Europe’s Impossible Dream

by Paul Krugman

July 20, 2015

http://www.nytimes.com/2015/07/20/opinion/paul-krugman-europes-impossible-dream.html?ref=international&_r=0


Most academic economists continue to make the wrong-headed and arrogant assumption that there is a "science of economics", separate and apart from politics and other social sciences, with immutable scientific "laws", which unfailingly govern how a society and its economic activity will develop.

If you want to talk about "fantasy economics", today's mainstream academic economics is a prime example. Based as it is on largely false assumptions of "rational, fully informed decision making", it pretends to derive nicely behaving demand curves, and from that derives the myth of "self-correcting, self-optimizing" economics. This myth could be excused in the times of Adam Smith and the "Age of Reason" movements around the same time. Today there is overwhelming evidence that only a relatively small subset of human decision making is based on rational thought and full information.

The "fantasy" is even worse for macroeconomics, which assumes that individual demand curves can be aggregated to form a "market demand curve". Efforts to prove this resulted in the Sonnenschein-Mantel-Debreu (SMD) theorem, which actually disproves that adding up demand curves results in a well behaved Market Demand Curve.

What academic economists refuse to accept is that "economics" does not exist in a vacuum outside politics and other social sciences. The EU and Euro are primarily political projects; they will persist. Even today most Greeks want to stay in the Euro because they see its benefits.

An Unsustainable Position

by Paul Krugman

July 15, 2015

http://krugman.blogs.nytimes.com/2015/07/15/an-unsustainable-position/?comments#permid=15496855

So Prof. Krugman's "expert" advice on how to get Greece back to economic and fiscal health is to give it access to unlimited additional funds, with no attached requirements to, for example, correct the comparatively excessive pension costs and poor tax collection effectiveness - see Steven Rattner's collumn in today's NYT.

That would be a similar position as if the US and allies had gone into the Iran nuclear negotiations with the promise to remove all sanctions - to relieve the Iranian people of the economic hardship they have caused - without any requirements on Iran to curtail its nuclear program.

Brilliant!

Germany’s Destructive Anger

by Jacob Soll

July 15, 2015

http://www.nytimes.com/2015/07/15/opinion/germanys-destructive-anger.html?comments#permid=15496663

There indeed is a strong current of resentment and anger against Greece in some circles in Germany - the AfD political party, which btw is in the process of self-destructing, is an expression of this anger. However, the majority of Germans, according to recent polling, and certainly the coalition government are in favor of helping Greece to stay in the Euro. 

As a counterpoint to the nonesense about "austerity for austerity's sake", read Steven Rattner's collumn in today's NYT.

And if Mr. Soll wants to use the sight of people going through garbage cans as a sign of economic mismanagement (I agree), I invite him to accompany me on my morning walks in downtown Seattle (which currently is quite well off, compared to other American cities), where that sight is so commonplace that one tends to ignore it, as one tends to ignore the people standing at virtually every major intersection with cardboard signs detailing their desparate straights.

Overregulating Life in Greece

by Steven Rattner

July 15, 2015

http://www.nytimes.com/2015/07/15/opinion/overregulating-life-in-greece.html?comments#permid=15496288

Finally someone in the American economics community has the insight to call out this nonsence of "austerity for austerities sake", and the evil Germans using their economic power to dominate Europe.

I first saw these statistics on relative pension costs and uncollected taxes among Euro countries in a German paper and wondered why people like Paul Krugman choose to ignore these data. Actually the divergence in tax receipts, if you include all taxes, not just value-added, showed that 86% of taxes in Greece go uncollected.

Now the "bad, mean Europeans" are opffering Greece Euro 83 Billion more to help them out - the Greeks actually requested Euro 52 Billion, so the story among the Krugmans of this world is going to be, that Europe "forced" Greece into even more debt to control them even more - with the demand to simply get their pension costs and tax collection in line with other Euro countries.

As a side note, the ranking in the graphic on pension cost and tax collection effectiveness closely correlates to the current fical health of Euro countries. In the future the Euro will require better coordination/controls of fiscal policies among its members, and these statistics seem to show a good place to start.