Olivier Blanchard on the European economies

by on October 12, 2015 at 12:58 am in Current Affairs, Economics | Permalink

His very good point does not receive enough attention:

“I thought that the zero interest rate, the decrease in the price of oil, the depreciation of the euro, the pause in fiscal consolidation, would help more than they have”, he said.

Perhaps we should consider the possibility that many of the European economies are at margins where “one offs” just don’t help very much.  That is perhaps easiest to rationalize in a multiple equilibria model where investors are waiting for signs that the European economies are truly committed to growth, but not finding so many such signs.  And this:

But Mr Blanchard, who departed the IMF two weeks ago, said radical visions for a full-blown “fiscal union” would not solve fundamental tensions at the heart of the euro.

“[Fiscal union] is not a panacea”, Mr Blanchard told The Telegraph. “It should be done, but we should not think once it is done, the euro will work perfectly, and things will be forever fine.”

The article is here.  Today is Nobel day! (later)

1 Thomas October 12, 2015 at 1:01 am

First.

2 Sall Bason October 12, 2015 at 1:44 am

I wonder what could rationnaly be considered as a commitment to grow in a N-government monetary union.

3 ThomasH October 12, 2015 at 7:12 pm

The ECB could target 4-5% NGDP growth.

4 mulp October 12, 2015 at 8:27 pm

Why did the 13 nations of America become one, and then 15 and on and on until its an ungovernable 50 States plus a whole bunch of basket case territories?

And what can be said about the, according to Republicans, disastrous US economy after “the zero interest rate, the decrease in the price of oil, the depreciation of the [dollar], the pause in fiscal consolidation, would help more than they have”???

5 prior_approval October 12, 2015 at 2:12 am

‘Today is Nobel day!’

Nope – Oct. 5, Oct. 6, Oct. 7, Oct. 8, and Oct. 9 were when the Nobel Prizes were awarded.

As noted here –

‘Announcements of the 2015 Nobel Prizes

The date and time for the announcements of the recipients of the Nobel Prize and the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel are now set.’ http://www.nobelprize.org/nobel_prizes/about/prize_announcements/

Not to diminish the ongoing PR success of the Sveriges Riksbank in having its name attached to a process it purchased an affiliation with, but let us be honest – it is almost embarassing how desperately a social science like economics attempts to increase its own sense of prestige in the public eye.

This year was also notable for the apparently Marginal Revolution unmentioned success of Japanese researchers, who tied the American total (excluding dual citizen Aziz Sancar, admittedly).

6 Baphomet October 12, 2015 at 5:48 am

The only difference between the economics prize and the other Nobel prizes is that the former does not come out of the donation of an international arms dealer.

7 Thiago Ribeiro October 12, 2015 at 7:42 am

It is even worse, it came from a bank (a central one even). Parodying Brecht, what is the bombing of a bank compared with the founding of a bank?

8 Baphomet October 12, 2015 at 8:59 am

You have a point.

9 Floccina October 12, 2015 at 12:41 pm

“The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel” or “The Nobel in Economics” for short. The former is a mouth full.

10 msgkings October 12, 2015 at 1:03 pm

Not as embarassing as how desperate the executives of German companies are to conceal their wrongdoings.

11 Commenterlein October 12, 2015 at 3:24 am

Every year, in every comments section on then econ, Nobel, some guy with zero marginal value of his time feels the need to explain to the world that the econ Nobel isn’t a real Nobel.

Congratulations, prior_approval, your work is done here. Onward and upward!

12 JC October 12, 2015 at 6:56 am

+1.

It’s almost like saying only the original categories of The Oscars are “real Oscars”…

13 Craig October 12, 2015 at 10:00 am

Every year, in every comments section on then econ, Nobel, some guy with zero marginal value of his time feels the need to explain to the world that the econ Nobel isn’t a real Nobel.

1. The Nobel prizes are awarded for hard sciences. The Nobel Prize in Economics is just some scam where a pseudo-science attempts to associate itself with the real sciences.

2. Your comment about “some guy with zero marginal value of his time” applies to you as well, little man, otherwise you’d be out working on a cure for cancer.

14 Nathan W October 12, 2015 at 10:12 am

“The Nobel prizes are awarded for hard sciences”

What about literature?

15 Peter Schaeffer October 12, 2015 at 11:03 am

NW,

The literature prize is a model of sanity compared with the peace prize. From Wikipedia

“The awards given to Mikhail Gorbachev, Yitzhak Rabin, Shimon Peres, Menachem Begin and Yasser Arafat, Lê Đức Thọ, Henry Kissinger, Jimmy Carter, Al Gore, IPCC, Liu Xiaobo, Barack Obama, and the European Union have all been the subject of controversy. The awards given to Lê Đức Thọ and Henry Kissinger prompted two dissenting Committee members to resign. Thọ refused to accept the prize, on the grounds that peace had not actually been achieved in Vietnam.”

16 Larry Siegel October 15, 2015 at 1:26 am

…and Kissinger tried to give the prize back. He was rebuffed and told that the Nobel Prize is not returnable.

17 Art Deco October 12, 2015 at 4:44 pm

Politicians operating in the international sphere are not in the business of ‘peace’ but of getting the best deal they can for their country. It’s fuzzier if you’re talking about domestic politicians like David Trimble. Still, awards to Mikhail Gorbachev, Yitzhak Rabin, and even Menachem Begin are not obnoxious, though the latter two proved to be imprudent and premature.

18 Art Deco October 12, 2015 at 4:41 pm

where a pseudo-science attempts to associate itself with the real sciences. –

Do you consider the Climate Research Unit at the University of East Anglia to be a hotbed of ‘real’ ‘science’? How ’bout Simon LeVay?

19 JWatts October 12, 2015 at 1:26 pm

“Every year, in every comments section on then econ, Nobel, some guy with zero marginal value of his time feels the need to explain to the world that the econ Nobel isn’t a real Nobel.”

Reference Dilbert: http://dilbert.com/strip/2015-04-02

Last line: “I’m Dick from the internet. Everyone knows me.”

20 Millian October 12, 2015 at 4:46 am

It is almost as if a major engine of world economic growth has slowed down at the same time as all those things Olivier Blanchard mentions.

21 Peter Schaeffer October 12, 2015 at 11:10 am

Millian,

“It is almost as if a major engine of world economic growth has slowed down at the same time as all those things Olivier Blanchard mentions.”

+1

Europe has reached the (current) technological frontier (more or less) and just isn’t going to grow (much). This is Robert Gordon and TGS territory. Assertions like

“That is perhaps easiest to rationalize in a multiple equilibria model where investors are waiting for signs that the European economies are truly committed to growth, but not finding so many such signs.”

Strike me as sophisticated invocations of the growth / confidence fairy.

22 JWatts October 12, 2015 at 1:37 pm

“Europe has reached the (current) technological frontier (more or less) and just isn’t going to grow (much).”

Did you notice the graph comparing US vs Euro area GDP growth? That’s a pretty noticeable difference in growth rates. Granted, it’s a relatively short period (16 years). However, over that time period the US’s economy has apparently outgrown that of the Euro area’s by 16+%.

(Note: I only double checked the data by glancing at one other site, so it may well be wrong.)

23 JWatts October 12, 2015 at 1:39 pm

To be clear, it’s not apparent how one would attribute Europe’s slow growth rate to being at the current technological frontier, since the US is at a similar point.

24 Peter Schaeffer October 12, 2015 at 3:13 pm

JWatts,

Countries well below the technological frontier should expect (hope for) fast growth in per-capita GDP as they catch up. Countries at, or near the technological, should not. The data below should make this point reasonably well.

See “Japan’s problem is supply, not demand (updated)” (tino.us)

“The importance of the demographic transformation in Japan is even more clear if we include the entire 1990-2007 period. In non-population adjusted figures, Japan’s real GDP grew by 26% in total these years, the lowest in the OECD. In comparison the figures are 63% for the U.S and 44% for the EU.15. But during this period the U.S saw it’s potential labor force (the number of people between 15-65) increase by 23% and the EU.15 by 11%, while Japan had a decrease of 4%. Between 1990-2007, GDP per working age adult increased by 31.8% in the United States, by 29.6% in EU.15 and by 31.0% in Japan. The figures are nearly identical!”

The IMF WEO data (04/2015) make exactly the same point. In the 2000-2015 period U.S. per-capita GDP (in nominal dollars) rose by 54.87%. The European union grew by 55.76% (also in nominal PPP per-capita dollars). Japan was only modestly worse (49.75%) which is not surprising given that Japan’s labor force is shrinking.

To put this in perspective, real growth in per-capita GDP from 2000 to 2015 in the U.S. was 16.08%. Relatively slow growth in Europe, the USA, and Japan would all appear to be (mostly) a consequence of being at, or near, the technological frontier.

25 JWatts October 12, 2015 at 4:06 pm

Peter S,

Hmm, I do agree with looking at the info on a per capita basis, but using the data at Trading Economics, there is still a difference.

EU area 2000 – 2015 GDP per capita change +7.4%; ___ US 2000 – 2015 GDP per capita + 13.2%

http://www.tradingeconomics.com/euro-area/gdp-per-capita

To rebuild graph, add compare = US and indicator = gdp per capita

26 Peter Schaeffer October 12, 2015 at 4:36 pm

JWatts,

For a number of reasons I avoid Trading Economics. However, Trading Economics indicates that their data comes from the World Bank. The World Bank has data for GDP Per-Capita in 2011 PPP Dollars. From 2000 to 2014, growth in 2011 PPP Per-Capita GDP was 8.03% (Euro Area), 14.58% (European Union), 13.33% (USA).

27 JWatts October 12, 2015 at 6:03 pm

I’m not sure why you would use PPP numbers for GDP per capita growth. It seems like it would introduce extraneous factors. What would be the reason to use PPP numbers for comparing GDP per capita growth? What do the pure GDP per capita growth numbers from the World Bank indicate?

But regardless, per your data the EU and the US are pretty much on par, but the Euro Area is lagging. And if you look at the data, it’s primarily the last 5 years. Clearly, it’s not a technological frontier factor causing the difference between the US/EU and the Euro Area.

28 Peter Schaeffer October 13, 2015 at 1:01 am

JW,

I try to always use PPP data because other measures tend to be distorted by fluctuating exchange rates and/or price level differences. As a consequence, PPP data tends to be the most stable and representative. Let me give you an example. A few years ago, I checked U.S. per-capita GDP versus several European countries (using prevailing exchange rates). On that basis several countries have a higher per-capita GDP than the U.S. However, one you apply PPP adjustments, the U.S. does better than all of the European countries.

I agree that the Euro area is lagging of late and Gordon/TGS issues are not to blame. In my opinion, the words “Euro area” suffice as an explanation. However, this is a detail (quiet relevant of late) and the bigger picture still seems to be Gordon/TGS.

29 rayward October 12, 2015 at 6:16 am

Cowen ignores the more accurate portrayal of Blanchard written by Steven Pearlstein, Cowen’s colleague at GMU, in which Pearlstein makes the opposite case about Blanchard than the one Cowen is suggesting by his selective use of quotes from the article in the conservative Telegraph. http://www.washingtonpost.com/business/the-smartest-economist-youve-never-heard-of/2015/10/02/8659bcf2-6786-11e5-8325-a42b5a459b1e. Blanchard was a believer in expansionary austerity and the confidence fairy, until reality hit him in the face when he became chief economist for the IMF and was expected to deal with economic reality rather than promote theory preferred by some academics.

30 Art Deco October 12, 2015 at 8:14 am

Importing a great many feral young men from refugee camps in Turkey will likely be a drag on the European economies.

31 Nathan W October 12, 2015 at 10:15 am

Never mind whether the economic effect is debatable. But “feral”? Really?

32 ladderff October 12, 2015 at 11:40 am

You talk like a woman.

33 Peter Schaeffer October 12, 2015 at 11:42 am

AD, NW,

‘But “feral”? Really?’

The truth is that we don’t know. Many reports suggest that European government are going to some pains to suppress all reports of migrant crime. We have data (in the U.S.) suggesting that AD might correct. Illegals are less than 3% of the U.S. population but account for 10+% of serious crime (DOJ, GAO, etc.). Below you find a very unfunny report from Germany on the subject. The report is anecdotal, but interesting nonetheless.

“On August 18, a coalition of four social work organizations and women’s rights groups sent a two-page letter to the leaders of the political parties in the regional parliament in Hesse, a state in west-central Germany, warning them of the worsening situation for women and children in the refugee shelters. The letter said:

“The ever-increasing influx of refugees has complicated the situation for women and girls at the receiving center in Giessen (HEAE) and its subsidiaries.

“The practice of providing accommodations in large tents, the lack of gender-separate sanitary facilities, premises that cannot be locked, the lack of safe havens for women and girls — to name just a few spatial factors — increases the vulnerability of women and children within the HEAE. This situation plays into the hands of those men who assign women a subordinate role and treat women traveling alone as ‘wild game’.

“The consequences are numerous rapes and sexual assaults. We are also receiving an increasing number of reports of forced prostitution. It must be stressed: these are not isolated cases.

“Women report that they, as well as children, have been raped or subjected to sexual assault. As a result, many women sleep in their street clothes. Women regularly report that they do not use the toilet at night because of the danger of rape and robbery on the way to the sanitary facilities. Even during daylight, passing through the camp is a frightful situation for many women.

“Many women — in addition to fleeing wars or civil wars — are also on the run for gender-related reasons, including the threat of forced marriage or genital mutilation. These women who face special risks, especially when they are on the run alone or with their children. Even if they are accompanied by male relatives or acquaintances, this does not always ensure protection against violence because it can also lead to specific dependencies and sexual exploitation.

“Most female refugees have experienced a variety of traumatizing experiences in their country of origin and while on the run. They are victims of violence, kidnappings, torture, rape and extortion — sometimes over periods of several years.

“The feeling to have arrived here — in safety — and to be able to move without fear, is a gift for many women…. We therefore ask you…to join our call for the immediate establishment of protected premises (locked apartments or houses) for women and children who are travelling alone….

“These facilities must be equipped so that men do not have access to the premises of the women, with the exception of emergency workers and security personnel. In addition bedrooms, lounges, kitchens and sanitary facilities must be interconnected so that they form a self-contained unit — and thus can only be reached via lockable and monitored access to the house or the apartment.”

After several blogs (here, here and here) drew attention to the letter, the LandesFrauenRat (LFR) Hessen, a women’s lobbying group that originally uploaded the politically incorrect document to its website, abruptly removed it on September 14, without explanation.”

34 JWatts October 12, 2015 at 1:43 pm

Feral is the wrong choice of words. They aren’t barbarians. They are civilized by their own standards, it’s just that the standards are different than the standards of the West.

35 JWatts October 12, 2015 at 1:46 pm

This is not meant to defend the above mentioned behavior. Just to point out that it’s not the result of barbarians, but instead the result of a civilization that considers women to be property.

36 Peter Schaeffer October 12, 2015 at 2:12 pm

JW,

Let me point out that traditional, conservative Muslims bitterly oppose this kind of behavior and would severely punish anyone engaging in it, if they had the opportunity. Traditional Islam isn’t going to win any prizes for its advocacy of the Feminist agenda. However, the penalties for sexual assault in traditional Islam are severe. The problem that Germany (and Europe) faces is that Germany (and Europe) are unwilling to (substantially) punish criminal conduct of this kind and the severe penalties of traditional Islam are gone as well. Sadly, words like “barbarian” have some meaning in this context.

37 JWatts October 12, 2015 at 4:15 pm

“However, the penalties for sexual assault in traditional Islam are severe.”

True, but in a women are valuable property kind of way. And non-Islamic women aren’t considered valuable property so the penalties aren’t as severe. In point of fact, many Muslim’s aren’t held accountable for raping a non-Muslim by Muslim courts.

38 Peter Schaeffer October 12, 2015 at 4:57 pm

JWatts,

The double standard as to how Muslim and non-Muslim women are treated (in traditional Islam) is sadly correct (with considerable variability). However, the women being attacked in refugee centers are presumably Muslim. What we are observing is a breakdown in social controls, both of the traditional Islamic variety and the “modern” European kind.

To put this in perspective, what do conservative Muslims think of ISIS’s treatment of Yazidis? Clearly, ISIS justifies its genocide / slavery / terrorism in Islamic terms. What does the rest of the conservative Muslim world think? As best I can tell, they are appalled fearing (with some justification) that the horrors of ISIS will taint Islam everywhere in the world. A good parallel might be how communists generally viewed the Khmer Rouge. Whatever ideological sympathy they might have had for the Khmer Rouge was more than offset by how the KR discredited international communism (and its western sympathizers).

39 Art Deco October 12, 2015 at 5:12 pm

they might have had for the Khmer Rouge was more than offset by how the KR discredited international communism (and its western sympathizers).

Alas, Noam Chomsky and his sidekick Edward Herman have been too arrogant and too shameless to shut their bloody pieholes.

40 JWatts October 12, 2015 at 6:07 pm

“However, the women being attacked in refugee centers are presumably Muslim. What we are observing is a breakdown in social controls, ..”

Those are good points and it’s predictable that any group will tend to act worse in the conditions prevalent in refugee camps. The relevant question is whether the refugees will accept Western behavior as they leave the temporary camps or if they will explicitly reject Western behavior.

41 Handle October 12, 2015 at 4:52 pm

“[Fiscal union] is not a panacea”, Mr Blanchard told The Telegraph. “It should be done, but we should not think once it is done, the euro will work perfectly, and things will be forever fine.”

Uh oh. That was going to be the pitch! Man, you skunked it! Now when we try to sell the rubes on “Fiscal Union, that’s the ticket to make the euro work perfectly!”, someone is going to use this quote and say, “Well, Blanchard said it wouldn’t…”

42 Art Deco October 12, 2015 at 5:10 pm

Conrad Black has said that the American political class managed to flub every salient issue of the post-Cold War era other than welfare reform (and crime control in some loci). While were looking on in dismay as cretins like Barack Obama and Bilge de Blasio try to wreck even these achievements, we can look across the pond and see what these types do with more persistent and unfettered authority. You get the Euro, persistent double-digit unemployment all over the continent, the inexorable liquidation of local control, and hundreds of thousands of refractory Arabs camping out is Saarbruken. At this point, the Euro elites are begging to get the treatment the Chilean military meted out to Salvador Allende.

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