Commentaries (some of them cheeky or provocative) on economic topics by Ralph Musgrave. This site is dedicated to Abba Lerner. I disagree with several claims made by Lerner, and made by his intellectual descendants, that is advocates of Modern Monetary Theory (MMT). But I regard MMT on balance as being a breath of fresh air for economics.
Thursday, 24 August 2017
Silly article by Owen Jones in The Guardian.
He inveighs against austerity, which will bolster his standing as one of the political left’s darlings. Unfortunately he’s clueless.
He argues that Portugal has implemented some stimulus recently and the effects have so far been beneficial, and that allegedly shows that the austerity imposed on Portugal has been unwarranted. Well that argument would certainly be valid in the case of a monetarily sovereign country, i.e. one that issues its own currency.
Unfortunately Portugal (like Greece) is in the EZ and that means big problems, as Bill Mitchell (Australian economics prof) keeps pointing out. In particular the way the EZ deals with lack of competitiveness in a particular country is to impose austerity on it till it’s costs come down and it regains competitiveness. Of course that’s harsh, but if you have a better way of solving the latter competitiveness problem, you’ll get a Nobel prize. Otherwise shut up.
Put another way, a bit more stimulus in any country in Greece’s or Portugal’s position will bring a temporary rise in employment and GDP. Unfortunately it will also raise inflation which delays the solution to the basic problem.
Of course it could be argued and indeed has been argued that A BIT MORE stimulus would only cause minimal additional inflation, and hence that the benefits of that policy outweigh the costs. But that point is above the head of Owen Jones. Indeed, the word “inflation” does not even appear in his article.
A better solution?
ReplyDeleteTake a load of unemployed people... with no money. How productive are they? How are they helping the economy? nothing at all. Greek unemployment is at 20% . millions of people sit idle.
How about training them, putting them to work doing something. Don't worry about the cost in doing this, just get millions of people converting stuff that is dug from the ground, to stuff that others will use.
Then, once the country has an overcapacity of this stuff, they can sell it abroad.
And the more stuff is sold abroad the more the trade balance comes down.
And when the trade balance is in surplus, it becomes self sustaining, with other countries using your stuff, rather than make it themselves, causing unemployment in other countries,
Then you have become Germany.
I’m awarding you a fair number of points out of ten for that idea, but not 10 out of 10.
DeleteThere’s a problem with “don’t worry about the cost”. The fact is that labour demands payment – that’s a cost. Plus there’s raw materials, capital equipment to pay for etc. The money for that lot must come from somewhere, so presumably it comes, or at least some of it comes from taxpayers. And that makes your idea in effect an export subsidy. And that as you rightly say improves the balance of payments and solves the problem.
I actually advocated something similar, namely an import tax, plus a German economist published the same idea the same day I did coincidentally. See:
http://ralphanomics.blogspot.co.uk/2015/07/what-about-import-tariffs-for-greece.html
I also don’t see the point in concentrating just on your “dug from the ground” types of employment. If there’s to be export subsidies, then best just to subsidies ALL types of export.
Of course import taxes and export subsidies go against the whole grain of the EU. But desperate times call for desperate measures, seems to me.