Euro-Tsunami, UK

Nur ein kurzer Eintrag heute, aber es gibt so viele interessante Dinge da draußen zu lesen, da muss ich einfach mal auf zwei hinweisen.

  1. Patrick Bernau stellt in der FAS in Auszügen sein neues Buch (“Euro-Tsunami”) vor, das unter anderen aus Blogdiskussionen mit Henry Kaspar und mir entstanden ist. Ich hatte bisher nicht die Gelegenheit es zu lesen, aber die Auszüge klingen interessant.
  2. Wenn es um austerity geht, und hier insbesondere in UK, ärgert mich die einseitige Sicht von Leuten wie Paul Krugman immer etwas. Zum Glück aber gibt es Ryan Avent, der schon mehrfach gezeigt hat, dass er die britische Wirtschaft bestens versteht und ein differenziertes Bild zeichnen kann, so auch diesmal.

Bald gibt es auch wieder mehr von mir.

Decoding Euro-moralizations

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.

German prudence?

Matthew Yglesias is critical of using national clichés in your economics writing, and I couldn’t agree more. There are too many clichés about Germany out there anyway, sometimes reinforced in the weirdest and almost offensive ways.

But I am not sure Matt’s analysis is correct. He writes:

Since everyone knows Germans are prudent, it’s easy to just kind of glide past this assertion. But if you look at the actual budget figures on the right, you’ll see that Spain — a country full of fun-loving Spanish people — was actually running extremely prudent budgets throughout the boom years. The same is true of Ireland and I believe Portugal as well. There was nothing particularly imprudent about German budget practices during this time, but the fact of the matter is that Germany was running a larger budget deficit than was Spain.

Germany was going through an extremely difficult period from the start of the Euro (or better: from reunification) to roughly 2006/07, with slow growth, high unemployment and painful internal devaluation. However, it still managed to maintain a more or less reasonable budget. Spain on the other hand, and Ireland even more so, had a completely unreal period of growth and relatively low unemployment. Comparing their respective budgetary performance to Germany’s before the crisis is very difficult to say the least.

During this crisis, I agree with Matt that Germany’s low deficit is due to its growth rather than its prudence. But then again, for the European periphery that has to devalue internally in order to grow, prudence might also be translated as the ability to maintain macroeconomic discipline in very difficult times. And during a comparable period, the first gold standard in Europe (1880-1914), there were some countries unable to maintain this macroeconomic discipline in the face of deflation. Which ones? See for yourself.

This is not to say that some countries are intrinsically more prudent than others, but as a bond investor, I do assess the political ability for maintained austerity and devaluation when pricing Greek or Spanish bonds. For Germany, a party-wide consensus on a what you would call a “(dynamic) balanced budget amendment” in the US – at a time when there was no immediate threat to solvency (in fact, that was never the issue) – and 15 years of relatively peaceful internal devaluation would give me more confidence on that front and lower the pressure for immediate austerity.

What is clear, though, is that austerity and devaluation should be facilitated by an appropriate monetary policy. The ECB is therefore one of the least prudent actors in this whole mess.


Bekomme jeden neuen Artikel in deinen Posteingang.

Join 697 other followers