"If money isn't loosened up, this sucker could go down" - George W. Bush warned in September 2008

Tuesday, June 15, 2010

Really great links - Intra-Eurozone competitiveness - Inflation vs. socialism - Ego and politicians

Daniel Pfaendler - Intra-Eurozone competitiveness: A solvable task - "It is frequently stated that SGIP need an internal devaluation in the magnitude of 20-30%. However, this estimate appears wrong on several counts. They are usually derived by comparing the development of nominal unit labour costs (ULC) in Germany with those in SGIP. For example, nominal unit labour costs increased by approx. 8% in Germany since 1999 whereas they increased by approx. 36% in Greece. This suggests that Greece has lost 28% in competitiveness vs. Germany and hence needs an internal devaluation of the same magnitude.
        However, one should not forget that Germany joined the Eurozone at an uncompetitive exchange rate. It took Germany several years to restore competitiveness vs. the other monetary union members which was one factor for its weak economic performance early last decade. Assuming that Germany had re-established competitiveness by the end of 2003, reduces the gap in nominal ULC between Greece and Germany to 15% (and 14% for Spain and Ireland and 13% for Portugal). Finally, SGIP need not restore competitiveness vs. Germany but rather vs. the average of the Eurozone. Nominal unit labour costs in SGIP since 1999 increased by 34% whereas ULC in the rest of the Eurozone increased by approx. 21% (see chart below). The difference between these two developments is substantial but not insurmountable. SGIP either need a reduction in nominal unit labour costs of 10% or the rest of the Eurozone needs an increase in nominal ULC of 11% to restore competitiveness in SGIP. More likely though is that we will get a mixture of the two, falling ULC in SGIP and rising ULC in non-SGIP."

Scott Sumner - A little more inflation or a little more socialism? - "In the 1930s the right had to choose between a modest amount of inflation (returning prices to the pre-Depression levels) or more socialism. They weren’t thrilled with big government, but their strongest opposition was reserved toward policies of inflation. So we ended up with deflationary policies between 1929 and 1933. Of course the voters wouldn’t accept 25% unemployment, so we got big government instead of the inflation.
        As this video shows, we are essentially facing the same choice today. We could pump up the economy through monetary policy, or we can have Fannie and Freddie continue to throw $100s of billions down the drain, socialize the auto industry, extend unemployment benefits to 99 weeks, etc. And if that isn’t enough there are also calls to move away from free trade policies. And then there’s the higher taxes we’ll pay in the future to cover the costs of debts run up in a futile attempt to stimulate the economy.
        Just as in the 1930s, the right seems to have decided that a little bit of socialism is better than a little bit of inflation. What do I mean by a little bit of inflation? I mean enough so that the post-September 2008 trend rate of inflation is the same as the pre-September 2008 trend rate of inflation. Apparently even that little bit of inflation is more distasteful than massive government intervention in the economy."

Barry Ickes - Ego and politicians - "Now we read that Meg Whitman spent at least $85 million to win the Republican nomination for Governor in California. She presumably will spend even more in the general election campaign.
        Now Whitman is a billionaire supposedly, so I suppose that this is not much to her. But the question I want to ask is can she not find a better use for this money? What about charity? She could give this to the Gates Foundation, for example, and improve health around the world. Or if she is only concerned with California, then to some California charities.
        To choose spending this on her campaign, she has to believe that she is better for California than the next best candidate by more than the value of the charitable contributions. Now most politicians hardly ever make a difference. So she must have a really, really, big ego."

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