Saturday, 2 May 2015
Andrea Terzi applies Keynsian / MMT thinking to EZ: a mistake.
Terzi makes the point at this INET conference that aggregate demand is related to whether the private sector has the savings it thinks it needs (that’s money savings as distinct from savings in the form of physical assets like houses or cars).
In saying that he simply repeats what Keynes said and what MMTers have been saying for years, i.e. that saving money causes recessions, thus the private sector must be supplied with the money savings it thinks it needs. (Terzi does incidentally admit his debt to Keynes.)
Problem though is that that’s not the basic problem in the Eurozone. The main problem in the EZ is the DISPARITY in performance as between the core and periphery – most notably the difference in competitiveness as between Germany and Greece. Put another way, there’s scarcely any problem in Germany and the rest of the core if unemployment figures are any guide.
That’s not to say the EZ might not benefit from a BIT MORE stimulus in the core. My guess is that it WOULD BENEFIT. But the MAIN problem is in the periphery, Greece in particular.
Relevant screen shots in chronological order are below. His maths is translated into English in red font under each equation.