Saturday, June 9, 2012

Ideology Trumps Rational Action to Turn The Screws on Global Economies

DATA DRIVEN VIEW POINT:  I met a young economics student from Brigham Young University in Wyoming recently.  Although he is an undergraduate, I was struck by how hardened his views are already.  He believes there is noting government can do that the free markets can't do better and more efficiently.  He declared that government is no longer needed and was mildly amused by that fact that I didn't agree.   Regarding his views on the economy, I urged him to read Paul Krugman's latest book, End This Depression Now, and to open his mind to new ideas that might be outside of his comfort zone.  His response was to tell me that Krugman had long abandoned the field of economics and is no longer credible.

So this is what we face, here and abroad; Ideological certainty without any rationally empirical basis.  We have "Shock Doctrine" practicioners trying to circumvent reality and make the world conform to their image of what's real, which happens to be self-serving as well. 


NY Times - by Paul Krugman
June 9, 2012

Martin Wolf reports on a letter he has received from the Director General of the German Finance Ministry; taken in context with the speech just given in Riga by Germany’s man at the ECB, what we get is a terrifying picture. Basically, it seems that even as the euro approaches a critical juncture, senior German officials are living in Wolkenkuckucksheim — cloud-cuckoo land.
Now, I know the phrase normally refers to a state of naive optimism, not normally something one attributes to German officials. But a broader interpretation would be that of believing, despite all the evidence, that the world is the way you want it to be, and acting on that false belief.
So the man from the finance ministry asserts that the euro crisis was brought on by fiscal irresponsibility, and in particular by “short-termism” — so that the remedy is to focus on long-run fiscal irresponsibility plus structural reform, which he insists has never failed.
All one can say is, My God. You have to be willfully blind not to know that private excess, not public, caused the problems in Spain and Ireland — and nowhere, not even in Greece, did Keynesian stimulus efforts have anything at all to do with the crisis. As for fiscal responsibility plus reform solving the kind of problem we face now — massive real overvaluation with a fixed exchange rate — it would be truer to say that this has never worked. As Wolf says, just look at Argentina.
As for Mr. Asmussen, I’ve already written about the extraordinary illogic of saying that a partial recovery from a Depression-level slump — one that has not, by the way, been accompanied by a large improvement in competitiveness — vindicates austerity.
This is scary stuff. If top officials in Germany are this disconnected from reality at this late date, what chance does Europe have?

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