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On July 05 2013 20:11 Rassy wrote:Show nested quote +On July 05 2013 06:49 fleeze wrote:On July 05 2013 06:40 WhiteDog wrote:On July 05 2013 05:00 Nyxisto wrote:
WhiteDog is making a really, really important point:
Competition between companies is good, competition between countries is usually bad
Saying that Greece needs to get more competitive is just a nicer way of saying: dump your social security, lower your wages, and make the government get rid of everything that costs money.
Which is most of the time pretty bad for its citizens.(with exceptions of unnecessary bureaucracy). And especially a small country like Greece is never going to be as cheap as we are without turning their country into a state of slaves, just because we are 80 million people here in Germany and our industrial infrastructure was built up over decades.
Same goes for France, instead of saying "let's get our wages up here and lets stop putting people into temporary work". Our government actually says that France needs to do the same shit we did ten years ago. With our so often praised labour market reforms we did nothing but destroy our employment rights to make our companies happy. I agree with most of the things you said but I never said that competition between countries is usually bad  Objectively speaking I just insisted on the fact that globalization had a bad influence on taxation rates - it doesn't mean that it is not a good thing in other part of the economy (economically speaking, there are a few arguments that goes against globalization - it doesn't mean that I personally consider that globalization is a good thing). If I wanted to draw biggest conclusions from what I tried to enlight, it is simply that free trade cannot work without the state - and in Europe, the only who can play that role is the EU (with the ECB of course). yup, biggest problem of the euro: you can't inforce a free trade zone without coordinated economic politics. I dont know about that tbh, europe has been a free trade zone even before the euro, or am i mistaken now? , and the economic policys have been coordinated since the euro? Greece did pretty well in the early years after 2000. Maybe tourism and construction of resorts/hotels took a bit hit due to the recession in the whole eurozone,less people go on holiday to greece and spend it closer by home. Am not sure if this is the case btw, would have to look up figures but i can imagine this beeing one of the causes, same for spain.
i guess i should have added: with the same currency.
thought this was clear because i was talking about the EURO.
southern countries used to have a WAY higher inflation and used to devalue their curreny to stay competitive. obviously this doesn't work anymore with a common currency.
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On July 05 2013 20:31 fleeze wrote:Show nested quote +On July 05 2013 20:11 Rassy wrote:On July 05 2013 06:49 fleeze wrote:On July 05 2013 06:40 WhiteDog wrote:On July 05 2013 05:00 Nyxisto wrote:
WhiteDog is making a really, really important point:
Competition between companies is good, competition between countries is usually bad
Saying that Greece needs to get more competitive is just a nicer way of saying: dump your social security, lower your wages, and make the government get rid of everything that costs money.
Which is most of the time pretty bad for its citizens.(with exceptions of unnecessary bureaucracy). And especially a small country like Greece is never going to be as cheap as we are without turning their country into a state of slaves, just because we are 80 million people here in Germany and our industrial infrastructure was built up over decades.
Same goes for France, instead of saying "let's get our wages up here and lets stop putting people into temporary work". Our government actually says that France needs to do the same shit we did ten years ago. With our so often praised labour market reforms we did nothing but destroy our employment rights to make our companies happy. I agree with most of the things you said but I never said that competition between countries is usually bad Objectively speaking I just insisted on the fact that globalization had a bad influence on taxation rates - it doesn't mean that it is not a good thing in other part of the economy (economically speaking, there are a few arguments that goes against globalization - it doesn't mean that I personally consider that globalization is a good thing). If I wanted to draw biggest conclusions from what I tried to enlight, it is simply that free trade cannot work without the state - and in Europe, the only who can play that role is the EU (with the ECB of course). yup, biggest problem of the euro: you can't inforce a free trade zone without coordinated economic politics. I dont know about that tbh, europe has been a free trade zone even before the euro, or am i mistaken now? , and the economic policys have been coordinated since the euro? Greece did pretty well in the early years after 2000. Maybe tourism and construction of resorts/hotels took a bit hit due to the recession in the whole eurozone,less people go on holiday to greece and spend it closer by home. Am not sure if this is the case btw, would have to look up figures but i can imagine this beeing one of the causes, same for spain. i guess i should have added: with the same currency. thought this was clear because i was talking about the EURO. southern countries used to have a WAY higher inflation and used to devalue their curreny to stay competitive. obviously this doesn't work anymore with a common currency.
Exactly.
I add that to support your point of view. It's a curve of the competitivity (indice de compétitivité in french) / price (indice des prix in french) for each country since the euro.
![[image loading]](http://horizons.typepad.fr/.a/6a00d83451d36969e2013488275dbf970c-800wi)
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On July 05 2013 19:47 WhiteDog wrote:
You are talking about the Phillips Curve, it has been proved since the 70s, by both keynesian and monetarist economist (Phelps & Milton) that the Phillips Curve only work in the short run. You can trade-off between employment and inflation in the short run. The desire to trade off between the two in the long run bring stagflation - both inflation and a stagnation of unemployment, because in the long run people will defend their purchasing power by asking for a raise in wages.
And that is why some people consider that Central Banks need independance with a clear mandate for price stability - because you can't trade off between employment and inflation in the long run...
If you could why would you want independance ? Why would you want price stability if you could lower unemployment by letting price go up (inflation) ? We could go back to the stop-and-go all day every day.
When someone claims there are no long run consequences and then actually mention stagflation as a long run result of expansionary monetary policy, yiou know they are talking out of their ass. You want price stability because people don't get wages for their whole life, they have to save some of their income to live during their retirement. That will not go up with wages, and 25 years of of stable 2% inflation will halve the purchasing power of your savings. Without a clear and credible price stability goal will just fuck over future generations for a temorary short term gain. As you like to mention Friedman in this context, his take on this matter is quite clear, monetary policy will result in higher prices and no gains in structural employment rates. You are actually acknowlegding my point, and the fact that you think you are offering a rebuttle makes me realize how pointless it is to discuss economic theory with you.
So they are in this mess because of a lack of communication... I see.
And yes it will take a long time to deal with the crisis, but dealing with it by destroying employment, global demand, and the future of the greek youth is not the right way. We agree on the rest, in fact it is my point since the beginning : Greece will not be able to get out of this mess the right way without the EU and the BCE doing something else than just forcing them to lower their deficit.
Their actions are limited by the fact that most of the tools they could use are not in their hands.
The mess was not very significant until Greece decided to lie about their finances. I have mentioned this basically three times in this little discussion we are having. You decide to nitpick. I have rarely seen such a self serving bias in what people read and respond to. My point is that if you give them these short term bandaids they will just dig a deeper hole for themselves. They will be able to get out of this mess, but they need to reform. I advise you to read the mckinsey report someone posted, it is just above the post you made that I'm quoting right now.
Interesting how you decide to pick your own number to back up your own little idea. That the Greek GDP had a huge boost during 1950-1980 is perfectly normal : they were merely catching up with others in a period of economic success. You were talking about France, from 1945 to 1975 it had on average 5% GDP growth a year ? What does it do to your own point of view ? Nothing. Greece was still way below France or Germany in both GDP per capita and productivity - 25% below the average European productivity.
You know that some Africans countries would need a 10% GDP growth for 50 years just to catch up the american of today ? Pointing out numbers doesn't mean much.
If you wanna talk about real economic, then first agree that models teach a lot (they are not reality, but "GDP" is not either), and secondly, see how the greek society is actually structured.
I'm not at home at the moment so I cannot go into the numbers themselves. They were merely there to illustrate that Greece did not have such a hard time in recent historical sense, something you claimed was totally out of their control. Then why do you think they have their recovery in their own control if you give them all the tools they 'need'. They need something that is not politically favourable, namely fiscal discipline. Let me put my point in a clear way: If you want to be on a structurally higher growth path you have to invest in the institutional structure of your economy. That is what the EU is trying to get Greece to do, but they have a lot of unfunded liabilities on their balance sheet wich will require a healthy balanced budget NOW to avoid that every pensioner in Greece will go into fucking poverty because the government thought it was a good idea to just not worry about where the funding for the promised pensions will come from. There is NO quick fix for this problem and pretending that there is will just be more of the same of what we have seen happening in the past 30 years, namely transferring costs to future generations. That is what hinders economic growth, because people that aren't stupid adapt their behaviour.
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On July 06 2013 00:25 Flyingdutchman wrote:Show nested quote +On July 05 2013 19:47 WhiteDog wrote:
You are talking about the Phillips Curve, it has been proved since the 70s, by both keynesian and monetarist economist (Phelps & Milton) that the Phillips Curve only work in the short run. You can trade-off between employment and inflation in the short run. The desire to trade off between the two in the long run bring stagflation - both inflation and a stagnation of unemployment, because in the long run people will defend their purchasing power by asking for a raise in wages.
And that is why some people consider that Central Banks need independance with a clear mandate for price stability - because you can't trade off between employment and inflation in the long run...
If you could why would you want independance ? Why would you want price stability if you could lower unemployment by letting price go up (inflation) ? We could go back to the stop-and-go all day every day. When someone claims there are no long run consequences and then actually mention stagflation as a long run result of expansionary monetary policy, yiou know they are talking out of their ass. You want price stability because people don't get wages for their whole life, they have to save some of their income to live during their retirement. That will not go up with wages, and 25 years of of stable 2% inflation will halve the purchasing power of your savings. Without a clear and credible price stability goal will just fuck over future generations for a temorary short term gain. As you like to mention Friedman in this context, his take on this matter is quite clear, monetary policy will result in higher prices and no gains in structural employment rates. You are actually acknowlegding my point, and the fact that you think you are offering a rebuttle makes me realize how pointless it is to discuss economic theory with you.
I don't even know why I talk with you. You should read some macro economic book, calm yourself, and then come again to talk with me. There are long term effect "sure", on MONEY - inflation, control of the monetary base, etc.
But in the long run you can't trade off between inflation and unemployment and you can't act on the real economy. What I said is exactly Milton Friedman's point : you cannot lower unemployment through monetary policy. And he developped the idea of the NAIRU around it : http://en.wikipedia.org/wiki/NAIRU
The stagflation is the explanation of that : the government were seeking for a high inflation to lower unemployment, and it didn't work.
The debate rages on about whether monetary policy can smooth business cycles or not. A central conjecture of Keynesian economics is that the central bank can stimulate aggregate demand in the short run, because a significant number of prices in the economy are fixed in the short run and firms will produce as many goods and services as are demanded (in the long run, however, money is neutral, as in the neoclassical model).
http://en.wikipedia.org/wiki/Monetary_policy
If you can't see the biggest trend that pushed europe to this crisis, I don't really know.
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Why? Because he's right? The Euro doesn't make any sense if every EU country still does its own thing. If that's what people want it would be reasonable to go back to national currencies and national governments.
Edit: Of course the EU-politicians are pulling some stupid shit from time to time, but please stop repeating the nationalist EU- smack talk our governments use to deflect from their own mistakes.
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On July 06 2013 01:09 WhiteDog wrote:I don't even know why I talk with you. You should read some macro economic book, calm yourself, and then come again to talk with me. There are long term effect "sure", on MONEY - inflation, control of the monetary base, etc. But in the long run you can't trade off between inflation and unemployment and you can't act on the real economy. What I said is exactly Milton Friedman's point : you cannot lower unemployment through monetary policy. And he developped the idea of the NAIRU around it : http://en.wikipedia.org/wiki/NAIRU The stagflation is the explanation of that : the government were seeking for a high inflation to lower unemployment, and it didn't work.
Well if you actually pay a little attention you might learn something useful.
Am I correct in assuming you are now of the opinion that monetary policy is not the way to go for Greece? You know, because it will have no real effects on unemployment yet result in a higher price level and thus a lower competitive position? Because if you look at the quotebox below, you can see the reason why we are talkingabout the subject in the first place. This is something you said and what you are now actually arguing against. Since controlling a currency is through monetary policy...
This is one of the biggest problem I have with most of the posts I see in this forum.
I completly agree that the Greek politician certainly did some really dumb things, and that things could have been better, but overall, if you think in a macro economic perspective, everything that happenned would have happenned, and the global economic situation of Greece has been moddled by economic mecanism that goes way beyond their own political possibilities (considering that they are part of the EU, things would be entirely different if they still had control over their currency).
So thank you for turning a discussion that was becoming a little frustrating into a hilarious one, telling me I need to read a macro textbook.
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On July 05 2013 20:31 fleeze wrote:Show nested quote +On July 05 2013 20:11 Rassy wrote:On July 05 2013 06:49 fleeze wrote:On July 05 2013 06:40 WhiteDog wrote:On July 05 2013 05:00 Nyxisto wrote:
WhiteDog is making a really, really important point:
Competition between companies is good, competition between countries is usually bad
Saying that Greece needs to get more competitive is just a nicer way of saying: dump your social security, lower your wages, and make the government get rid of everything that costs money.
Which is most of the time pretty bad for its citizens.(with exceptions of unnecessary bureaucracy). And especially a small country like Greece is never going to be as cheap as we are without turning their country into a state of slaves, just because we are 80 million people here in Germany and our industrial infrastructure was built up over decades.
Same goes for France, instead of saying "let's get our wages up here and lets stop putting people into temporary work". Our government actually says that France needs to do the same shit we did ten years ago. With our so often praised labour market reforms we did nothing but destroy our employment rights to make our companies happy. I agree with most of the things you said but I never said that competition between countries is usually bad Objectively speaking I just insisted on the fact that globalization had a bad influence on taxation rates - it doesn't mean that it is not a good thing in other part of the economy (economically speaking, there are a few arguments that goes against globalization - it doesn't mean that I personally consider that globalization is a good thing). If I wanted to draw biggest conclusions from what I tried to enlight, it is simply that free trade cannot work without the state - and in Europe, the only who can play that role is the EU (with the ECB of course). yup, biggest problem of the euro: you can't inforce a free trade zone without coordinated economic politics. I dont know about that tbh, europe has been a free trade zone even before the euro, or am i mistaken now? , and the economic policys have been coordinated since the euro? Greece did pretty well in the early years after 2000. Maybe tourism and construction of resorts/hotels took a bit hit due to the recession in the whole eurozone,less people go on holiday to greece and spend it closer by home. Am not sure if this is the case btw, would have to look up figures but i can imagine this beeing one of the causes, same for spain. i guess i should have added: with the same currency. thought this was clear because i was talking about the EURO. southern countries used to have a WAY higher inflation and used to devalue their curreny to stay competitive. obviously this doesn't work anymore with a common currency.
Understand what you say but still, there have been fixed exchange rates since like 4 years before the euro, wich is basicly the same as having the same currency.
And i have to admit i do agree with you btw, since even though it went well with greece in the early years, it obviously was not a structural improvement else we would now not be in this mess.
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On July 06 2013 05:47 Flyingdutchman wrote:Show nested quote +On July 06 2013 01:09 WhiteDog wrote:I don't even know why I talk with you. You should read some macro economic book, calm yourself, and then come again to talk with me. There are long term effect "sure", on MONEY - inflation, control of the monetary base, etc. But in the long run you can't trade off between inflation and unemployment and you can't act on the real economy. What I said is exactly Milton Friedman's point : you cannot lower unemployment through monetary policy. And he developped the idea of the NAIRU around it : http://en.wikipedia.org/wiki/NAIRU The stagflation is the explanation of that : the government were seeking for a high inflation to lower unemployment, and it didn't work. Well if you actually pay a little attention you might learn something useful. Am I correct in assuming you are now of the opinion that monetary policy is not the way to go for Greece? You know, because it will have no real effects on unemployment yet result in a higher price level and thus a lower competitive position? Because if you look at the quotebox below, you can see the reason why we are talkingabout the subject in the first place. This is something you said and what you are now actually arguing against. Since controlling a currency is through monetary policy... Show nested quote +This is one of the biggest problem I have with most of the posts I see in this forum.
I completly agree that the Greek politician certainly did some really dumb things, and that things could have been better, but overall, if you think in a macro economic perspective, everything that happenned would have happenned, and the global economic situation of Greece has been moddled by economic mecanism that goes way beyond their own political possibilities (considering that they are part of the EU, things would be entirely different if they still had control over their currency). So thank you for turning a discussion that was becoming a little frustrating into a hilarious one, telling me I need to read a macro textbook.
You should really read a textbook.
I was just responding to you arguing that the BCE could trade off between unemployment and inflation, in the long run. I proved you it's wrong, now you change your argument and try to pick my own sentences without understanding that we are talking about two completly different things.
The idea of neutrality of money is "the idea that a change in the stock of money affects only nominal variables in the economy such as prices, wages, and exchange rates, with no effect on real (inflation-adjusted) variables, like employment, real GDP, and real consumption" (from http://en.wikipedia.org/wiki/Neutrality_of_money). It is the basis of any monetary policy. In the short run, a monetary policy can affect real variables (like employment, GDP and consumption), because of nominal rigidities, but it will not work in the long run.
Now the idea that Greece need control over their own currency is completly different : they are in a monetary union with one of the best industry in the world (Germany). Germany is a country that has, since a long time, a strategy that push for a strong currency and a control of inflation. What that do on "real" variables within one country is rather small (in the long run), but the Germans use that to purchase international goods at a lower price (while their own goods will cost more at exportation, but that is no problem for Germans goods because they are highly competitive).
The problem is that the parity of the euro, while good for Germany, is over evaluated for a country like Greece with a lower competitivity. Also, one way to get out of such debt and competitiveness crisis is to devaluate the currency - which would instantly reduce the consumption of imported goods in Greece (because they will cost more) lower the debt, and help Greece's competitivity.
I will not respond again as you are a little too nervous to talk calmly.
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On July 07 2013 00:29 WhiteDog wrote:Show nested quote +On July 06 2013 05:47 Flyingdutchman wrote:On July 06 2013 01:09 WhiteDog wrote:I don't even know why I talk with you. You should read some macro economic book, calm yourself, and then come again to talk with me. There are long term effect "sure", on MONEY - inflation, control of the monetary base, etc. But in the long run you can't trade off between inflation and unemployment and you can't act on the real economy. What I said is exactly Milton Friedman's point : you cannot lower unemployment through monetary policy. And he developped the idea of the NAIRU around it : http://en.wikipedia.org/wiki/NAIRU The stagflation is the explanation of that : the government were seeking for a high inflation to lower unemployment, and it didn't work. Well if you actually pay a little attention you might learn something useful. Am I correct in assuming you are now of the opinion that monetary policy is not the way to go for Greece? You know, because it will have no real effects on unemployment yet result in a higher price level and thus a lower competitive position? Because if you look at the quotebox below, you can see the reason why we are talkingabout the subject in the first place. This is something you said and what you are now actually arguing against. Since controlling a currency is through monetary policy... This is one of the biggest problem I have with most of the posts I see in this forum.
I completly agree that the Greek politician certainly did some really dumb things, and that things could have been better, but overall, if you think in a macro economic perspective, everything that happenned would have happenned, and the global economic situation of Greece has been moddled by economic mecanism that goes way beyond their own political possibilities (considering that they are part of the EU, things would be entirely different if they still had control over their currency). So thank you for turning a discussion that was becoming a little frustrating into a hilarious one, telling me I need to read a macro textbook. You should really read a textbook. I was just responding to you arguing that the BCE could trade off between unemployment and inflation, in the long run. I proved you it's wrong, now you change your argument and try to pick my own sentences without understanding that we are talking about two completly different things. The idea of neutrality of money is "the idea that a change in the stock of money affects only nominal variables in the economy such as prices, wages, and exchange rates, with no effect on real (inflation-adjusted) variables, like employment, real GDP, and real consumption" (from http://en.wikipedia.org/wiki/Neutrality_of_money). It is the basis of any monetary policy. In the short run, a monetary policy can affect real variables (like employment, GDP and consumption), because of nominal rigidities, but it will not work in the long run. Now the idea that Greece need control over their own currency is completly different : they are in a monetary union with one of the best industry in the world (Germany). Germany is a country that has, since a long time, a strategy that push for a strong currency and a control of inflation. What that do on "real" variables within one country is rather small (in the long run), but the Germans use that to purchase international goods at a lower price (while their own goods will cost more at exportation, but that is no problem for Germans goods because they are highly competitive). The problem is that the parity of the euro, while good for Germany, is over evaluated for a country like Greece with a lower competitivity. Also, one way to get out of such debt and competitiveness crisis is to devaluate the currency - which would instantly reduce the consumption of imported goods in Greece (because they will cost more) lower the debt, and help Greece's competitivity. I will not respond again as you are a little too nervous to talk calmly.
Greece's debt surely is denominated in euros and foreign currency, if they introduce a new currency and devaluate it, wouldn't that increase debt? Also wouldn't new lenders anticipate the devaluation and ask to be compensated? I don''t see how devaluating a new currency could lead to reduction in debt, but that may just be my limited understanding of macroeconomics, so please explain if you can.
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On July 07 2013 00:58 Crushinator wrote:Show nested quote +On July 07 2013 00:29 WhiteDog wrote:On July 06 2013 05:47 Flyingdutchman wrote:On July 06 2013 01:09 WhiteDog wrote:I don't even know why I talk with you. You should read some macro economic book, calm yourself, and then come again to talk with me. There are long term effect "sure", on MONEY - inflation, control of the monetary base, etc. But in the long run you can't trade off between inflation and unemployment and you can't act on the real economy. What I said is exactly Milton Friedman's point : you cannot lower unemployment through monetary policy. And he developped the idea of the NAIRU around it : http://en.wikipedia.org/wiki/NAIRU The stagflation is the explanation of that : the government were seeking for a high inflation to lower unemployment, and it didn't work. Well if you actually pay a little attention you might learn something useful. Am I correct in assuming you are now of the opinion that monetary policy is not the way to go for Greece? You know, because it will have no real effects on unemployment yet result in a higher price level and thus a lower competitive position? Because if you look at the quotebox below, you can see the reason why we are talkingabout the subject in the first place. This is something you said and what you are now actually arguing against. Since controlling a currency is through monetary policy... This is one of the biggest problem I have with most of the posts I see in this forum.
I completly agree that the Greek politician certainly did some really dumb things, and that things could have been better, but overall, if you think in a macro economic perspective, everything that happenned would have happenned, and the global economic situation of Greece has been moddled by economic mecanism that goes way beyond their own political possibilities (considering that they are part of the EU, things would be entirely different if they still had control over their currency). So thank you for turning a discussion that was becoming a little frustrating into a hilarious one, telling me I need to read a macro textbook. You should really read a textbook. I was just responding to you arguing that the BCE could trade off between unemployment and inflation, in the long run. I proved you it's wrong, now you change your argument and try to pick my own sentences without understanding that we are talking about two completly different things. The idea of neutrality of money is "the idea that a change in the stock of money affects only nominal variables in the economy such as prices, wages, and exchange rates, with no effect on real (inflation-adjusted) variables, like employment, real GDP, and real consumption" (from http://en.wikipedia.org/wiki/Neutrality_of_money). It is the basis of any monetary policy. In the short run, a monetary policy can affect real variables (like employment, GDP and consumption), because of nominal rigidities, but it will not work in the long run. Now the idea that Greece need control over their own currency is completly different : they are in a monetary union with one of the best industry in the world (Germany). Germany is a country that has, since a long time, a strategy that push for a strong currency and a control of inflation. What that do on "real" variables within one country is rather small (in the long run), but the Germans use that to purchase international goods at a lower price (while their own goods will cost more at exportation, but that is no problem for Germans goods because they are highly competitive). The problem is that the parity of the euro, while good for Germany, is over evaluated for a country like Greece with a lower competitivity. Also, one way to get out of such debt and competitiveness crisis is to devaluate the currency - which would instantly reduce the consumption of imported goods in Greece (because they will cost more) lower the debt, and help Greece's competitivity. I will not respond again as you are a little too nervous to talk calmly. Greece's debt surely is denominated in euros and foreign currency, if they introduce a new currency and devaluate it, wouldn't that increase debt? Also wouldn't new lenders anticipate the devaluation and ask to be compensated? I don''t see how devaluating a new currency could lead to reduction in debt, but that may just be my limited understanding of macroeconomics, so please explain if you can.
Devaluating your own currency only helps paying back debt in your own currency. If you have to pay your debt in another currency your making it more difficult, because your currency will be worth less.
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On July 07 2013 01:07 Nyxisto wrote:Show nested quote +On July 07 2013 00:58 Crushinator wrote:On July 07 2013 00:29 WhiteDog wrote:On July 06 2013 05:47 Flyingdutchman wrote:On July 06 2013 01:09 WhiteDog wrote:I don't even know why I talk with you. You should read some macro economic book, calm yourself, and then come again to talk with me. There are long term effect "sure", on MONEY - inflation, control of the monetary base, etc. But in the long run you can't trade off between inflation and unemployment and you can't act on the real economy. What I said is exactly Milton Friedman's point : you cannot lower unemployment through monetary policy. And he developped the idea of the NAIRU around it : http://en.wikipedia.org/wiki/NAIRU The stagflation is the explanation of that : the government were seeking for a high inflation to lower unemployment, and it didn't work. Well if you actually pay a little attention you might learn something useful. Am I correct in assuming you are now of the opinion that monetary policy is not the way to go for Greece? You know, because it will have no real effects on unemployment yet result in a higher price level and thus a lower competitive position? Because if you look at the quotebox below, you can see the reason why we are talkingabout the subject in the first place. This is something you said and what you are now actually arguing against. Since controlling a currency is through monetary policy... This is one of the biggest problem I have with most of the posts I see in this forum.
I completly agree that the Greek politician certainly did some really dumb things, and that things could have been better, but overall, if you think in a macro economic perspective, everything that happenned would have happenned, and the global economic situation of Greece has been moddled by economic mecanism that goes way beyond their own political possibilities (considering that they are part of the EU, things would be entirely different if they still had control over their currency). So thank you for turning a discussion that was becoming a little frustrating into a hilarious one, telling me I need to read a macro textbook. You should really read a textbook. I was just responding to you arguing that the BCE could trade off between unemployment and inflation, in the long run. I proved you it's wrong, now you change your argument and try to pick my own sentences without understanding that we are talking about two completly different things. The idea of neutrality of money is "the idea that a change in the stock of money affects only nominal variables in the economy such as prices, wages, and exchange rates, with no effect on real (inflation-adjusted) variables, like employment, real GDP, and real consumption" (from http://en.wikipedia.org/wiki/Neutrality_of_money). It is the basis of any monetary policy. In the short run, a monetary policy can affect real variables (like employment, GDP and consumption), because of nominal rigidities, but it will not work in the long run. Now the idea that Greece need control over their own currency is completly different : they are in a monetary union with one of the best industry in the world (Germany). Germany is a country that has, since a long time, a strategy that push for a strong currency and a control of inflation. What that do on "real" variables within one country is rather small (in the long run), but the Germans use that to purchase international goods at a lower price (while their own goods will cost more at exportation, but that is no problem for Germans goods because they are highly competitive). The problem is that the parity of the euro, while good for Germany, is over evaluated for a country like Greece with a lower competitivity. Also, one way to get out of such debt and competitiveness crisis is to devaluate the currency - which would instantly reduce the consumption of imported goods in Greece (because they will cost more) lower the debt, and help Greece's competitivity. I will not respond again as you are a little too nervous to talk calmly. Greece's debt surely is denominated in euros and foreign currency, if they introduce a new currency and devaluate it, wouldn't that increase debt? Also wouldn't new lenders anticipate the devaluation and ask to be compensated? I don''t see how devaluating a new currency could lead to reduction in debt, but that may just be my limited understanding of macroeconomics, so please explain if you can. Devaluating your own currency only helps paying back debt in your own currency. If you have to pay your debt in another currency your making it more difficult, because your currency will be worth less.
Thought so.
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On July 07 2013 00:58 Crushinator wrote:Show nested quote +On July 07 2013 00:29 WhiteDog wrote:On July 06 2013 05:47 Flyingdutchman wrote:On July 06 2013 01:09 WhiteDog wrote:I don't even know why I talk with you. You should read some macro economic book, calm yourself, and then come again to talk with me. There are long term effect "sure", on MONEY - inflation, control of the monetary base, etc. But in the long run you can't trade off between inflation and unemployment and you can't act on the real economy. What I said is exactly Milton Friedman's point : you cannot lower unemployment through monetary policy. And he developped the idea of the NAIRU around it : http://en.wikipedia.org/wiki/NAIRU The stagflation is the explanation of that : the government were seeking for a high inflation to lower unemployment, and it didn't work. Well if you actually pay a little attention you might learn something useful. Am I correct in assuming you are now of the opinion that monetary policy is not the way to go for Greece? You know, because it will have no real effects on unemployment yet result in a higher price level and thus a lower competitive position? Because if you look at the quotebox below, you can see the reason why we are talkingabout the subject in the first place. This is something you said and what you are now actually arguing against. Since controlling a currency is through monetary policy... This is one of the biggest problem I have with most of the posts I see in this forum.
I completly agree that the Greek politician certainly did some really dumb things, and that things could have been better, but overall, if you think in a macro economic perspective, everything that happenned would have happenned, and the global economic situation of Greece has been moddled by economic mecanism that goes way beyond their own political possibilities (considering that they are part of the EU, things would be entirely different if they still had control over their currency). So thank you for turning a discussion that was becoming a little frustrating into a hilarious one, telling me I need to read a macro textbook. You should really read a textbook. I was just responding to you arguing that the BCE could trade off between unemployment and inflation, in the long run. I proved you it's wrong, now you change your argument and try to pick my own sentences without understanding that we are talking about two completly different things. The idea of neutrality of money is "the idea that a change in the stock of money affects only nominal variables in the economy such as prices, wages, and exchange rates, with no effect on real (inflation-adjusted) variables, like employment, real GDP, and real consumption" (from http://en.wikipedia.org/wiki/Neutrality_of_money). It is the basis of any monetary policy. In the short run, a monetary policy can affect real variables (like employment, GDP and consumption), because of nominal rigidities, but it will not work in the long run. Now the idea that Greece need control over their own currency is completly different : they are in a monetary union with one of the best industry in the world (Germany). Germany is a country that has, since a long time, a strategy that push for a strong currency and a control of inflation. What that do on "real" variables within one country is rather small (in the long run), but the Germans use that to purchase international goods at a lower price (while their own goods will cost more at exportation, but that is no problem for Germans goods because they are highly competitive). The problem is that the parity of the euro, while good for Germany, is over evaluated for a country like Greece with a lower competitivity. Also, one way to get out of such debt and competitiveness crisis is to devaluate the currency - which would instantly reduce the consumption of imported goods in Greece (because they will cost more) lower the debt, and help Greece's competitivity. I will not respond again as you are a little too nervous to talk calmly. Greece's debt surely is denominated in euros and foreign currency, if they introduce a new currency and devaluate it, wouldn't that increase debt? Also wouldn't new lenders anticipate the devaluation and ask to be compensated? I don''t see how devaluating a new currency could lead to reduction in debt, but that may just be my limited understanding of macroeconomics, so please explain if you can.
He refers to the theoretical case of a national debt fully denominated in national currencies to show the strong disadvantage of being in a monetary union with Germany. If a country has a debt of 100 euros and the euro were to lose forex value, it becomes easier to repay the debt for a government. Thus a devaluation would benefit Greece.
Your suggestion on the other hand points to the practical problems of leaving the European Monetary Union. Firstly, assume European policy makers can force a change in denomination in currency for Greece's debt. As you already suggest, such a conversion would most likely find strong opposition with the current lenders. Which poses a difficult trade-off for European policy makers. On the one hand, softer conditions for Greece on the re-denomination will strongly benefit the latter. This is very intuitive. On the other hand, softer conditions for Greece will hurt current lenders. Interestingly, these current lenders can be named. Namely, European and Greek banks which hold up for roughly 70% of its debt (Merler and Piscani-Ferry, 2012, Who's afraid of sovereign bonds?). Consequently, improving the deal for Greece, will come at the cost of the national banks of European policy makers. Given that these have suffered strongly from the national debt crisis too in the last 4 years and caused serious problems with the latter, it seems likely that the policymakers will not want to hurt them.
Consequently, assuming that policymakers can determine conditions on the re-denomination, it will still form serious difficulties according to their interests. Which sums up an important problem of Greece leaving the Euro-area.
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Why even bother re-denominating the debt though? Qualitatively this seems no different from allowing Greece to default on part of its debt.
There is also the possibility that by the adoption of a new currency by Greece, they will simply be adding a currency crisis to the debt crisis. It seems highly unlikely to me that Greece will be able to stabilize their new currency at their weakest time, particularly if it is all just a ploy to default on debt.
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On July 07 2013 01:35 Crushinator wrote:
Why even bother re-denominating the debt though? Qualitatively this seems no different from allowing Greece to default on part of its debt.
There is also the possibility that by the adoption of a new currency by Greece, they will simply be adding a currency crisis to the debt crisis. It seems highly unlikely to me that Greece will be able to stabilize their new currency at their weakest time, particularly if it is all just a ploy to default on debt.
One is explicit and mandated by the government (default), the other is a factor of market forces (inflation). There are exceptions to the inflation thing, but normally that has further consequences.
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On July 07 2013 01:39 aksfjh wrote:Show nested quote +On July 07 2013 01:35 Crushinator wrote:
Why even bother re-denominating the debt though? Qualitatively this seems no different from allowing Greece to default on part of its debt.
There is also the possibility that by the adoption of a new currency by Greece, they will simply be adding a currency crisis to the debt crisis. It seems highly unlikely to me that Greece will be able to stabilize their new currency at their weakest time, particularly if it is all just a ploy to default on debt. One is explicit and mandated by the government (default), the other is a factor of market forces (inflation). There are exceptions to the inflation thing, but normally that has further consequences.
To me it seems that forcing lenders to accept a new denomination, with a totally different expected exchange rate delta, is exactly the same as decreasing the return on bonds by some pecentage points or whatever. But like I said I am not that well-educated in macro.
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On July 07 2013 01:48 Crushinator wrote:Show nested quote +On July 07 2013 01:39 aksfjh wrote:On July 07 2013 01:35 Crushinator wrote:
Why even bother re-denominating the debt though? Qualitatively this seems no different from allowing Greece to default on part of its debt.
There is also the possibility that by the adoption of a new currency by Greece, they will simply be adding a currency crisis to the debt crisis. It seems highly unlikely to me that Greece will be able to stabilize their new currency at their weakest time, particularly if it is all just a ploy to default on debt. One is explicit and mandated by the government (default), the other is a factor of market forces (inflation). There are exceptions to the inflation thing, but normally that has further consequences. To me it seems that forcing lenders to accept a new denomination, with a totally different expected exchange rate delta, is exactly the same as decreasing the return on bonds by some pecentage points or whatever. But like I said I am not that well-educated in macro.
In the case of Greece right now, there is no difference. Their debt is completely in Euros, so even getting their own currency back wouldn't allow them to inflate their way out.
In general though, it's likely much better for a country to inflate away their debt, since controlled inflation can spur investment. Defaulting does the opposite, swaying investments to flee the "chaos."
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On July 07 2013 01:35 Crushinator wrote:
Why even bother re-denominating the debt though? Qualitatively this seems no different from allowing Greece to default on part of its debt.
There is also the possibility that by the adoption of a new currency by Greece, they will simply be adding a currency crisis to the debt crisis. It seems highly unlikely to me that Greece will be able to stabilize their new currency at their weakest time, particularly if it is all just a ploy to default on debt.
Yes that's basically it. Note that according to an agency such as Standards and Poor (here for source), Greece is already in a situation of partial default.
But permitting a partial default will not resolve the competitivity problem.
Getting out of the EU and re-denominating the debt would certainly have catastrophic repercussions in the short term. But the main problem is that the EU (because of the euro) is not designed to deal with the fact that there are huge competitivity inequalities within one same currency (there are no unified economic government for the whole euro zone, no way to permit fiscal transfert from countries with a high commercial surplus to other countries, etc.).
It is that structural problem that is the real question right now in consideration to the future of the euro zone, and not the debt crisis.
Note that competitivity inequalities are not a problem in themselves : they are perfectly normals, every countries are different and specialise themselves in different fields. Just like there are huge disparities between every states in the US.
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On July 07 2013 00:29 WhiteDog wrote:You should really read a textbook. I was just responding to you arguing that the BCE could trade off between unemployment and inflation, in the long run. I proved you it's wrong, now you change your argument and try to pick my own sentences without understanding that we are talking about two completly different things. The idea of neutrality of money is "the idea that a change in the stock of money affects only nominal variables in the economy such as prices, wages, and exchange rates, with no effect on real (inflation-adjusted) variables, like employment, real GDP, and real consumption" (from http://en.wikipedia.org/wiki/Neutrality_of_money). It is the basis of any monetary policy. In the short run, a monetary policy can affect real variables (like employment, GDP and consumption), because of nominal rigidities, but it will not work in the long run. Now the idea that Greece need control over their own currency is completly different : they are in a monetary union with one of the best industry in the world (Germany). Germany is a country that has, since a long time, a strategy that push for a strong currency and a control of inflation. What that do on "real" variables within one country is rather small (in the long run), but the Germans use that to purchase international goods at a lower price (while their own goods will cost more at exportation, but that is no problem for Germans goods because they are highly competitive). The problem is that the parity of the euro, while good for Germany, is over evaluated for a country like Greece with a lower competitivity. Also, one way to get out of such debt and competitiveness crisis is to devaluate the currency - which would instantly reduce the consumption of imported goods in Greece (because they will cost more) lower the debt, and help Greece's competitivity. I will not respond again as you are a little too nervous to talk calmly.
I'd say I was pretty clear on my stance that monetary policy should be in the hands of an independent central bank with a clear mandate for price stability, which means low inflation. I clearly stated that using monetary policy to lower unemployment would have no effects in the long run ON EMPLOYMENT, but will have resulted in inflation. Clearly you are saying the same thing I am now, yet you do not internalize it yourself when you say that a government that lies about its fiscal policy would have done better if they also still had control over their monetary policy. The Greek government is a clear cut example of a government that only cares for the short run. The end result can only be that they would have used the control over their monetary policy to temporarily (which is a result of something being effective in the short run but not working in the long run because people adapt) boost employment but at the same time destroying their competitiveness in the long run.
Without real productivity growth devaluing the currency would have to be done over and over and over until they run out of resources to devalue. Devaluing the currency is not the solution because it does not improve the problem that Greece has, namely the lack of real productivity growth. As in being able to make two pieces of Feta in an hour instead of one.
The German central bank is one of the best examples of being committed to price stability. Because of their discipline in that regard, which has been going on for decades, they have experienced good fundamental productivity growth.
A nice analogy my macro professor liked to ask in his exams is that of tying yourself to the mast of your ship as you sail past the sirens. The mast is supposed to be the central bank commitment to low inflation, you are the policy maker, and the sirens represent the lure of quick fixes that will be your downfall.
On July 07 2013 01:56 aksfjh wrote:
In general though, it's likely much better for a country to inflate away their debt, since controlled inflation can spur investment. Defaulting does the opposite, swaying investments to flee the "chaos."
You cannot inflate debt away, you can make the debt worth less than before , but you will still have debt. They need budget surpluses to pay off debt. There are a lot of institutional failures in Greece that can be fixed to improve their ability to get to a plus on the budget.
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On July 07 2013 17:37 Flyingdutchman wrote:Show nested quote +On July 07 2013 00:29 WhiteDog wrote:You should really read a textbook. I was just responding to you arguing that the BCE could trade off between unemployment and inflation, in the long run. I proved you it's wrong, now you change your argument and try to pick my own sentences without understanding that we are talking about two completly different things. The idea of neutrality of money is "the idea that a change in the stock of money affects only nominal variables in the economy such as prices, wages, and exchange rates, with no effect on real (inflation-adjusted) variables, like employment, real GDP, and real consumption" (from http://en.wikipedia.org/wiki/Neutrality_of_money). It is the basis of any monetary policy. In the short run, a monetary policy can affect real variables (like employment, GDP and consumption), because of nominal rigidities, but it will not work in the long run. Now the idea that Greece need control over their own currency is completly different : they are in a monetary union with one of the best industry in the world (Germany). Germany is a country that has, since a long time, a strategy that push for a strong currency and a control of inflation. What that do on "real" variables within one country is rather small (in the long run), but the Germans use that to purchase international goods at a lower price (while their own goods will cost more at exportation, but that is no problem for Germans goods because they are highly competitive). The problem is that the parity of the euro, while good for Germany, is over evaluated for a country like Greece with a lower competitivity. Also, one way to get out of such debt and competitiveness crisis is to devaluate the currency - which would instantly reduce the consumption of imported goods in Greece (because they will cost more) lower the debt, and help Greece's competitivity. I will not respond again as you are a little too nervous to talk calmly. I'd say I was pretty clear on my stance that monetary policy should be in the hands of an independent central bank with a clear mandate for price stability, which means low inflation. I clearly stated that using monetary policy to lower unemployment would have no effects in the long run ON EMPLOYMENT, but will have resulted in inflation.
You were saying the exact opposite.
On July 05 2013 10:27 Flyingdutchman wrote:Show nested quote +On July 05 2013 09:22 WhiteDog wrote:
No ? Monetary policy is way more than manipulating supply and demand for your currency. And monetary policy is actually known for its lack of consequences in the long run. It gets its power from short term price rigidity. Monetary policy definitively has long run effects, it comes down to a trade-off between employment and inflation. That is why it is important to have some sort of independence for Central banks with a clear mandate for price stability. If you do not know this you are either trolling or cherry picking what you learn about economics.
I'm glad you now know what are the effect of the monetary policy on real economy in the long run
Show nested quote +On July 07 2013 01:56 aksfjh wrote:
In general though, it's likely much better for a country to inflate away their debt, since controlled inflation can spur investment. Defaulting does the opposite, swaying investments to flee the "chaos." You cannot inflate debt away, you can make the debt worth less than before , but you will still have debt. They need budget surpluses to pay off debt. There are a lot of institutional failures in Greece that can be fixed to improve their ability to get to a plus on the budget.
No you can inflate the debt away, because inflation also mean more nominal revenue from tax (at the same taxation rate). In fact, according to an economist like J. Sapir, you can basically wipe out the entire european debt with a 7 to 10% inflation rate.
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EPT
