6 ms·

Paul Krugman: Can Europe Be Saved?

18 points by ssp 16y ago

Roboprog 16y ago
Only read the first page. But, it sounds like a better title would be "Can the Euro Be Saved?"
paganel 16y ago
Like always, mr. Krugman gets it wrong. Of course he blames the single currency, when he should have blamed things like "rules governing worker firing helped limit job loss, while strong social-welfare programs ensured that even the jobless retained their health care and received a basic income.". There's one thing that I've learned as a programmer, there's no silver bullet, you can't have both "strong" social programmes and a dynamic and versatile economy. You can't both stay at home doing nothing for most of the day (look at the 35-hour week in France, for example) and still dream at a life-style consisting of holidays abroad and 2 cars per family.
- 9oliYQjP 16y ago
  I have a lot of family in Europe. It wasn't the social programs that led to their current problem. They were vacationing and dining out on credit cards, accumulating lots of revolving debt, and acquiring rental properties that were supposed to pay for all of this. Of course, since everybody else in the middle class was attempting the same strategy, it became a bubble. Essentially, Europe is in much the same mess as the U.S. is for a lot of the same reasons. However, because the U.S. is a single country and Europe isn't, getting out of the mess is a very different problem.
- khafra 16y ago
  When I read a critique of an article that starts with a personal attack on the writer, I take the critique much less seriously.
  - paganel 16y ago
    > When I read a critique of an article that starts with a personal attack on the writer, I take the critique much less seriously. I don't have anything personally against Krugman, why would I? It's just that when you write a 8-page article in the NY Times bashing the Euro and you don't mention the protests in Hungary (http://en.wikipedia.org/wiki/2006_protests_in_Hungary http://en.wikipedia.org/wiki/2006_protests_in_Hungary), which practically demonstrated that an European country not affiliated to the Euro cannot devalue its currency, then I'd say you deserve being criticized by anonymous guys like me on the internets.
    - khafra 16y ago
      I'm not saying your critique is wrong (although I'm not sure how programming taught you that putting in more hours always means getting more work done), just that "Like always, Mr. Krugman gets it wrong" crosses the line from attacking the argument to attacking the arguer.
- bryanlarsen 16y ago
  As opposed to the US where everybody over the age of 30 is afraid to quit their jobs to start their own company because they'll lose their health insurance? And I see lots more Americans staying at home getting fat in front of the TV than I do Europeans. - 5 extra hours a week and 4 extra weeks of vacation a year just give you more time to work on your side projects to get out of that corporate job quicker. - in some countries, unemployment insurance provide resources to help you start your own company - "overseas vacations" are a lot cheaper cause you can buy a plane or train ticket for 50 euros to get to the Mediterranean - Nobody wants two cars because they provide more hassle than benefit in an area where everything is close by and available via public transit that's clean, convenient and used by everybody, not just the poor. - but most importantly, if you fail, you know that your kids won't starve and that your own retirement will be comfortable. As everybody knows, fear of failure is the biggest impediment to starting your own company. - in return, you pay 10% higher taxes, which you don't miss one bit once you make that first million. The biggest reason the US is more entrepreneurial is purely cultural. In France, one of the biggest aspirations is to go to Polytechique and become a bureaucrat. In the US, that's for lazy people who want a secure job. So France has a much better bureaucracy and a much worse entrepreneurial scene.
  - anamax 16y ago
    > As opposed to the US where everybody over the age of 30 is afraid to quit their jobs to start their own company because they'll lose their health insurance? I've paid health insurance out of pocket and it's no big deal (compared to rent and other expenses). Considering that I'm over 50.... And before you write "pre-existing conditions", "remember" that if you don't go without coverage, you can switch with no waiting period. (I suppose folks without pre-existing conditions can be excused for not knowing that, but if they're going to make arguments about pre-existing conditions ....)
  - InclinedPlane 16y ago
    Afraid? Perhaps. But even so the American job market and economy is far more dynamic. A lot of people over 30 do quit their jobs and start their own companies.
BobbyH 16y ago
Krugman's article seemed to be a relatively unbiased summary of an academic area called Optimal Currency Area: http://en.wikipedia.org/wiki/Optimum_currency_area http://en.wikipedia.org/wiki/Optimum_currency_area A "Currency Area" has benefits and drawbacks. The benefits are mostly microeconomic in nature. For instance, if I can contract to buy something from you in the future without having to hedge currency risk or change money, that's a benefit. The drawbacks are mostly macroeconomic in nature. For instance, Germany is doing OK now while Greece is suffering. However, they share one currency (the euro). If they had two currencies, Greece could devalue its currency, which would boost its economy. The drawbacks can be mitigated by things like labor mobility, e.g. Greeks fleeing Greece to go to Germany where the economy is better. This happens in the US all the time. However, Greeks and Germans don't share a language, so this limits labor mobility. Similarly, price/wage flexibility is important, but again, Europe does poorly on this test because its unions and work rules. Another way to mitigate currency area drawbacks is for the region to have a "transfer union" that can use fiscal policy to spend more money in struggling regions. However, Germans don't like the idea of giving money to profligate Greeks who waste it (this is their view). All in all, most economists don't think that Europe is an Optimal Currency Area and that weak countries will be kicked out of the Eurozone.
bd_at_rivenhill 16y ago
A couple of places where I disagree with Krugman: ...as the earlier Ireland-Nevada comparison shows, the United States works as a currency union in large part precisely because it is also a transfer union, in which states that haven’t gone bust support those that have. I disagree strongly with his Ireland-Nevada comparison because the US Federal government is currently bailing out homeowners and banks who got into trouble as a result of Federal policy. The fact that the US housing bubble was most severe in California, Florida, and Nevada has little to do with the state and local government policies there and more to do with geography and migration patterns related to demographics. In Europe, the Germans are basically being asked to bail out governments who got into trouble as a result of malfeasance or bad policy that had nothing to do with the German government. Until the Feds start explicitly bailing out states like California or New Jersey (which could certainly still happen), it seems to me as if they are really just bailing out themselves. Since these bonds (E-bonds) would be guaranteed by the European Union as a whole, they would offer a way for troubled economies to avoid vicious circles of falling confidence and rising borrowing costs. They would also offer a way for these economies to take advantage of lower interest rates to continue to act irresponsibly, which seems a likely scenario given the history of this situation. Political institutions (and people) being what they are, it seems like extreme amounts of pain is likely to be the only effective tool to get them to actually move away from spendthrift policies. The Euro would probably be in a better position if it came with an explicit requirement that the bonds of member countries could not be purchased by the Union itself or by other Union members, which might have reduced the appetite for the bailout trade that major banks were so happy to engage in (although such guarantees can certainly be circumvented, as the Argentine example shows).
macco 16y ago
I really take a bow. This article show why this man has won Nobel Prize. It is really tough to explain such a complicated problem with so easy to digest words. BTW I am German.

18 points by ssp 16y ago

Only read the first page. But, it sounds like a better title would be "Can the Euro Be Saved?"

Like always, mr. Krugman gets it wrong. Of course he blames the single currency, when he should have blamed things like "rules governing worker firing helped limit job loss, while strong social-welfare programs ensured that even the jobless retained their health care and received a basic income.". There's one thing that I've learned as a programmer, there's no silver bullet, you can't have both "strong" social programmes and a dynamic and versatile economy. You can't both stay at home doing nothing for most of the day (look at the 35-hour week in France, for example) and still dream at a life-style consisting of holidays abroad and 2 cars per family.

9oliYQjP 16y ago
I have a lot of family in Europe. It wasn't the social programs that led to their current problem. They were vacationing and dining out on credit cards, accumulating lots of revolving debt, and acquiring rental properties that were supposed to pay for all of this. Of course, since everybody else in the middle class was attempting the same strategy, it became a bubble. Essentially, Europe is in much the same mess as the U.S. is for a lot of the same reasons. However, because the U.S. is a single country and Europe isn't, getting out of the mess is a very different problem.
khafra 16y ago
When I read a critique of an article that starts with a personal attack on the writer, I take the critique much less seriously.
- paganel 16y ago
  > When I read a critique of an article that starts with a personal attack on the writer, I take the critique much less seriously. I don't have anything personally against Krugman, why would I? It's just that when you write a 8-page article in the NY Times bashing the Euro and you don't mention the protests in Hungary (http://en.wikipedia.org/wiki/2006_protests_in_Hungary http://en.wikipedia.org/wiki/2006_protests_in_Hungary), which practically demonstrated that an European country not affiliated to the Euro cannot devalue its currency, then I'd say you deserve being criticized by anonymous guys like me on the internets.
  - khafra 16y ago
    I'm not saying your critique is wrong (although I'm not sure how programming taught you that putting in more hours always means getting more work done), just that "Like always, Mr. Krugman gets it wrong" crosses the line from attacking the argument to attacking the arguer.
bryanlarsen 16y ago
As opposed to the US where everybody over the age of 30 is afraid to quit their jobs to start their own company because they'll lose their health insurance? And I see lots more Americans staying at home getting fat in front of the TV than I do Europeans. - 5 extra hours a week and 4 extra weeks of vacation a year just give you more time to work on your side projects to get out of that corporate job quicker. - in some countries, unemployment insurance provide resources to help you start your own company - "overseas vacations" are a lot cheaper cause you can buy a plane or train ticket for 50 euros to get to the Mediterranean - Nobody wants two cars because they provide more hassle than benefit in an area where everything is close by and available via public transit that's clean, convenient and used by everybody, not just the poor. - but most importantly, if you fail, you know that your kids won't starve and that your own retirement will be comfortable. As everybody knows, fear of failure is the biggest impediment to starting your own company. - in return, you pay 10% higher taxes, which you don't miss one bit once you make that first million. The biggest reason the US is more entrepreneurial is purely cultural. In France, one of the biggest aspirations is to go to Polytechique and become a bureaucrat. In the US, that's for lazy people who want a secure job. So France has a much better bureaucracy and a much worse entrepreneurial scene.
- anamax 16y ago
  > As opposed to the US where everybody over the age of 30 is afraid to quit their jobs to start their own company because they'll lose their health insurance? I've paid health insurance out of pocket and it's no big deal (compared to rent and other expenses). Considering that I'm over 50.... And before you write "pre-existing conditions", "remember" that if you don't go without coverage, you can switch with no waiting period. (I suppose folks without pre-existing conditions can be excused for not knowing that, but if they're going to make arguments about pre-existing conditions ....)
- InclinedPlane 16y ago
  Afraid? Perhaps. But even so the American job market and economy is far more dynamic. A lot of people over 30 do quit their jobs and start their own companies.

BobbyH 16y ago

Krugman's article seemed to be a relatively unbiased summary of an academic area called Optimal Currency Area: http://en.wikipedia.org/wiki/Optimum_currency_area http://en.wikipedia.org/wiki/Optimum_currency_area A "Currency Area" has benefits and drawbacks. The benefits are mostly microeconomic in nature. For instance, if I can contract to buy something from you in the future without having to hedge currency risk or change money, that's a benefit. The drawbacks are mostly macroeconomic in nature. For instance, Germany is doing OK now while Greece is suffering. However, they share one currency (the euro). If they had two currencies, Greece could devalue its currency, which would boost its economy. The drawbacks can be mitigated by things like labor mobility, e.g. Greeks fleeing Greece to go to Germany where the economy is better. This happens in the US all the time. However, Greeks and Germans don't share a language, so this limits labor mobility. Similarly, price/wage flexibility is important, but again, Europe does poorly on this test because its unions and work rules. Another way to mitigate currency area drawbacks is for the region to have a "transfer union" that can use fiscal policy to spend more money in struggling regions. However, Germans don't like the idea of giving money to profligate Greeks who waste it (this is their view). All in all, most economists don't think that Europe is an Optimal Currency Area and that weak countries will be kicked out of the Eurozone.

bd_at_rivenhill 16y ago

A couple of places where I disagree with Krugman: ...as the earlier Ireland-Nevada comparison shows, the United States works as a currency union in large part precisely because it is also a transfer union, in which states that haven’t gone bust support those that have. I disagree strongly with his Ireland-Nevada comparison because the US Federal government is currently bailing out homeowners and banks who got into trouble as a result of Federal policy. The fact that the US housing bubble was most severe in California, Florida, and Nevada has little to do with the state and local government policies there and more to do with geography and migration patterns related to demographics. In Europe, the Germans are basically being asked to bail out governments who got into trouble as a result of malfeasance or bad policy that had nothing to do with the German government. Until the Feds start explicitly bailing out states like California or New Jersey (which could certainly still happen), it seems to me as if they are really just bailing out themselves. Since these bonds (E-bonds) would be guaranteed by the European Union as a whole, they would offer a way for troubled economies to avoid vicious circles of falling confidence and rising borrowing costs. They would also offer a way for these economies to take advantage of lower interest rates to continue to act irresponsibly, which seems a likely scenario given the history of this situation. Political institutions (and people) being what they are, it seems like extreme amounts of pain is likely to be the only effective tool to get them to actually move away from spendthrift policies. The Euro would probably be in a better position if it came with an explicit requirement that the bonds of member countries could not be purchased by the Union itself or by other Union members, which might have reduced the appetite for the bailout trade that major banks were so happy to engage in (although such guarantees can certainly be circumvented, as the Argentine example shows).

macco 16y ago

I really take a bow. This article show why this man has won Nobel Prize. It is really tough to explain such a complicated problem with so easy to digest words. BTW I am German.