Ongoing European Debt Crisis

I'll have to go back and take another look at the details to answer that question. Certainly, the core Keynesian principles didn't change, but the era of the 70s required some revision of the models to take into account additional, previously unanticipated factors.

Today appeared a very interesting article in the German newspaper Der Spiegel about the working conditions of Greek parliamentarians. Their payment has increased! since 2009 by more than the annual inflation and they among Europe's highest paid politicians (German parliamentarians earn a bit more money, but they also have to pay a lot more taxes). They can also go into early retirement after only 8 years with a very generous pension.

And one MP, called Danis Tzamtzis, that he would not want to become a MP if he'd only earn 2000€ per month. Mind you, a doctor now currently earns around 1700€ per month. And despite spending cuts for next year around 4,6%, the Greek parliamentarians just decided that their wages would be left untouched. I really have to say, I can understand that the Greeks are not quite happy with their politicians. But there is nothing you can do about it, since the EU cannot force them to actually apply some austerity to their own living conditions.

Regarding Keynes, it is certainly interesting to see someone who is such an admirer of him (not in a bad way though). When I learned about him in Germany, we discussed him more openly and criticized him more. In my opinion he had some brilliant ideas, but is not every time the answer, and considering European economical history and the current political situation in Europe, some of his proposals like a stimulus are neither realistic nor necessarily more than a postponement of the crisis.

Countries like Greece have to solve their structural problems if they want a way out and if they can't do it now when sacrifices are justifiable, they'll never do it (I mean if Greek MP are not curbing their wages now, why should they do it later?).

It's a lot easier to solve your structural problems from a position of sufficiency, not one of bare subsistence survival. Anyway, as has been stated repeatedly, the fault here lies in the admission of Greece to the Eurozone to begin with. Kick them out and make them reapply when they have a functioning economy. Meanwhile, they'll be able to depreciate their currency to restore some semblance of a viable trade balance and could rely on international and IMF assistance in doing so.

Greece would have to repudiate its Euro debts to make this work, though, or convert them to whatever its new currency is at a fixed rate, and the other Eurozone countries might not allow that.

I looked up stagflation and Keynesianism to refresh my memory. Basically, the error made up to the 1970s was assuming that inflation always derived from a surge in the demand curve. When the oil shock happened, governments responded to it like it was a demand crisis, easing monetary policy, which resulted in more demand chasing reduced supply and thus causing inflation to worsen.

The New Keynesian reform that occurred after that treated supply-curve and demand-curve as separate entities, either of which could cause a crisis, and the policy response to which would be different.

It's really as simple as that. It wasn't a radical reformulation of the theory but a revision to incorporate a previously unforeseen variable.

By contrast, classical/neoclassical economics, which holds supply as everything and barely acknowledges demand at all, took a look at this stopped-clock vindication and declared victory, grabbing the reins of economic policy across the developed world; reins that it still largely holds.

edited 19th Nov '13 1:49:32 PM by Fighteer

I don't understand how you can just ignore demand.

This is veering off towards the general economics thread, but I'll cover it briefly.

Classical and neoclassical economics are founded intellectually on a principle called Say's Law, which holds that prices in a free market always adjust so that demand equals supply, and thus that insufficient demand is impossible — more specifically, a mismatch between supply and demand is a symptom of inefficient allocation of resources.

Monetarism is related to this, in that the value of money is held to be intrinsic and "debasement" of a currency is bad; thus fiat currency is hated with a passion.

All economic power rests on "producers", whose role is to create demand by virtue of making products. Producers compete to set prices and manage costs such that the most efficient ones will win; government interferes with this by regulating and taxing, making it more difficult for the marketplace to set prices.

As demand is a function of supply, stimulating demand cannot work under this theory, because it always produces inflation. The fact that we have had no significant aggregate inflation across the first world in the past 30 years is ignored, or handwaved as a liberal lie.

Oh, and classicists hate aggregates, because everything ought to be able to be expressed as the sum of its parts, with the same rules applying everywhere. What's good for the individual consumer is good for the economy as a whole; what's good for a business is good for the government. This is why they hate public debt; they regard the government as a competing business with monopoly power and not an arbiter/insurer/regulator.

There is also a part of this theory called "business cycles", which states that the kinds of fluctuations we see in periodic recessions and depressions are natural responses of markets to malinvestment of resources, resulting in a "clearing" event until prices and investment return to their natural levels. In short, it says that we aren't supposed to stimulate the economy in a recession because that only makes the next one worse.

I'm simplifying quite a bit for the sake of brevity, but the core foundation of classical economic theory is that it places producers - capitalists - at the top of the food chain; implicitly stating that decision-making power should rest with those who are best at making money. For this reason, it is beloved by such people.

edited 20th Nov '13 6:54:59 AM by Fighteer

Probably this does belong in the general economics thread, but have these people ever looked at Etsy?

Drug experts and policy makers from around Europe gathered in Athens to urge governments to exclude drug-abuse treatment from austerity budget cuts, citing an alarming rise in HIV infections among drug users in Greece.

Anti-austerity protests in 55 Spanish cities call on government to re-think budget cutbacks.

Portuguese parliament adopts tough austerity budget amid protest.

Gotta hand it to the Portuguese; they're playing good little victims.

Meanwhile, on the other side of the Channel: PM on 'collision course' with EU over migrant benefits

Mind you, it is important to note:

"the Daily Express reports..."

There's your problem right there. This is a newspaper whose own journalists complained to the Press Complaints Commission about its racist stories about Eastern Europeans: they were sick of having to write them! Even the "impartial" poll by Channel 5 they report on is nothing of the sort - they're both owned by the same guy, Richard Desmond (also owns: Asian Babes, Red Hot TV, Television X, Penthouse UK, and the Daily Star), who doesn't know what the word "ethical" means.

Just look at this shit.

edited 27th Nov '13 6:35:54 AM by Achaemenid

Mind you, that is what Cameron is intending to do, and it does appear to be a popular policy — with a cross-party consensus, no less!

Which is typical populism from the other parties, and reflective of the most disgusting Little Englander mentality amongst the public that things have got to this stage. It's illegal too, since it basically flouts the accession treaties and EU rules. This is precisely why plenty of Scots want to jump ship next year: we don't share this kind of Colonel-Blimp xenophobia and don't want people who act in a way that is so contrary to our own values to have a say in our government.

Cameron doubtless thinks playing up this issue will gain him political capital and maybe even get the UK kicked out the EU so he doesn't have to risk a referendum (though that latter idea is probably too Machiavellian even for him), but in doing so he's risking the Union itself.

Well, it does seem inevitable what with Scotland heading left and the England drifting Right.

The International Monetary Fund (IMF), convinced that Europe erred in forcing debtor countries like Greece and Portugal to bear nearly all the pain of recovery on their own, is pushing hard for a plan that would impose upfront losses on bondholders the next time a country in the euro area requests a bailout.

Ireland ends bailout, hints at tax cuts in future.

The IMF has generally acted sane throughout much of the crisis, although it fell for the austerity rhetoric at first.

France's 75% tax rate gains approval by top court

France's highest court has approved a 75% tax on high earners that is one of President Francois Hollande's signature policies. The initial proposal to tax individual incomes was ruled unconstitutional by the Constitutional Council almost exactly one year ago.

But the government modified it to make employers liable for the 75% tax on salaries exceeding 1m euros (£830,000). The levy will last two years, affecting income earned this year and in 2014.

Well, at least they're doing something right. Allons enfants de la patrie...

...yeah, I'm all for more taxes for the rich, but 75% seems a bit much.

Latvia joins eurozone at midnight despite little public enthusiasm.

Top marginal tax rates under Eisenhower were 91%. When Ronald Reagan took office they were at 70%. It's only in the last few decades that we've come into this view that high taxes are somehow unfair.

Just because something was done in the past doesn't mean it was fair. I mean, I agree with GCR: I'm all for taxing the rich and better distribution of wealth but 75%? At that point you're essentially FORCING people to work for the government. I think the Tobin Tax would be a better idea, at least you'd be taxing something that produces nothing and benefits no one except the ultra rich.

At a 1% tax, you're forcing people to work for the government. That's kinda what tax is.

And a Tobin Tax would be difficult to implement for anyone short of a world government.

edited 14th Jan '14 11:28:58 PM by Ramidel

More eyes have been turning to France, lately, including Krugman's. I wasn't following it directly, either, but apparently Hollande has pulled yet another center-left capitulation and is now singing the supply-side mantra.

Isn't Europe supposed to be all liberal and commie-socialist and stuff? I'm not seeing much of that from its leaders. When did they all become such sell-outs?

edited 17th Jan '14 7:56:43 AM by Fighteer

You've not been noticing the lurch to the right going on here... mind you: it's not to the same degree as the States. By quite an order of magnitude.

But... uh... guess where a lot of the economic rhetoric actually stems from, eh? <_<

edited 17th Jan '14 7:37:16 AM by Euodiachloris