Oxford University
Paul Gregg - Professor, Dept of Social and Policy Sciences, University of Bath
Paul Krugman - Princeton University
Paul Whiteley - University of Essex
Peter E. Earl - University of Queensland
Peter Elias - University of Warwick
Peter J. Hammond - University of Warwick
Peter Taylor-Gooby - University of Kent
Peter Temin - MIT
Philip Arestis - University of Cambridge
Philippe Martin - sciences po (paris)
Professor Sir Richard Jolly - Institute of Development Studies
Raffaella Sadun - Harvard Business School
Raja Junankar - University of New South Wales, University of Western Sydney, and IZA
Raquel Fernandez - NYU
Richard J. Smith - Faculty of Economics University of Cambridge
Richard Jackman - London School of Economics
Richard Layard - LSE Centre for Economic Performance
Richard Murray - former chief economist, Swedish Agency for Public Management
Richard Parker - Harvard University
Rick van der Ploeg - University of Oxford
Robert A. Feldman - IMF and Adjunct Professor Georgetown U. (retired)
Robert H. Frank - Cornell University
Robert Haveman - University of Wisconsin-Madison
Robert Neild - Emeritus Professor,Trinity College, Cambridge
Robert Pollack - Boston University
Robert Skidelsky - Wawick University
Roger Middleton - University of Bristol
Roger Stephen Crisp - St Annes College, Oxford
Ronald Schettkat - Schumpeter School, University of Wuppertal
Sergio Rossi - Department of Economics, University of Fribourg, Switzerland
Shaun P. Hargreaves Heap - University of East Anglia
Sheila Dow - University of Stirling (emeritus position)
Simon Wren-Lewis - Oxford University
Stefan Szymanski - University of Michigan
Stephen E. Spear - Carnegie Mellon University
Stephen Gibbons - London School of Economics
Susan Himmelweit - The Open University, UK
Terry Barker - University of Cambridge
Tony Venables - University of Oxford
Victor Halberstadt - Leiden University
Wendy Carlin - UCL
William Brown - University of Cambridge
William T. Dickens - Northeastern University and The Brookings Institution

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Recent Comments

• This manifesto points clearly what is important and what is not to overcome the deepening of current crisis. I agree with it in 100%
  Rafał Tenerowicz
• Fully agree with Krugman and Layard.Austerity programme may not be the prime cause of the contraction in demand but it has clearly exacerbated the problem and at a time when the private sector is cutting back on demand will clearly prove to be self-defeating.
  Roy Thomas
• I have been reading Krugmans column for years, and wish that it was required reading for politicians. I hope that this succeeds!
  Donna Stone
• The real test for economic policy is whether it works in the real world. The results are in and Keynes was right.
  Robert Michlowitz
• The people at the bottom need hope. The system will get to breaking point without a change. We must move towards greater equality or there will be real trouble. This manifesto is somewhere to start from. Good luck.
  Philip Martin
• In these, what should be enlighted times, I can but wonder how policy makers fail to see the evident truth. Especially considering the past experiences from the 1930s. This manifesto is well formulated and hopefully it will have an impact on our policy makers.
  Klaus Salonen
• Very good idea. Every professional economist, regardless of political persuasion, should join this effort.
  Max Johns Sr, PhD
• I may not be a professional economist, but the need for a sensible countercyclical fiscal policy, based on long-term stability rather than short-term gain, is not exactly rocket science.
  Brian Thomson
• Right on! Thank you so much for this Manifesto of Good Sense. I am not an economist, but I can see that austerity is the opposite of what our country and the world needs now. Onward with common sense for Economic Sense!
  Lauren Teixeira
• Many people who favour smll government are using the crisis as an argument for reducing the role of government, regardless of the consequences. Either they do not care about unemployment, or have an absurd faith that private demand is always forthcoming. It is clear that grinding the economy down is not a way to reduce public debt.
  Max Steuer
• I have watched for 22 years "Demand" reduce , i am not an economist ,I am one of those people who contribute to the data ,In my state (NJ) there are only a handful of independent bedding stores left ,I am one of them , is that enough credibility for this statement ?
  Anthony Benyola
• I agree with the bulk of your argumentation, although I think in this crisis there is a high proportion of vested interests in its origin.
  Alfonso Lasso de la Vega
• I agree with the broad thrust and the depression concern underscored in the manifesto. However, as usual the devil might be hiding in the details. I for one would have liked to see some discussion on the importance of the composition of demand. Consider the case of Turkey, not an advanced one, but a largish emerging economy which pulled of an impressive growth record amidst a global recession. This is attributable to the surge in internal demand and was facilitated by the ability to finance large current account deficits. During this time the government followed prudent fiscal and monetary policy, and improved tax collection. Wisely it did not follow the stricter austerity proposals of the IMF but did not try to stimulate demand either. The growth was accompanied by a real estate boom and an unprecedented increase in private borrowing. These developments provide the markings of a bubble. This particular combination of internal demand surge and deficit financing strikes me as something which is not sustainable. Returning to the manifesto, I have to ask "building what?"
  insan tunali
• I don believe those who favor austerity to foster growth are being honest. What they really want to do is "starve the beast" and thus foster less government. Oh, I wish these issues were publicly debated with people stating their real intentions.
  Brian McGihon
• Excellent proposal and a great idea in general agree with the manifest
  Eduardo Ramírez Cedillo
• It is indeed crucial to give these arguments a higher profile in the public debate. Its a piece of enlightenment in times of obscure moralist reasoning and growing nationalist reflexes.
  Andreas Fischer-Barnicol
• The arguments and analysis contained in this Manifesto are substantive and, more importantly, sensible. Simply put, if the private sector balks, then it is up to the government to step in to get the ball rolling again and this means unleashing capitol. If both balk, then disaster ensues.
  Adrian Panaro
• I fully agree with the contents and objectives of this manifesto. Time as come to put an end to this insanity that is driving the world economy (and our social organization) to the ground.
  Vivaldo M. Mendes
• My coauthor and I have introductory text (McGraw-Hill-Ryerson) that has been Keynesian throughout its 7 editions.
  John E Sayre
• I thought at first this time would be different from the thirties because we had learnt that lesson. But its now quite frightening.
  Michael Phelps

 

Non-Sense Economics and the Deepening Greek Crisis: Economic Incompetence or a Dangerous Game Played by the German Elite ?

The following video reviews the most recent round of austerity measures planned in Greece and predicts what they will do to the Greek economy and its people.

 

 

See also my review and analysis of the IMF Memorandum of Economic and Financial Policies for Greece:  case study Greece (see August 24 post) and Yanis Varoufakis' comments on a leaked letter from the Troika to the Greek labor ministry. 

Any reasonable economist wonders whether the austerity policies imposed on Greece are merely irrational and/or based on economic incompetence or whether they are instead completely rational as the real objective is to break the back of the unions and dismantle the welfare state.

Gerald Epstein, Professor of economics and Co-Director of the Political Economy Research Institute (PERI) at the University of Massachusetts, Amherst argues that it is the latter, suggesting that the German elite is playing a dangerous game. At first, they used the euro zone to export their goods, recklessly lending to the Southern periphery so their people could buy German products. Now, they are using the crisis in Greece and other highly-indebted Southern European countries to destroy the European welfare state, liberalize the labor market, and organize the privatization of state-owned assets at fire sale prices.

 

He argues that this strategy endangers the peace in Europe and – just like in the 1930s - leads to violent clashes and a revival of radical parties (which we have already seen). What makes the situation especially dangerous, not only for Europe but the global economy, is the fact that – just as pre-Lehman – we don’t know who is holding the bets against European sovereigns and who has to pay for them if the euro zone collapses.

My view: Although the origins of the strategy lie outside of Germany (see my posts of August 20 and 24), I’m afraid that Epstein may be right about the consequences. It could very well be that Greece is just the starting point on the path toward a market-fundamentalist re-making of Europe, serving as a blueprint for similar programs in other eurozone countries. These programs are already being prepared, e.g. for Germany: "Agenda 2020")