tag:blogger.com,1999:blog-2546602206734889307.post5884794918962603914..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: Can a country be too competitive?Mainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger70125tag:blogger.com,1999:blog-2546602206734889307.post-9270516598514103982014-09-19T13:43:08.359+00:002014-09-19T13:43:08.359+00:00http://www.spiegel.de/international/broken-hartz-f...http://www.spiegel.de/international/broken-hartz-former-vw-personnel-boss-peter-hartz-on-trial-for-corruption-a-460281.htmlFilohttps://www.blogger.com/profile/01716544703247194296noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-66288108302505516602014-09-18T20:46:47.298+00:002014-09-18T20:46:47.298+00:00How do Hartz reforms and public deficit make a lab...How do Hartz reforms and public deficit make a labour union negotiator cave-in and agree to stagnating nominal wages? Why did labour union members accept it? As I said, it's a decentralized process and not something that has been ordered by Chancellor Schröder.<br /><br />And if Italy has debt levels so high that it can't have stagnating nominal wages when necessary, that's the result of prior Italian mismanagement, isn't it? You cannot seriously expect Germany to forego an opportunity to become more competitive versus the rest of the world because Italy's debt levels are too high. It doesn't work like that.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-55997865959110272202014-09-18T13:03:20.259+00:002014-09-18T13:03:20.259+00:00wage restrain was strongly suggested by Haartz ref...wage restrain was strongly suggested by Haartz reforms and public deficit,<br />other countries like Italy could not cut wages like them without cutting Gdp, with Debt/Gdp skyrocketing...Filohttps://www.blogger.com/profile/01716544703247194296noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-89881987665085595992014-09-18T10:34:44.835+00:002014-09-18T10:34:44.835+00:00Remember: wage restraint was the result of a decen...Remember: wage restraint was the result of a decentralized process in Germany. It was not imposed by central government. Also, while other EZ countries can't devaluate anymore, they could and still can (in theory) practice wage restraint themselves.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-56812429454603227202014-09-18T09:16:45.238+00:002014-09-18T09:16:45.238+00:00"who strikes first strikes twice"
this i..."who strikes first strikes twice"<br />this is the reason because they did this wage restrain AFTER the introduction of €, <br />when other countries could not devaluate their currency anymore.Filohttps://www.blogger.com/profile/01716544703247194296noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-11399116598029530162014-09-17T17:33:47.040+00:002014-09-17T17:33:47.040+00:00Mainly Macro15 September 2014 01:33
Simon Wren-Le...Mainly Macro15 September 2014 01:33<br /><br />Simon Wren-Lewis writes:<br /><br />"You cannot escape having above 2% inflation (in Germany), except by allowing the rest of the Eurozone to remain in a liquidity trap recession."<br /><br />That is so sweeping a statement that he needs to explain it in detail. It would seem to mean that macroeconomics' only solution in strong recessions is inflation.<br /><br />Is that so? Can macroeconomics offer no other solutions?<br /><br />The answer is important, and I hope Simon Wren-Lewis will give it.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-30381163125754928412014-09-17T12:19:42.598+00:002014-09-17T12:19:42.598+00:00''They are not just neighbors, they are al... ''They are not just neighbors, they are also competitors. ''<br /><br />this is key for the author of this blog to understand, eurozone countries compete, local politicians are not going to advocate policies seen as against the interest of their own voters. The best you can expect is the ECB trying to get inflation a bit higher, but this is not going to solve the problems. Surplus countries will simply do even more wage reduction to increase competitiveness.<br />You might claim: than the eurozone will not work. But before the eurozone, exactly the same problem existed with ESM: countries couldnt compete, they had to exit the ESM. But even with free floating exchange rates, there will be surplus and deficit countries, in fact probably the same countries. This is a problem that can't be solved without full political and fiscal union, but voters dont want this. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-46500629841982104612014-09-17T11:59:23.231+00:002014-09-17T11:59:23.231+00:00''These are the rules of the game for a mo...''These are the rules of the game for a monetary union. ''<br /><br />Can you please show where this was mentioned in the Lisbon treaty or by which politicians before the euro introduction?<br />This was simply not agreed. Either politicians lied about this, or they were unaware. In any case, wage restraints is a traditional method to increase competitiveness for Northern surplus countries, with or without monetary union, and they are not going to give up on this. And what you always ignore is that surplus countries do not care that much about some of the troubled eurozone countries, they care about competitiveness compared to outside the eurzone (something deficit countries seem to forgot). <br />as the first poster already said: you are trying to mix economics with politics, but German voters are ONLY going to vote for politicians that improve their lives, not that of troubled countries, and they are right to expect politicians to solely make policies in there interest.<br />With all your arguments you assume there must be some kind of eurozone wide macro economic policy because of moral reasons. But you can't introduce these afterwards, German voters will rightly say: why didn't politicians tell us this before the euro introduction. Without fiscal and political union, all your moral arguments will fall on deaf ears in with voters in surplus countries. And assuming you still believe in democracy, you can keep on repeating this on your blog, but no voter will be impressed.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-27772651348897512062014-09-17T08:19:01.664+00:002014-09-17T08:19:01.664+00:00you remember correctly, and your confusion is down...you remember correctly, and your confusion is down to the meaning of "competitive." (google for Paul Krugman, "A country is not a company", should help you understand some of this).<br /><br />When they refer to a country, macroeconomists describe "competitiveness" as the relative prices of tradeable goods, or exchange rate: a competitive country is one that runs a trade surplus and a non-competitive one that runs a trade deficit. <br /><br />Sometimes economists use competitiveness to refer to an indicator of labor market competitiveness, e.g. unit labor costs.<br /><br />Sometimes they talk about productivity and use the word competitiveness in the more journalistic style that we are accustomed to, e.g. Google and Apple are competitive in the sense that they are growing fast, attracting investors, etc.. By analogy journalists (and others) will apply this jargon to countries. A journalist might write that the U.S. has been more competitive than ever in attracting foreign capital (and yet another may write that Asians have been buying up key national interests, it's all a matter of perspective!).<br /><br />The latter is confusing because as a matter of accounting identity, a country that runs a trade deficit (non-competitive) also attracts foreign capital (competitive?). <br /><br />One way to think of this is: suppose you play a game of flipping a coin and you care only about Head coming up. If you get a good run of Heads, the *pro-Head* press will approvingly write that you have been "competitive" (in the sense of throwing Heads more often than not). Yet, the *pro-Tail* press will report disapprovingly and label you "non-competitive". <br /><br />It's a matter of perspective: if you focus on foreign trade (exports), competitiveness has to do with exchange rate and relative labor costs; if you focus on domestic demand (investment, consumption), competitiveness has to do with marginal productivity and interest rates. Patrickhttps://www.blogger.com/profile/06658507365116962150noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-17130437942049880912014-09-16T21:10:19.509+00:002014-09-16T21:10:19.509+00:00"When it cannot, you replace it using fiscal ..."When it cannot, you replace it using fiscal policy."<br />Of course you do, but this is something the majority of the German public and especially the (economic) media does not believe and tells its audience. There is no real macro-thinking, you are not allowed to "intervene" in the economy.<br />I do not know if you speak German but it is quit interesting to see the difference between some of Prof Fratzscher's editorials/newspaper articles, etc. for a German and an English audience. He basically writes a lot more pro supply-side in German since, it seems, he otherwise would be branded as left-wing, never learning, union-friendly idiot.blubnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-48142807447041460202014-09-16T20:41:55.848+00:002014-09-16T20:41:55.848+00:00Jose Romeu Robazzi16 September 2014 05:55
Very go...Jose Romeu Robazzi16 September 2014 05:55<br /><br />Very good! That is exactly what has been happening in France for about fifty years if not more.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-47077648427842395232014-09-16T20:38:11.537+00:002014-09-16T20:38:11.537+00:00The trade surplus itself does not signify competit...The trade surplus itself does not signify competitiveness itself. Surely, a large surplus requires some form of demand for a country's products and services, however, remember that the trade balance is a comparison of imports versus exports. If a country is uncompetitive and doesn't export much but doesn't import anything at all, there will be a trade surplus.<br /><br />However, Germany's companies are certainly competitive on global markets overall. Yet non-German products don't seem to appeal as much to German consumers as vice versa. The result is the trade surplus. The surplus itself then constitutes investment in non-German countries... the aforementioned net capital export. For anything that does not go into consumption of external goods and services eventually ends up as out-of-country investments.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-60533870558167768062014-09-16T17:09:56.170+00:002014-09-16T17:09:56.170+00:00Dear Prof WL,
what always confuses me is the fol...Dear Prof WL, <br /><br />what always confuses me is the following. People here in Germany claim that the large foreign-exchange surplus implies that Germany is very competitive; and, honestly, it feels like that. However, if I recall that correctly, a foreign-exchange surplus means that you export capital, which would imply or require being NOT competitive.<br /><br />Could you maybe write a blog entry explaining that?<br /><br />Thanks.Müller-Lüdenscheidnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-87746508595314060592014-09-16T11:52:01.297+00:002014-09-16T11:52:01.297+00:00"If you stimulate the economy, either by mone..."If you stimulate the economy, either by monetary or fiscal policy, you raise demand and inflation."<br /><br />Yes, in a one-commodity world, like texbook macromodels suggest. However, we are living in a multi-commodity world. First, not all supply price curves are rising and, unfortunately, here and there supply curves may decline faster than demand curves rise. The longer an adjustment process is operating the higher the probability that supply reacts. Arminiushttp://googlenoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-8471720897141885732014-09-16T11:50:33.338+00:002014-09-16T11:50:33.338+00:00We covered this ground already a while back, about...We covered this ground already a while back, about one year ago I should think, when you had a series of posts about France: Germany as an outlier is an idea that was developed there, it has also been developed repeatedly in PK's posts. <br /><br />I, who once played down the "asymmetric shock" risks of a monetary union, have finally understood that the key is not in "shock" but in "asymmetric." <br /><br />... way back in the early 1990s, I wrote an undergrad thesis on the possibility of asymmetric "shocks" and I just couldn't think of shocks that would be big enough: a cursory look at the history of Europe pointed to events that were very unlikely to be repeated (decolonization, labour unrest, the end of dictatorships, etc.). What I and others (I was merely digesting other people's work) missed was that the problems would not come from "shocks" in the sense of "a sudden distaste for French baguette" or "a sudden disruption to the supply of German saussage," but rather the problem would be with decade-long divergences that are "endogenous" to the monetary union itself, i.e. investment booms in the tourism industry caused by the process of a fast catch-up made possible by the union. <br /><br />Something like this could have been inferred from the Walters' critique, which had a story of endogenous divergence in the period leading up to a union, but it had to do with interest rates and inflation rates rather than investment rates and current account balances: I don't recall anyone explaining how a tourism and housing boom in the south would dislocate the monetary union... Perhaps someone can dig out a visionary article on this?Patrickhttps://www.blogger.com/profile/06658507365116962150noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-35356304055493939642014-09-16T08:42:12.665+00:002014-09-16T08:42:12.665+00:00And Germany has provided around 330 billion EUR of...And Germany has provided around 330 billion EUR of guarantees, and German savers have already lost several hundred billion EUR due to the very low base rate, which solely serves the crisis states. How is this compatible with Germany being so unbelievable "anti-social" ?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-33671768727245146802014-09-16T08:36:30.593+00:002014-09-16T08:36:30.593+00:00If all countries would inflate at a rate of 2% at ...If all countries would inflate at a rate of 2% at the same time, nothing would change within the Euro zone, would it? So what you're really demanding, is a *relatively* higher inflation rate, which, and I have to a agree with Mr. Robazzi, is dishonest.<br />I am likewise puzzled how the notion of "Germany imposing austerity" has become so popular. Austerity is mainly imposed by the markets. Germany (and a few other countries like AT, NL, FI) are permanently outvoted and marginalized in the ECB council and the Eurogroup.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-18495877032704059462014-09-16T05:44:45.942+00:002014-09-16T05:44:45.942+00:00Mainly Macro15 September 2014 01:33
Prof. Wren-Le...Mainly Macro15 September 2014 01:33<br /><br />Prof. Wren-Lewis:<br /><br />Your moral argument boils down to:<br /><br />If an evil (inflation) is inevitable, it is wrong, anti-social, greedy etc. to resist it, even for a time.<br /><br />Since you are at Merton, you have some philosopher colleagues you can ask at the dinner table what they make of that. They will patiently explain to you that you are committing the gross fallacy of category error. Your moral conclusion does not follow from your assumed facts.<br /><br />They may also ask you about your premiss. Inevitability is a prediction. Predictions about the future are only rarely certain, as Aristotle pointed out in his time and Mark Twain expressed in a more witty manner.<br /><br />I will come back to your arithmetic later.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-48222629668672334342014-09-16T05:15:52.468+00:002014-09-16T05:15:52.468+00:00Mainly Macro15 September 2014 14:19
"Its so ...Mainly Macro15 September 2014 14:19<br /><br />"Its so simple°<br /><br />Sorry - too simple..Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-29671719776844967872014-09-15T21:19:34.463+00:002014-09-15T21:19:34.463+00:00How many times - the ECB inflation target is 2%. T...How many times - the ECB inflation target is 2%. That is what average inflation in Germany ought to be. So if its less than 2% for some period, it would - if monetary policy was working - be above 3% later. Its so simple. Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-9751782879518833542014-09-15T21:16:41.653+00:002014-09-15T21:16:41.653+00:00Not exactly refused - it is self-evident. If you s...Not exactly refused - it is self-evident. If you stimulate the economy, either by monetary or fiscal policy, you raise demand and inflation.Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-85226158806852240262014-09-15T21:15:10.220+00:002014-09-15T21:15:10.220+00:00I am really amazed at the misunderstanding of macr...I am really amazed at the misunderstanding of macro here. The ECB is in the business of demand management - that is how it controls inflation. When it cannot, you replace it using fiscal policy. Econ 101!Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-67368017021332604842014-09-15T20:18:11.566+00:002014-09-15T20:18:11.566+00:00"So it is not clear at all whether an inflati..."So it is not clear at all whether an inflationary process can be aroused and stimulated."<br /><br />Quite right. SWL has refused so far to explain in detail how he thinks that could be brought about.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-85821401594452523062014-09-15T20:14:59.661+00:002014-09-15T20:14:59.661+00:00blub13 September 2014 11:49
"Demand manageme...blub13 September 2014 11:49<br /><br />"Demand management" is dead since the 70s in Germany.<br /><br />And rightly so.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-87549648931236496842014-09-15T20:12:41.678+00:002014-09-15T20:12:41.678+00:00Alexander Sebastian Schulz13 September 2014 13:33
...Alexander Sebastian Schulz13 September 2014 13:33<br /><br />"why does Germany need to have more inflation alone except for the unexplained statement that it has to happen."<br /><br />You are perfectly right. SWL doesn't take the trouble to explain it - probably because he can't.Anonymousnoreply@blogger.com