Here is my latest NYT column, excerpt:
Far from embracing this social democratic model, American Keynesians have criticized it for relying too heavily on exports and not enough on spending and debt. Yet it is not just the decline in the euro‘s value that supports the German resurgence.
Most of the other euro-zone economies are not having comparable success because they did not make the appropriate investments and reforms. Moreover, the euro is still stronger than its average value since 2001, which suggests that the recent German success is not attributable only to a falling currency.
In any case, the Germans are exporting much quality machinery and engineering (not just glitzy autos), which can help other nations recover. It is an odd state of affairs when the relatively productive nations are asked to change successful policies because of an economic downturn.
I would add a few points:
1. I am not sure why the American left so near-unanimously lines up behind Keynesian recommendations these days. (Jeff Sachs is an exception in this regard.) There are other social democratic models for running a government, including that of Germany, and yet a kind of American "can do" spirit pervades our approach to fiscal policy, for better or worse. Commentators make various criticisms of Paul Krugman, but putting the normative aside I find it striking what an American thinker he is, including in his book The Conscience of a Liberal. Someone should write a nice (and non-normative) essay on this point, putting Krugman in proper historical context.
2. You sometimes hear it said: "Not every nation can run a surplus," or "Can every nation export its way to recovery?" Reword the latter question as "Can every indiviidual trade his way to a higher level of income?" and try answering it again. Productivity-driven exporting really does matter, whether for the individual or the nation. It stabilizes the entire global economy,
3. There really is a supply-side multipler, and a sustainble one at that.
4. The phrase "fiscal austerity" can be misleading. Contrary to the second paragraph here, even most of the "austerity advocates" think that the major economies should be running massive fiscal deficits at this point. (And Germany had a short experiment with a more aggressive stimulus during the immediate aftermath of the crisis.) They just don't think it works for those deficits to run even higher.
5. The EU is an even less likely candidate for a liquidity trap than is the United States. That said, how to distribute and implement additional money supply increases would be a serious political problem for the EU. Simply buying up low-quality government bonds would work fine in economic terms, but worsen problems of moral hazard, perceived fairness, and so on. This problem should receive more attention.
“I find it striking what an American thinker he is”.
American in what sense? Parochial? Ignorant of history? Cheerfully optimistic? Courteous and generous?
RE: Krugman
The fact that he is a political hack has nothing to do with Tyler’s point: that as an economist, Krugman is a distinctly “American Keynesian”. That Krugman doesn’t understand his position in history is not material to the point. That he’s laughable on a daily basis, or that he has that odd homogenous egalitarian blindness born of the error-of-aggregates, and that he is profoundly ignorant of the broader context of history in which economic data accumulates, simply illustrates Cowen’s observation, that Krugman is demonstrably an American Keynesian.
Jimmy: and they are learning what every business person learns very quickly: debt servicing is time critical no matter how brilliant your scheme is.
Derek
Just to add to my comments above … I can well understand the Germans attitude in not wanting to listen to advice from countries such as Italy or Greece, who have spent ten years reaping the benefits of EMU in terms of lower bond yields, and failing to undertake structural reforms. But, fiscal coordination is undeniably part of the macroeconomic model envisaged under EMU and the EU Treaties, and if it is not on the table in an environment such as the present, when would it be ?
jk: “Krugman is doing the classic economist trick of ex-post facto explanation when the issue that there ‘was not enough stimulus’ rears its head as the explanation of the possible ‘double digit’ recession.”
Uh … you don’t seem to be aware that Krugman was arguing before the stimulus was passed that it was too small (the initially proposed $1.2 trillion vs. the $787 billion that ultimately passed).
So how is that Krugman in any way presenting an “ex-post facto explanation”, when he is saying the same thing today as he was saying before the stimulus passed?
I don’t see any evidence for your assertion, and in fact the evidence that does exist directly contradicts your stated views.
“The fact that he is a political hack…”
And you’re not? Maybe you’re a lazy bum because you could be doing something to increase the GDP instead of blowing hot air on blogs.
What I find interesting is that while you talk of German fiscal austerity, you are strangely silent about it’s social welfare system and fiscal support for supplementing worker’s salaries when there are reduced hours which others attribute to the quicker turnaround and shallower recession.
That is a false analogy. The equivalent for individuals to “exports” is “giving”, not “trading”. Can every individual achieve higher incomes by producing and giving his products away? Only if they receive something in return that is more valuable to them than what they produced or could produce for themselves.
You are again reading to much sophistication into german economic policy. The Germans are mercantilists, as I have pointed out in previous comments.
This worked in the past, when the Germans had their own currency. The Bundesbank recycled the export surplusses through low interest rates and raised national income with frequent currency appreciations, while everybody else, including the unions were hell-bent on exporting as much as possible.
The German elites, starting possibly with Helmut Kohl, forgot how mercantilist export orientation and monetary policy fit together.
German economist Wilhelm Nölling explains how it worked in this (german) video:
http://www.youtube.com/watch?v=SMcyaBlSL8g#t=03m22s
Tyler, a few comments on your post:
1. Exchange rates. It’s hard to understand that after the experience of the past 40 years with all sorts of exchange rate regimes, your references to the relation between the exchange rate and the trade of goods and services are based on textbooks of the 1960s. Please share with us your views of how foreign exchange markets work today and how they affect that relation.
2. The American Left. I assume your reference is limited to academic economists. I look at what is going on with them as an Academic EGO Game (on the EGO Game, see http://en.wikipedia.org/wiki/EGO_Game). Unfortunately in this game the focus is on the players’ EGOs (often a clone of a defunct economist) rather than on a serious discussion of their ideas. Please focus on ideas and the evidence.
3. Your question “Can every individual trade his way to a higher level of income?” reminds me of why the analysis should focus on the global economy –with countries as artificial constraints to the mobility of people and capital and to a much lesser extent of goods and services– rather than on the balances or imbalances of particular countries. Don Boudreaux will be happy to read your point. Please follow up this question with a discussion of the artificial constraints that must be eliminated.
4. Supply-side multiplier. The idea of a multiplier is relevant in comparative statics analysis –in the reduced form of a model we can determine the effect of a change in an exogenous variable on an endogenous variable. It’s irrelevant to analyze a disequilibrium. Please explain why you insist on doing comparative statics analysis (have I missed something important in macroeconomics during the past 40 years?).
5. Fiscal austerity. You make a good point and you can strengthen it by making clear how different the public finances of ALL countries are today relative to any past period. There are many ways to cut public spending with a minimal effect on government services and to increase revenue without imposing a significant cost on the economy, but their redistributive effects cannot be ignored. Please take a position on the sort of fiscal adjustment you support.
6. Liquidity trap. You now acknowledge that the definition of money is not a semantic issue. Forget about liquidity traps and refer directly to what Ricardo Caballero calls a shortage of safe assets an take into account all possible suppliers of these assets. Please share with us your views of this shortage and the policies that may increase supply.
rjw said:
(…At the same time, Germany’s economic model is unusual. They have for a long time relied on export led growth, retaining a high level of manufacturing capacity, underpinned by an unusual institutional framework of banks, firms and trade unions to underpin training, wage bargaining, and credit….}
There’s the KEY: Export led growth. NET Export economies grow at the EXPENSE of net importing economies. They DEPRESS the price levels in the net importing economies, DRIVING down their profit margins, IDLING their industries and workers.
At the same time, they ELEVATE the price levels in their own economies, ELEVATING their profits, providing MORE work for their own industries and workers.
They do this by KEEPING the earnings they get from the trade imbalance and building up a surplus of the foreign currency of their trading partner. They COULD spend it, and BALANCE the trade with their trading partners, and support their trading partner’s industries and labor, but this would mean giving up the impetus they gain from their NEO-MERCANTILIST policies. So they don’t, the BASTARDS. Instead, they inflict misery on their partners, and then adopt a SMUG and SELF-RIGHTEOUS stance toward them. See:
http://anamecon.blogspot.com/2010/04/effects-of-unbalanced-trade.html
for the details.
Among the social epistemological problems we need to solve, is understanding the different positions on American economic policy shared by DeLong, Sumner, and Cowen (I take it all three are distinguished empirical macroeconomists?)
Professor Delong’s theory seems to me to be Sumner is constrained by attempting to triangulate around conservative political hecklers, Cowen isn’t smart or diligent enough to get it, and DeLong has the best plan. Right now I’m Delong-lite. He seems the most knowledgeable to me out of all those in the discussion, and I’m kind of reading Mankiw’s silence regarding policy recommendations as politic endorsement of Delong.
But I’m a rank, observing, amatuer.
Andrew,
“I have no idea, but his words strike me as B.S. I don’t think he knows what Tyler was talking about which is kind of funny considering his condescending tone and over-the-top hyperbole.”
I know you don’t know what you’re talking about. And it’s not funny, it’s just kind of sad.
“Uh … you don’t seem to be aware that Krugman was arguing before the stimulus was passed that it was too small…”
Are you aware that Krugman first wanted a stimulus of 600 billion?
http://www.nytimes.com/2008/11/14/opinion/14krugman.html
Basically, I think Krugman is taking the path of criticizing whatever actually is put into practice. This is safe, because in the end, in the real world, things usually go badly. IMHO Krugman is a dichotomizer (salt water vs freshwater only one example), often saying that there are only two schools of thought, he’s in one of them, the other school was put into practice and turned out badly, ergo he was right. For those of us who think things are going to go badly no matter what, I.e. less than optimal, this is not an effective line of argument.
“[Spain is] getting killed for their currency in what should be a mild recession.”
Spain, after enduring one of the worst housing bubbles in the West, and with an economy geared greatly to housing, should surely be suffering a depression now that the bubble has burst, no matter what currency it has.
“Most likely he meant $600 billion for a year.”
How do you get that’s what he meant? Especially the “most likely”?
“I could ask you the same thing.”
I didn’t subscribe any meaning to it, unlike you.
1) Has the Kenyesian ‘solution’ actually ever worked in practice?
2) Has Krugman ever, ever, ever been wrong? Is he the new, ‘Maestro’?
First time reading this blog & felt the need to respond. Tyler, perhaps I missed it in your analysis, but it seems you failed to correlate exactly why Germany’s austerity policy has improved its’ current economic situation. Why exactly did the push for a balanced budget down the road a bit lead to lower unemployment today?
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