Kantoos Smackdown Watch, Wirtschaftsphilosoph Edition

2. Januar 2012 Von 37 Kommentare

Der Wirtschaftsphilosoph ist nicht allzu glücklich mit meinem letzten Eintrag zu political economy. Er gibt mich wie folgt wieder:

Kantoos scheint das zumindest für den Bereich der politischen Ökonomie anders zu sehen und hält den modernen ökonomischen Zugang für grundsätzlich überlegen gegenüber dem politologischen …

Das stimmt nicht. Ich hatte auf folgendes hinweisen wollen: politikwissenschaftliche Methodik hat sich nicht unbedingt in die Richtung weiter entwickelt, dass man damit die Wirtschaft besser verstehen kann. Daher ist das, was Politikwissenschaftler “political economy” nennen, in meinen Augen mit Vorsicht zu genießen und zum Verstehen der Wirtschaft vermutlich nicht sonderlich hilfreich. Die VWL dagegen hat Methoden entwickelt (“the strict mathematical treatment of human behaviour as rational utility maximization, and the empirical methods for dealing with ‘dirty data’, that is, non-experimental data”, wie ich schrieb), mit denen man auch ein paar (!) Fragen der Politikwissenschaft beantworten kann.

Sind wir deshalb die besseren Politologen? Das habe ich weder geschrieben noch gemeint. Wir können einen Beitrag leisten, ja, und das ist keine Selbstüberschätzung, die der WPh mir vorwirft. Ich habe aber meine Zweifel, ob die Politikwissenschaft diesen Beitrag umgekehrt in der VWL leisten kann.

Ich möchte nicht als ignoranter VWLer missverstanden werden: die Wirtschaftsgeschichte, zum Beispiel, kann einen großen Beitrag leisten und hätte ihn leisten können, wenn man auf sie gehört hätte. Allerdings kommen bei der Wirtschaftsgeschichte zwei Dinge zusammen. Erstens der geschichtswissenschaftlicher Ansatz, eine andere Zeit zu analysieren, das institutionelle Umfeld in der Vergangenheit zu verstehen usw. Zweitens aber ein Verständnis für die Wirtschaft, das ganz klar auf den Erkenntnissen der VWL bis heute aufbaut, und damit auf ihrer modernen Methodik. Das ist für mich eine sinnvolle Kombination. Ohne das tiefere Verständnis der Wirtschaft kann man keine für die Wirtschaft relevante Wissenschaft betreiben, und genau hier scheitern viele.

Das wäre übrigens auch der wichtigste Kritikpunkt an der political economy von Seiten der VWLer: dass sie zwar schöne Modelle bauen können, und auch gute empirische Arbeiten schreiben, dass sie aber kein tieferes Verständnis der Politik haben. Daher sind rein VWL-lastige political economists vermutlich auch keine guten Politologen, sondern solche sind es, die beides kombinieren können, wie die von mir erwähnten Heinmüller oder Snyder.

Vielleicht bin ich der Politikwissenschaft gegenüber aber auch zu hart, denn eine Art fallstudienbasierte “vergleichende VWL” zum Beispiel, wie sie der Kommentator DLüx im letzten Eintrag vorschlug, hat natürlich ihr Gutes und gehört eigentlich nicht mehr (!) in den methodologischen Standard-VWL-Baukasten, wohl aber immer noch zur Politikwissenschaft. Aber auch hier gilt, dass man die Wirtschaft auch wirklich verstehen muss, wofür die moderne VWL eine wichtige Voraussetzung ist. Dani Rodrik ist hier sicher ein Paradebeispiel.

Die Methodik der VWL hat sicher ein paar Dinge abgeworfen, die man nicht hätte abwerfen sollen. Und vielleicht sind es Historiker und Politikwissenschaftler, die uns daran erinnern. Aber ich bleibe dabei: ohne ein tieferes Verständnis der VWL und Wirtschaft sind solche Methoden nicht hilfreich.

PS: Zu guter Letzte noch ein Punkt, ein WPh Smackdown, wenn man so will. Ich finde nicht, dass man “die Krise” immer wieder als Kronzeugen hervor holen sollte. Die Finanzkrise in den USA 2007 ff. ist sicher ein Problem für die VWL, aber es ist bei weitem nicht so groß, wie es in den meisten Diskussionen gemacht wird. Wie Reiner Eichenberger es völlig richtig im Fazit Blog beschrieben hat:

Drittens beruhen die meisten Fehler von Ökonomen nicht auf der übertriebenen Anwendung ökonomischen Denkens, sondern gerade auf seiner Vernachlässigung. … Wenn Ökonomen etwas vorzuwerfen ist, dann dass sie ihren eigenen Ansatz zuweilen zu wenig konsequent zu Ende denken.

Und da die Presse in Deutschland sehr dazu neigt, die Krise zur Krise der VWL zu machen, und sich auch nicht zu schade ist, dafür eine Nobelpreisvergabe inhaltlich zu verdrehen, sollten Blogger diese anmaßende Übertreibung seitens der Presse nicht noch unterstützen.

Zudem ist doch fraglich, was hier “die Krise” ist. Die Eurokrise, so könnte man argumentieren, scheint nämlich ein vollständiger Sieg der VWL (wenn auch ein ziemlich bitterer) zu sein – auch über die Politologen, die im Euro die Vollendung der europäischen Einigung sahen, und alle sonstigen “Ökonomen”, die den Euro für ökonomisch sinnvoll hielten.

Ich habe das Gefühl, man muss bald ein Godwin’s Law für die VWL auflegen: jede Diskussion über die VWL wird irgendwann darauf hinauslaufen, dass jemand “die Krise” als Kronzeugen aufruft. Undifferenziert ist das aber wenig sinnvoll, und ich denke sogar eher schädlich (auch wenn der WPh sicher zur differenzierteren Sorte gehört).

Filed Under: Geschichte, Politische Ökonomie, Wissenschaft Tagged With: , , , , , , , , ,

Political Economy = bullshitting ?

30. Dezember 2011 Von 21 Kommentare

Nick Rowe, one of my favorite bloggers, recently made a claim that I strongly disagree with:

When I hear the words “political economy” I usually reach for my shovel. … “Political economy” has two (modern) meanings. It can mean political scientists bullshitting about economics. Or it can mean economists bullshitting about politics.

Being a trained economist, with a research focus on political economy, I hope I am not bullshitting in my academic work. But Nick’s statement did challenge my thinking: why do I tend to share his view on “political scientists bullshitting about economics”, while dismissing the other? Isn’t that inconsistent?

I don’t think it is. Economics is a social science just as political science. Both shared more or less a common methodology prior to the use of mathematics in modern economics (let’s leave out the mathematics of voting rules and other political issues). However, to understand economics, theoretically and empirically, the methods of traditional political science and economics have exhausted themselves a long time ago.

Since then, economics has opened up and developed two very useful methodological avenues: the strict mathematical treatment of human behaviour as rational utility maximization, and the empirical methods for dealing with “dirty data”, that is, non-experimental data.

The methods of political science have evolved as well, but not necessarily in a direction that is useful to understand economics. And why should they? Political scientists want to study political science, not economics. Economists did not develop these methods to understand politics either.

And yet, the new methods in economics can be applied to sub-fields of political science. Is that “bullshitting”? For some political scientists, it may well be. Chris Blattman describes an extreme view that political scientists may hold:

A caricature of economists: they only respect papers, they tend to like small questions answered ridiculously precisely, and they use a narrow set of mathematical tools for the job or simply don’t bother with the question.

There is some truth to this, but that is exactly why these methods are only useful for certain subsets of questions in political science. However, younger scholars in political science (!) departments do use these methods, which in Nick’s view means that political science professors like James Snyder or the young German Jens Hainmüller and many others are bullshitting about political science. Doesn’t sound right, does it?

There are other concerns about “political economy”, but I will leave it at that for the moment: political science methods are mostly unsuitable to understand economics beyond a certain point, which is why “political economy” from a political science perspectives should make Nick reach for his shovel. Economic methods on the other hand can (can!) be used to tackle some (some!) political questions. It is not the same thing.

PS: One side note on empirical work. The attempt by economists to answer empirical questions “ridiculously precisely” is not even a criticism to me. It is a praise. Being “ridiculously precise” is a precondition for the empirical results to be taken seriously at all. Non-ridiculously-precise empirical work is misleading and dangerous and often plain useless. Of course, the search for such “ridiculously precise” issues can have side effects.

Filed Under: Politische Ökonomie, Wissenschaft Tagged With: , , , , , , , ,

Decoding Euro-moralizations

5. Dezember 2011 Von 100 Kommentare

Moralizations of the extreme form, Italian edition

There are some moral debates about the Euro going on in the international blogosphere with Tyler Cowen and Ryan Avent as the main participants, and Scott Sumner adding some interesting historical perspective.  In my view, Ryan and Tyler are not talking about the same thing, so let me offer a different take on the issue.

In discussions of the Euro crisis, all sides occasionally end up in a moralizing grey area, and this blogger is no exception (sorry for that). But I think we need to distinguish two different layers of moralizations.

The first is a sort of good/bad ideology, in which either A) the lazy, profligate Southeners get what they deserve and hard-working, prudent Germany is right to refrain from costly help, or B) the Southeners are the victims of an easy-to-fix debt run, but the selfish stability-fetishists in Germany rather hurt millions of Greeks and Italians than to embrace the obvious solution after they have so tremendously benefited from the Euro.

This sort of moralizing should be avoided by anyone who is interested in a serious discussion of the Euro crisis.

The second is the one Tyler is describing,

the kind of “system-wide” moral judgments that progressives offer up when they judge the institutions of Denmark to be superior to the institutions of Mexico, of course without ever judging the residing individuals per se.

He offers 11 examples of this kind of moralizing from a German perspective. The deeper reasons for such moralizing behaviour is, I think, a sense that something is going wrong in Europe without the ability to analyse it in economic terms, terms of game theory or political economics. Such moralizations are usually derived from principles, things you should or shouldn’t do, principles that were embedded in society for a reason: if you don’t have the ability to grasp the whole situation, it is best to stick with agreed-upon societal behaviours that served you well in the past. These may be principles of fairness, solidarity, responsibility, pragmatism, forgiveness, stability, loyalty, lawfulness and many more. Different societies put their emphasis on different subsets of these, and as Scott correctly notes: whether that choice is good or not is context-specific.

Although they are not very helpful, I would not dismiss this second kind of moralizations as easily as the one above. Sure, the distinction between the two is blurry, but there is some justified discomfort and scepticism expressed in such moralizations that actually have a serious representation in economic terms. I let Tyler describe part of it from a German perspective:

Do not think that Germany has merely to waive a magic wand, or incur a one-time cost, to set things right in the eurozone.  Any “set things right” action on Germany’s part is, one way or another, a form of doubling down.  If it fails it means a bigger eurozone implosion in the future than would happen now, including much higher costs for Germany.  The choice is not “German action vs. doom now,” it is “German action and some chance of even bigger doom later on vs. doom now.”  That’s a tough call.  The Germans understand that one better than do most of the bloggers I’ve been reading on the topic.

Moralizations of the extreme form, German edition

Of course, there are justified economic concerns behind opposite moralizations of this second kind as well. For instance, complains that Germany is unsolidarily forcing countries into depression. This moralizing statement just reflects three very important issues that tend to be ignored or dismissed much too easily in Germany:

  • Short term austerity makes things worse if there is no national central bank to pick up the slack. Almost any macroeconomic model tells us that, not to mention the empirics.
  • Deflation – if resulting from a decline in aggregate demand – is an economic catastrophe. The Germans should know that better than any other country in the world, but surprisingly most don’t. Insisting on low inflation at a time of massive economic adjustments in a currency union is inflicting enormous suffering on the periphery.
  • Central banks need to be an aggressive lender of last resort to banks to avoid a financial collapse. That is not an unorthodox Anglo-American money-printing idea. It is one of the main reasons why central banks were founded in the first place. A lender of last resort to sovereigns is a more complex issue in a currency union without a unified fiscal policy, as almost any proponent would admit.

Contrary to Ryan, I think it is useful to deal with moralizations of the second type head-on and try to explain to both sides what the economics behind these moralizations are and discuss whether they are justified or not. I find that it works well with family and friends in Germany.

But the worst thing we can do as bloggers is to get into the grey area around both kinds of moralizations ourselves – if only by playing a simplistic blame game. We should know better, and we are capable of expressing what we mean in economic terms. But the issue is subtle, and I have my doubts whether all those in this grey area realize what they are doing, on both sides of the debate. A short, but not exhaustive, checklist:

  • if you are blaming [insert country] exclusively, for instance, it is very likely that you are moralizing. An example: the Eurozone brinkmanship consists of more than one player, hot capital inflows are difficult to manage for any country, as Germany may learn in the years to come etc.
  • if you indulge in negative stereotypes, you are obviously doing it: lazy [insert countrymen], imperialistic [insert, well, Germany], … Note to non-Germans: suggestive uses of words like Reich, Anschluss, Grossdeutschmark carry a moralization and sound offensive to most Germans. They are (without exception!) unnecessary to analyse current events.
  • if you criticize the other side of moralizing, you often come close to moralizing yourself, if only by offering a counter-moralization of your own. That is dangerous territory, not every reader may understand that you were just trying to prove a point. Or weren’t you?
  • if you point out moral obligations (on both sides!), if only in suggestive sentences or headlines, you come close to moralizing, and need to be very careful. Example: “[insert core country] gained so much, and therefore…” or “The [insert Southern countrymen] were having a party for years, and have to …”.

I probably need to read my own checklist in the future before I publish a Euro crisis post… All in all, I think it is a good thing that Tyler brought it up.

PS: Tyler has a new reply to some critics. Do read that, too.

Filed Under: Außenpolitik, Gesellschaft, Politische Ökonomie, Presse Tagged With: , , , , , , , , , , ,

Wohlfahrtsstaaten und die Krise Europas

19. November 2011 Von 17 Kommentare

Ist die soziale Hängematte für die Verschuldung verantwortlich? by michael pollak

Viele haben mich, nach meiner schockierten Antwort auf Rainer Hank, gefragt was ich denn von seinem Nachfolgeeintrag halte. Um mich nicht dem Vorwurf auszusetzen, ich würde Rainer in meinem Ärger nicht genau lesen, erstmal eine kurze Zusammenfassung seines Eintrags so wie ich ihn verstehe (was diesmal einfacher ist, denn in seinem letzten Eintrag war er mit seinem Wicksellzitat sehr suggestiv, was andere anders verstanden haben mögen).

Er zeichnet die Entwicklung der Staatsausgaben über die letzten 150 Jahre nach und stellt fest, dass einerseits die Ausgaben gestiegen sind, andererseits es aber auch große Unterschiede zwischen den Staaten (USA vs. Deutschland, z.B.) gibt. Schulden wiederum seien ein bequemer Weg, dieses Wachstum des (Wohlfahrts)Staates zu ermöglichen. Rainer deutet eine polit-ökonomische Erklärung dafür an: der Wettbewerb um “soziale Nettigkeiten” führt zu mehr Ausgaben.

Weiter nimmt er sich Paul Krugman und Co. vor, die meinen, die Krise des Euro hätte nichts mit dem Wohlfahrtsstaat zu tun. Rainer schreibt, dass die Fehlkonstruktion Euro ein Gutes hätte: sie würde Staaten zwingen, ihre Verschuldung niedrig zu halten, damit sie nicht Opfer von selbst erfüllenden Insolvenzen werden können. Im Gegensatz zu anderen Staaten würde also der Euro die Risiken früher entlarven. Zu guter Letzt nimmt er sich die Kritik vor, die Eurokrise sei finanzkrisenbedingt, was er für unplausibel hält: der Beitrag der Finanzkrise zur deutschen Staatsverschuldung betrüge nur 1%, und überhaupt sei der Wohlfahrtsstaat an der Finanzkrise in den USA mit Schuld.

Ich könnte viele Punkt aufgreifen, muss mich aber beschränken und fange von hinten an:

  • Die Finanzkrise in den USA auf den Wohlfahrtsstaat zurück zu führen, halte ich für einen schlechten Scherz, mit dem sich die Republikaner in den USA regelmäßig blamieren. Der Subprime Sektor war so klein, dass selbst der Komplettausfall aller Kredite dort nicht mehr als einen Kratzer hinterlassen hätte. Peanuts, hätte die Deutsche Bank gesagt. Die Dynamik aber, die dies im Bankensektor wegen Fehlregulierung erzeugt hat, sowie eine unzureichenden Reaktion der Zentralbank, sind die wirklichen Gründe. Wenn man sich so weit aus dem Fenster lehnt, wie Rainer, sollte man vorher Gary Gortons, Markus Brunnermeiers oder Ricardo Caballeros Arbeiten gelesen haben, nicht nur Fault Lines. Und dann lässt man das Fenster eher zu.
  • Womit er Recht hat, ist, dass die Konstruktion des Euro nur ein sehr niedriges Schuldenniveau zulässt, und ich bin mir auch nicht sicher, ob das nicht vielleicht sein Gutes hat. Denn ich war immer ein Verschuldungsskeptiker und kann die Argumente von links gegen die Schuldenbremse nicht ganz nachvollziehen. Aber dem werde ich mich in Zukunft nochmal länger widmen.
  • Die polit-ökonomische Erklärung für Verschuldung ist sicher ein wichtiger Teil, und die Forschung darüber füllt ganze Bibliotheken, allerdings gilt sie nicht exklusiv für den Wohlfahrtsstaat. Sie gilt auch und gerade für Partikularinteressen, die mit dem Wohlfahrtsstaat nichts zu tun haben: Steuerentlastungen für Parteispender (Hotellobby), butterweiche Regulierung der Energiekonzerne, CO2-Zertifikatgeschenke, eine lasche Politik der Pharmaindustrie gegenüber etc. Wo ist die Kritik daran?
  • Womit wir zum Wohlfahrtsstaat kommen. Hier hat Rainer in Teilen Recht: der Wohlfahrtsstaat ist eine Verschuldungsgefahr für jedes Land. Einmal lieb gewonnene Programme sind schwer wieder zu kippen, weil man eine kleine Gruppe schafft, die großes Interesse hat, das Programm zu behalten, wobei sich die Kosten in homöopathischen Dosen auf alle verteilen. Das ist das Problem fast aller Staatsausgaben (Agrarsubventionen z.B.), bei manchen lässt es sich nicht vermeiden (Regulierung von Firmen aus dem Energiesektor, der Pharma, etc.). Mit dem Wohlfahrtsstaat kommen noch viele hinzu.

Auch die Skandinavier haben ihre Krise erlebt, und mussten ihren Wohlfahrtsstaat einer Überholung unterziehen. Aber ihr Beispiel zeigt, und hier widerpreche ich Rainer vehement, dass es möglich ist, einen effizienten Wohlfahrtsstaat zu gestalten, der nicht in einer Verschuldungsspirale endet. Denn es ist nicht die Größe des Staatssektors, die verantwortlich ist für Wachstumsunterschiede (China?) oder Verschuldung, sondern der effiziente Umgang damit. Die USA, z.B. haben mit ihrer niedrigen Staatsquote auch durchaus Schuldenprobleme.

Ich hatte dies in meiner Kritik am “linken” ökonomischen Denken in Deutschland schon einmal angesprochen: man muss die VWL clever nutzen, cleverer als Marktliberale a la Rainer, wenn man eine linke Politik durchhalten will. Wenn man sich anschaut (ich hoffe, ich erinnere mich richtig), wie Schweden seinen Wohlfahrtsstaat gestaltet (nur noch Privatschulen und Gutscheine, oder eine Praxisgebühr bei jedem Arztbesuch) oder wie die Niederlande mit Arbeitslosen oder krank Geschriebenen umgehen (Linke in Deutschland würden das Arbeitszwang nennen), versteht man vielleicht, was ich meine.

Die Verschuldungskrise Europas hat mehr mit den Schwierigkeiten einer Währungsunion, den kurzfristigen Kapitalflüssen und der Fehlregulierung des Bankensektors zu tun, als mit dem Wohlfahrtsstaat. Gleichzeitig muss man sich ehrlich fragen, ob eine Gruppe in einem demokratischen System andere ausnimmt.

Demokratie ist eben mehr als das Recht zu wählen. Sie erfordert Institutionen der Kontrolle, vernünftige Parteien und kritische Medien, sowie ein interessiertes und kompromissfähiges Volk. Die Amerikaner zeigen gerade, wie dysfunktional selbst eine alte Demokratie irgendwann werden kann, wenn sich die Gesellschaft polarisiert oder Medien wie Fox News mit ihren “Analysen” viele Leute desinformieren.

Die Griechen als Ganzes aber kann man nicht so angreifen, wie es Rainer in seinem ersten Beitrag getan hat. Die FT schreibt zum Beispiel:

Greece and Switzerland have opened talks on a deal that would allow Athens to recoup taxes on some of the billions of euros its citizens have deposited in offshore banks.

Kein Staat kann überleben, wenn die Steuerbehörden von Politikern dazu angehalten werden, keine Steuern einzutreiben:

“This wasn’t all due to misreporting,” he says. “In 2009, tax collection disintegrated, because it was an election year.”

“What?”

He smiles.

“The first thing a government does in an election year is to pull the tax collectors off the streets.”

“You’re kidding.”

Now he’s laughing at me. I’m clearly naïve.

… oder wenn die Reichen ihre Schäfchen ins Trockene bringen können, bevor die zurück Gebliebenen die Scherben aufkehren müssen.

Was das mit dem Wohlfahrtsstaat zu tun haben soll, bleibt wohl Rainers Geheimnis.

Filed Under: Arbeitsmarkt, Gesellschaft, Politische Ökonomie Tagged With: , , , , , , , , , , , ,

Kash Mansori on Italy, Spain and Germany

27. Oktober 2011 Von 12 Kommentare

"The Street Light" responds to my post on Italy and Spain. Street lights in Malta by charakag

Kash Mansori provides his take on competitiveness and the problems of Italy and Spain in a post on his blog “The Street Light”. He raises some valid points, but I still disagree on four aspects: data of the past, Germany’s central bank, Germany’s gain from being in the Euro and German policy during the devaluation.

1. Past data

You shouldn’t reason from past data on something that is almost entirely a forward-looking issue. Past budget deficits or current debt to GDP ratios tell you very little about the sustainability of debt. The future debt burden and the future capacity to pay are what matters.

Italy’s growth prospect is bleak, it hasn’t even started to devalue internally, it is ageing at a tremendous speed and it will have a huge debt burden; Spain has a lower debt burden, but had a construction sector equal to almost 1/6 of the whole economy, a banking problem of unknown size and a mind-boggling unemployment rate of 21%. The internal devaluation that lies ahead of Spain is gigantic.

This is not to say that Italy and Spain are necessarily insolvent, but doubts about their solvency are more reasonable than proponents of illiquid-but-solvent arguments usually admit, and Kash is not exception.

2. Germany’s central bank

Kash argues that Germany is not under bond market pressure because it has its own central bank. What he means is that everyone expects the ECB to backstop a fall in German bond prices and therefore they don’t fall. I am not convinced, at least for the current situation.

A sovereign default by Germany would be against very deeply rooted convictions of the German public. It is no surprise that Gemany introduced a constitutional debt brake based on a party-wide consensus at a time when nobody was talking about sovereign defaults in Europe at all. Germans hate sovereign debt and inflation, and markets know this. Moreover, Germany has already devalued internally and its growth prospect is not bad at all.

Thus, there are plenty of more obvious reasons for Germany’s current position on the sovereign debt market. They, admittedly, don’t fit so well with Kash’s overall position on the Euro crisis.

3. Germany’s gain from being in the Euro

Kash is a prominent voice that suggests that the Euro has benefited Germany before this crisis. For instance, he writes:

The core eurozone countries like France and Germany were in the driver’s seat when it came to setting up this system, and they were happy to take advantage of the common currency when it was to their benefit. They now need to recognize that the responsibility for fixing this mess should really rest largely with them.

And yet he seems to be aware of the fact that Germany had to painfully devalue internally over 8 years. Anyone else noticing the contradiction here? To paraphrase Kash’s statement: Germany benefited from the Euro before this crisis, and the periphery is benefiting now. Doesn’t make sense, does it?

So let us recap a few things here. First, the benefits of facilitated trade were shared by everyone in the Eurozone – not only, in fact not even to a larger extent as is commonly suggested, by an exporting nation like Germany. Second, the other countries consciously traded the ability of adjustment through their exchange rates for lower interest rates, the Euro was not forced on them. The responsibility of fixing this mess should rest with everyone who participated.

4. German policy during the devaluation

As Kash rightly points out, the internal devaluation in Germany happened under pressure. But this supports my argument: as I have said before, pressure is probably needed for a quick adjustment. The 2000 stock boom delayed German adjustment to some extent, and an unconditional liquidity support by the ECB wouldn’t help much either in that respect.

How, then, can we keep up the pressure on Italy and Spain when the ECB is committing itself to buy unlimited amounts of debt? Am I the only one who sees the difficult bargaining game here?

And can Italy and Spain pull it off, once they are forced? I don’t know and it surely is hard. But unless the answer to this question is an unequivocal “yes”, these countries are not solvent. Quite frankly, I am astonished that Kash writes that Italy and Spain are “quite clearly … the victims of a self-fulfilling illiquid-not-insolvent sort of crisis”. Nothing is clear about that.

Let me end with a Dani Rodrik quote from 2010, being asked what Spain needs to do:

First, expenditure cuts are not going to do the job on their own, unless accompanied by policies targeted directly at improving competitiveness.

Second, “structural reforms” (which in the Spanish context means largely labor market reforms that aim to reduce firing costs and decentralize wage bargaining to the firm level) are not a substitute for competitiveness policies.  Insofar as they eat up political capital, they may even backfire in the short-run.

Third, there are no easy solutions to Spain’s competitiveness conundrum.  But the least bad solution is to engineer an economy-wide reduction in nominal wages and the prices of services (utilities, etc.) through some kind of social compact.

Easy?  No.  Any other practical alternative to a prolonged period of recession and high unemployment? Probably not.

That would be the kind of commitment or signal we need. As long as people keep telling Spain (Italy) that they are the victim of a self-fulfilling panic, that it is in fact Germany’s and France’s fault that they are where they are, and that it is Germany’s fault that the Euro crisis is not long solved, it will be harder to convince the people in Spain (Italy) what needs to be done.

Filed Under: Makro, Politische Ökonomie Tagged With: , , , , , , , , , , , , , , ,

You are neither dumb, nor stupid, Paul…

24. Oktober 2011 Von 14 Kommentare

Definitely competitive in 2006, but what about the future? World Cup celebrations in an Italian street, by angelocesare

…, obviously not. But lots of people take an important assumption of your argument for granted.

That, admittedly, was not clear from what I wrote. I was a little sloppy in phrasing my arguments and made it seem like Paul is confusing liquidity with solvency, which of course he is not. So let me try to be clearer this time.

The “illiquid but solvent / self-fulfilling” (SF) argument says that when solvency concerns lead to rising yields, this in turn undermines the sustainability of the debt, leading to yet another increase in yields, etc. Solvency concerns (or speculation in this direction) become self-fulfilling in this case. This argument is intuitive and under certain assumptions correct. Karl Smith actually applied for the title of “most detached econblogger” because he found it to be too obvious to write much about it.

However, the key assumption for multiple equilibria is that the true probability of default is in a certain range in which both equilibria are possible. It doesn’t say that every default is the result of a self-fulfilling dynamic. Contrary to many proponents in the German press, Paul is of course aware of that (emphasis mine):

The point, however, is that Italy and Spain arguably are at risk of suffering from self-fulfilling panics. And you need open-ended credit to avert that fate.

And in an earlier post on the subject, he writes:

In the case of Greece and probably also Ireland and Portugal, I’d argue that we’re looking at fundamental insolvency. The debts are just too big, the required fiscal adjustment just too large even if interest rates were low, to make full payment plausible.

The problem is how to distinguish a multiple-equilibria situation from cases of genuine one-equilibrium insolvency – especially for countries as the future capacity to repay is not based on assets in a narrow sense but on the expectation of future economic growth. Some people made the SF argument in 2010 for Greece – a politically and institutionally weak country with ridiculous recent inflation dynamics trapped in a currency union with macroeconomically prudish countries like Germany and a stubbornly suicidal ECB. That was obviously wrong, and in my view not only in retrospect. For Portugal, the verdict is not in yet, but as my guest blogger Henry Kaspar pointed out, it doesn’t look good; for Ireland it looks much better now.

For Italy and Spain, there is a reasonable chance that it is in fact a self-fulfilling liquidity problem, but – and that was my main point – it is by no means certain. A backward-looking remark about Italy having a primary surplus is just not enough to make your case and Henry’s analysis is not encouraging. If a country is credibly committed to re-gaining competitiveness, and it has the political institutions to succeed, there is every reason to start unlimited liquidity support to prevent a self-fulfilling panic. If it can’t (like Greece) or is reluctant to (like Italy?!), then what looks at first like a self-fulfilling liquidity-turned-solvency problem is in fact a garden variety solvency problem, and should be treated as such: support, yes, but with heavy conditionality to turn it into a liquidity problem.

As Henry Kaspar writes:

[L]iquidity support should be conditional – conditional on credible assurances, or even better: demonstrated behavior to do what it takes to improve competitiveness and remain solvent. Any liquidity provider – be it the ECB, or the EFSF, or Germany – is perfectly right to insist on this. Unconditional liquidity support provokes unsustainable behavior, and therefore risks undermining the sustainability of the euro area instead of promoting it.

Exactly. So don’t blame Germany alone (unless you are talking about monetary policy) for a political mess that is founded to an underappreciated extent on other countries’ unwillingness to aggressively restore competitiveness.

PS: I should also point out that my presentation of Germany and its internal devaluation between 1998 and 2006 was not meant as a “look how good we are” example, but more as a “damn that was hard” example for why I am sceptical that Italy and Spain are solvent, let alone Portugal or even Greece.

PPS: See also Ryan Avent’s response to Henry’s post.

Filed Under: Makro, Politische Ökonomie Tagged With: , , , , , , , , , , , ,

Solvent? Who said solvent?

19. Oktober 2011 Von 30 Kommentare

Are they also on the same page when it comes to reforms? by Oxfam

The German government remains under attack for not “taking leadership” in the Euro crisis. This rests on the assumption that a known solution is ready to be implemented, but the German government just refuses to accept it. That is wrong.

How many times have you witnessed people changing their opinion about the Euro crisis, while being very confident at the time? This is Joe Stiglitz in February 2010:

If the rest of Europe stands behind Greece, interest rates will come down and then it is easy for it to service the debt. There is a vicious circle here: if people don’t believe it will service it, interest rates go up and then there is a problem.

“A default by Greece is absurd” is what he says later. Sounds familiar? It is the argument that is used for Italy and Spain these days, countries that are “illiquid but solvent” as the popular opinion goes. Isn’t illiquidity always a sign of doubts about solvency? Never mind. Paul Krugman, pointing to Paul de Grauwe, is endorsing this argument as well as The Economist, Willem Buiter, and many others.

I am not saying that Italy and Spain are insolvent (whatever that means for a sovereign country anyway), what I am saying is that their solvency is far from certain. I recommend to take a look at Germany, a country that went through eight years of painful internal devaluation, starting from a much lower debt burden. And it had a functional political and economic governance system (in comparison to Italy) that introduced a so-called debt brake completely without outside force based on a party-wide consensus. Add on top of that the indifference of most European economists and policy makers to the contractionary monetary policy of the ECB plus the fact that Germany was (and is) a big country within Europe and thereby a decisive factor for ECB policy, and the growth prospect for the periphery is bleak.

If Spain and Italy want a backstop – that realistically only the ECB can provide – it is their burden of proof to show that German taxpayer money, that does not grow on trees either, is worth risking in this operation. Because if it turns out that Italy or Spain cannot grow out of their debt because they lack the political will and macroeconomic discipline (as they did a long time ago), this backstop will come into effect, backed by German taxpayer money. And the more it is used, the more the negotiating power shifts towards Italy and Spain, who in this scenario would have shown their lack of political will and macroeconomic discipline… You get the idea.

In fact, Italy proved right away that this scepticism is not a phantasm: after the ECB started buying Italian bonds, the Italian government decided that it was not so serious about reforms after all, forcing the ECB to stop the programme.

How can Italy and Spain show that they mean it? I don’t know. Maybe by transferring government-owned enterprises and property as collateral to the ECB? Maybe through a country-wide consensus (!) on a debt-brake or on pension reforms? Or by giving the ECB the right to approve the budget? By legislation on wage setting that ensures that the economy will be competitive in the near future? To be sure, these are all difficult questions, but this proves my point: blaming Germany or its government is an unsatisfactory explanation for the political problems we face in Europe.

In my view, the problems have to get much worse, Greek-style, so that the peripheral governments can push through the reforms that are needed. Blaming Germany, the ECB, the IMF or whoever will be a common theme during this time of reform and hardship, thereby worsening the relationship between the people of Europe further and showing once more what a tragic, devastating and silly idea the Euro really was. God, this is depressing.

PS: The German influence is really ruinous when it comes to monetary policy, the obsession with an inadequate inflation target and the idea that the ECB’s monetary policy is highly expansionary as it is. It would be great if economists from around the world would point that out!

Filed Under: Makro, Politische Ökonomie, Wachstumspolitik Tagged With: , , , , , , , , , , , ,

If you don’t want to take on their sovereign debt, make ‘em grow!

5. Oktober 2011 Von 49 Kommentare

Core inflation in the Eurozone: below 1.25% and falling

This is a short post on the ECB, something that is completely redundant for two reasons: first, the ECB won’t listen anyway, but more importantly and second, part of it is so painstakingly obvious that I wonder why I have to write this at all.

If you are a central bank, running a suboptimal currency union with an inappropriate target on the verge of collapse in the midst of a major economic crisis, what is the last thing you would want to do? Let 5-year inflation expectations drop to levels below 1.5% in the presence of large output gaps and a current core inflation just slightly above 1% (see chart).

Another thing that you might be, well, unwilling to do is to take on very risky sovereign debt (an essentially fiscal operation) and accept doubtful collateral from banks to cover up for politicians that are too scared to admit to their voters that some countries and banks are simply bankrupt.

It seems the whole discussion in Europe focuses on this second issue, and the ECB might feel pressured to take on sovereign debt. But here is the twist: if you don’t want to do the second, it’s best to avoid the first.

Greece was bankrupt in early 2010 with a realistic outlook for economic growth in a small country with this inflation pattern that is trapped in a currency union with Germany. Portugal and Ireland could use some debt relief, too. Restructuring their debt to sustainable levels and recapitalizing banks in the Eurozone is something the ECB should force politicians to do. However, Spain and Italy are a different matter. These countries are not (yet) insolvent. But they need to grow economically to make their debt levels sustainable.

In order to grow, these countries need to devalue internally. Given that wages rarely decline, the best you can hope for is stagnating nominal wages combined with inflation in the core countries. So if the ECB really wants to help save the Euro, the best it can do is to interpret its price stability mandate less narrowly (which it could) and allow somewhat higher inflation for a couple of years.

However, the ECB is doing the exact opposite: it is – first actively, now passively – tightening monetary policy even beyond its narrow target. Are they out of  their minds!? Where is the outrage in the press, and why are there no demonstrations outside the ECB? Because people don’t realize how important monetary policy is for solving this mess. Neither politicans nor, it seems, journalists in Germany understand what passive tightening is and how dangerous it is in the current situation. And apparently not even the ECB understands this, God knows why.

There is one spark of hope, though: it might not be ECB incompetence, it could be pride for two reasons. First, it would be  humiliating for the ECB to lower rates after it just raised them twice – clearly prematurly, as lots of people pointed out at the time, including myself.

Second, Trichet loves Germany and German monetary tradition, as the SZ recently wrote. He doesn’t take it lightly that Germany has stopped loving him, and he cares about his (impeccable!) legacy. So he may want to leave the inevitable task of lowering rates to Draghi when he steps down at the end of October, showing Germans that he was the true guardian of their stability principles. This will add to an already toxic political environment, as Euro-(not Europe!)-skeptic Germans will see their dreams nightmares come true: An inflationary Italian leading the ECB! We told you so!

I hope that Monsieur Trichet understands that he can improve his legacy if he helps Italy and Spain (and also the GIPs) to grow. He would thereby lower the expected amount of sovereign debt that the ECB has to take on its books. For instance, by announcing a price level target with a three year 3-4% hump and lowering rates now and aggressively to target the forecast accordingly. Surely, the disflationistic zealots in Germany will hate him for it, but it will make history’s judgement of his performance less harsh (outside of Germany, that is, because inside hardly anyone understands this).

Of course, the ECB won’t do any of this. But the least thing I can expect as a European citizen is that the ECB is following its narrow mandate. There is absolutely no excuse for the current destructive monetary policy of the ECB!


PS: The Bloomberg chart linked to above says “Germany Breakeven 5 Year”, but it is the inflation expectation for the Eurozone-wide HICP index as German government bonds are linked to overall Euro inflation, not German inflation. I shortly explained this here in response to a Krugman-post. Paul answers here.

PPS: Scott Sumner has a related post, warning Europe to repeat the same mistakes the US made in 2008/09.

Filed Under: Makro, Politische Ökonomie Tagged With: , , , , , ,

Soll man in Krisen sparen? Der Staatsrisiko-Kanal

4. Oktober 2011 Von 21 Kommentare

Sparen ist schmerzhaft, aber was ist das Gegenteil?

Gerald Braunberger hat in der FAZ einen sehr guten Artikel über den Zusammenhang zwischen staatlichem Sparen und der Konjunktur geschrieben. Für einen Erholung suchenden FAZ-Leser sicher keine entspannte Schaukelstuhllektüre, aber für uns genau das Richtige.

Auf die empirische Frage, ob Sparen nun der Konjunktur schadet oder nicht, möchte ich hier nicht eingehen. Ich denke auch, wie Gerald, dass man sich dieser Frage zunächst einmal theoretisch nähern sollte, und dann vielleicht versucht, das ganze mit Fallstudien zu unterlegen. Und was im Fall systematischer empirischer Arbeiten methodisch sauber ist, darüber besteht auch auf diesem Blog keine Einigkeit.1

Heute soll es um die Frage gehen, ob Sparen in einer Währungsunion vielleicht das kleinere Übel ist. Lasst uns deshalb ein Land betrachten, das unter dem Druck der Finanzmärkte steht und das sich nach Meinung der Krugmans et al. geradewegs in den Abgrund spart. Gernot Müller (Bonn) und Kollegen schreiben dazu folgendes (meine Hervorhebung):

At times of intense financial market pressure – with high risk premia on government debt – the use of expansionary fiscal stimulus is bound to worsen the fiscal outlook and, hence, jeopardise macroeconomic stability. Any desirable stimulus effects are likely to be offset by the negative impact of the sovereign-risk channel – unless the government is able to commit immediately and credibly to medium-term consolidation measures that eradicate sovereign risk at its roots.

Sie sagen also, dass jedes Konjunkturpaket zwei Folgen hat: einen positiven wegen der Wirkung auf gesamtwirtschaftliche Nachfrage, und einen negativen wegen des Staatsrisiko-Kanals. Wie sie ausdrücklich im akademischen Papier schreiben gilt dies nur, wenn die Zentralbank beschränkt ist, zum Beispiel in einer Währungsunion:

A key finding of our analysis is that sovereign risk as such has little bearing on the fiscal transmission mechanism. This holds even if fiscal strain is pervasive, because unless monetary policy is severely constrained, it may cushion the effect of sovereign risk on interest rate spreads.

Der negative Effekt basiert darauf, dass wenn sich die Finanzierungsbedingungen des Staates verschlechtern, sich auch die des Privatsektors verschlechtern, was Konsequenzen für die Gesamtwirtschaft hat. Sollte der Staat es also schaffen, mit Sparprogrammen seine Finanzierungsbedingungen ceteris paribus (!) zu verbessern, könnte dies die negativen Folgen des Sparens mehr als kompensieren. So weit die Theorie.

Ich habe im wesentlichen zwei Probleme mit dieser Theorie:

Zum einen müsste klarer sein, wie eine problematische Staatsfinanzierung sich quasi automatisch auf den Privatsektor überträgt. In ihrer Arbeit nehmen Müller et al. an, dass sich ein Verlustparameter des Finanzsektors proportional zum Ausfallrisiko des Staates bewegt. Ich denke, das ist in der gegenwärtigen Situation eine plausible Annahme, da Staaten und Banken in Europa viel zu eng zusammenhängen. Allerdings besteht für mich dann die Frage: kann und sollte man diesen Nexus nicht brechen wollen, um genau dies zu verhindern? Dazu in Zukunft mehr.

Zum anderen gibt es vielleicht andere Möglichkeiten, die mittelfristige Finanzierungsbedingungen des Staates zu verbessern ohne heute sparen zu müssen – etwas, das die Autoren auch selber ansprechen. Eine Schuldenbremse oder ähnliches könnte ein Ansatz sein. Damit wird die akute Sparnot gelindert, gleichzeitig aber die Finanzierung des Staates im Hier und Jetzt verbessert, und damit auch die der Gesamtwirtschaft. Allerdings ist der Polit-Ökonom in mir skeptisch: die Schuldenbremse müsste so felsenfest in die Verfassung eingebaut werden, dass nicht später die Staaten eben genau diese Bremse wieder kippen. Der Markt muss glauben, dass sie felsenfest ist, sonst bringt es nicht viel.

Eine andere, fiskalisch neutrale Operation wäre, die Löhne im öffentlichen Sektor zu kürzen und gleichzeitig mehr Leute einzustellen. Damit zeigt ein Staat – der ja nie objektiv pleite ist, sondern vor allem politisch zeigen muss, dass er gewillt ist, die Schulden zurückzuzahlen – sein Bekenntnis zu Reform ohne die Nachfrage zu belasten. Eine andere wäre, harte Deregulierung wie die des Taxiwesens in Griechenland durchzuprügeln, mit einem ähnlichen Effekt: der Staat zeigt, wie ernst er es mit Reformen meint, ohne zu sehr sparen zu müssen.

Alles in allem aber ist das Papier von Müller et al. ein interessanter Ansatz. Er macht klar, dass antizyklische Fiskalpolitik gelingen kann, wenn man den Staatsrisiko-Kanal mildert. Dieser Kanal kommt nicht zum Tragen, wenn der Staat noch große Reserven hat, auf die er zurückgreifen kann. Das setzt voraus, dass gerade in guten Zeiten viel antizyklischere Politik gemacht werden muss, als das vermutlich irgendwo auf der Welt jemals der Fall war. Wie das gelingen soll ohne die Hände der Politik zu binden, und ob das möglich ist? Auch dazu in Zukunft mehr.

1 Das Problem ist vor allem die Rolle der Zentralbank. Wenn man eine sehr aggressive ZB hat, welche die Erwartungen zukünftiger gesamtwirtschaftlicher Nachfrage stabil hält (was sie außerhalb der Nullzinsfalle auf jeden Fall kann, und auch in ihr vermutlich schaffen kann), dürften die Effekte von Fiskalpolitik (expansiv oder kontraktiv) sehr klein und hauptsächlich struktureller Natur sein. Generell muss man immer eine Reaktionsfunktion der ZB annehmen, ohne geht es logisch nicht. In einer Währungsunion ist die Reaktionsfunktion der ZB eine ganz andere als, z.B. in Island.

Filed Under: Makro, Politische Ökonomie Tagged With: , , , , , , ,
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