Totally Twitty Fiskin of Antoine Levy

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Dan Crawford
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(Dan here…lifted from Roberts Stochastic Thoughts)

Totally Twitty Fiskin of Antoine Levy

Antoine Levy has some ideas about how the European Central Bank could help uncompetitive economies on the European perifery. I would like to read it and decide if he has good ideas. Unfortunately, to do so, I have to sfogare (let off steam) with some francophobic Euroskepticism. This is therapy. don’t waste time reading it”The euro improved the credibility of monetary policy for many member states, but ” You keep using that word. I do not think it means what you think it means. What is this “credibility” ? Why is it desirable ? It is a magic word. it’s origin was the claim that credibile disinflation would not cause high unemployment. I suffer from a bileous humor when the moon is in the 7th house, Jupiter aligns with Mars, and I read “credibility”. I propose a definition “credibility is that all of which has been lost by those who insisted Europe could have balanced budgets and tight money without decades of enormous unemployment”. Chemists don’t often talk of phlogiston and thermodynamicists haven’t tried to weigh caloric in centuries, but economists still use “credibility” as a magic word which (in the VoxEU post only partially) justifies policies which have caused vast suffering.

In any case, credibility certainly does not mean consistently missing a declared target, nor is it consistent with “below but close to” being used in definition of that target.

“At the time of its inception, the euro area was often derided by (mostly Anglo-Saxon) economists as an incomplete and sub-optimal currency area. According to its detractors, the union lacked enough private and public risk-sharing channels, and factor mobility, to justify relinquishing monetary sovereignty (e.g. Eichengreen 1992).” I submit that “Eichengreen” is not an Anglo Saxon name (unless his ancestors came over straight from Saxony). Barry Eichengreen is no more Anglo-Saxon than I am. The USA is not an Anglo-Saxon country. We are of all ethnicities. The two words used to indicate people who use English as a means of communication is “human being” (I note that the quote snearing at Anglo-Saxons is written in the bastard language born of Anglo-Saxon and Norman). The word for people who’s first language is English is “anglophone.” Most of us are neither Angles nor Saxons.

“After a decade of apparent success, both in the convergence of living standards and in the stabilisation of monetary aggregates,” Odd priorities. The first claim is not, I think, well supported by data. Italy fell further behind the core during that decade, and Italy is considerably larger than Ireland and Greeced combined.

“It is widely considered that, while the euro improved the credibility of monetary policy in many member states that had previously been relying on frequent depreciations to maintain competitiveness, it may have done so at the expense of sorely needed monetary autonomy in crucial times. ” In other words, while the Euro is good because it prevents countries from relying on frequent depreciatino to maintain competitiveness, it is bad because it prevents countries from relying on frequent devaluations to maintain competitiveness. The crucial times are time when a devaluation of the Greek, Spanish, Portoguese and Italian currencies are long long over due. The conviction is that without the crutch of devaluation we would find a way to compete. Oddly, Europe doesnt’ kick away the actual crutches used by paraplegics. Nor do European physicians rely on bleeding patients. I can only hope that European economists will reach the 1900 level of European medical science before I die.

Is there a way to improve stabilisation mechanisms in the euro area, while preserving the trade-enhancing and institutional benefits of integration afforded by the common currency? What trade enhancing benefits ? It is possible to measure them using a natural experiment. If they are non-negligible, then Denmark’s trade will have grown less compared to Euro block countries. If this were the case, I would have heard of it. There is, I think, essentially no evidence that the Euro has had any trade-enhancing effect. It clearly had a housing bubble enhancing effect. I don’t know what an “institutional” benefit might be. I can only assume that it is a declaration that the less democratic influence there is on policy the better. The case was not that democracy is vulgar in itself. It was promised that technocracy would give better results. The post would not exist without proof that this promise was broken. The soi-disant* technocrats know little about technique, they are, in fact, oligarchs who speak power to truth, that is, to the data.

I’ve agreed with a many lines but now ” These misalignments, in turn, required internal devaluation and painful fiscal consolidation,” They did not. The painful fiscal consolidation was imposed by the stability and growth pact. It was not required by anything else. Why has painful fiscal consolidation not been “required” of Japan ? Tell me about the painful fiscal consolidation of Iceland ? I hate to admit it, but Republican fiscal insanity in the USA has not had painful effects — because we aren’t bound by the stability and growth pact which is the cause of vast suffering.

OK I get to the proposal. It is based on the assumption that asset purchases matter even if the returns on the assets are identical. It is just assumed that demand in a country is stimlated if the ECB purchases bonds issued by that country’s government. No reason is given for this assumption. Levy admits that there might not be “first order” effects, Here I think “first order” is being used as a fancy way of saying “any” or at best “measurable”. The final argument is that there can’t be exchange rate stability and autonomous monetary policy along with free capital flows. No reason is given why free capital flows are required. No costs of pre-1992 capital controls are discussed. No advantages of eliminating them is asserted.

I’d say the problem here is that the discussion takes as granted the assumptions that EU efforts since I arrived in Europe (1989) have been basically sound and just need to be tweaked a bit. The possibility that the Euro was a mistake, that the 1992 single market was a mistake, and the stability and growth pact was an insane mistake are not considered. The discussion is limited to a proposal whose effectiveness is not asserted by its author, just on the grounds that the many policies which have worked in other continents are just ruled out and unmentionable in decent society.

* vedete quanto sono non anglo-sassone