Monday, 15 September 2014

Article by Paul De Grauwe.




MMTers will be pleased to see that Paul De Grauwe (who has taken to plagiarizing MMT) has just penned a less than inspiring article claiming to have the solution to the Eurozone’s problem.
He makes the mistake of assuming that the ONLY problem in the EZ is EZ wide lack of demand. The problem with that is that if demand for the EZ as a whole is increased, that means excess inflation in Germany. And the Germans just won’t accept that.
In fact another major problem if not THE CENTRAL PROBLEM, in the EZ is competitiveness disparities as between the EZ core and periphery.
Quite possibly the Germans SHOULD accept some excess inflation (as others have pointed out) so as to help the periphery adjust, but it’s debatable as to whether an extra 2% or so of inflation in Germany would solve the problem.
Next , De Grauwe says that if extra demand CAN BE organised, it should come via extra public investment. Problem there is that Spain is littered with brand new underused (or not used at all) airports. Germany’s infrastructure is far better than the UK’s. It’s thus very questionable as to whether extra demand should come via extra investment.
Using public investment to escape recession is daft: it can take YEARS to get those sort of investments going, by which time they may just stoke the next boom (as I’ve pointed out a hundred times on this blog to little avail).


No comments:

Post a comment

Post a comment.