He has a new post where he argued that she has it all right and President Obama has it all wrong; indeed, he thinks the President's call for Merkel to roll back her demands for austerity is just 'horrible'-his exact word.
"This advice would have merely added to the eurozone debt woes, without doing anything to promote recovery, Even worse, most of the countries lacked the ability to spend more, as the markets were worried they might default on their debts. Germany could have spent more, but any extra demand in Germany would have been offset by even less growth in the other countries, leaving total eurozone AD unchanged. That’s the real “beggar-thy-neighbor” policy."
"Scott always likes to say "Don't reason from a price change" yet price changes are how everyone determines inflation. Price changes would also determine N-GDP. He's only wanting to target nominal GDP (you know I don't really like that term) which of course includes inflation. "
"This advice would have merely added to the eurozone debt woes, without doing anything to promote recovery, Even worse, most of the countries lacked the ability to spend more, as the markets were worried they might default on their debts. Germany could have spent more, but any extra demand in Germany would have been offset by even less growth in the other countries, leaving total eurozone AD unchanged. That’s the real “beggar-thy-neighbor” policy."
"People reading this will probably assume I’m making wacky market monetarist claims again. But unless I’m mistaken Paul Krugman agrees with me. After all, he has repeatedly said that when not at the zero bound, central banks determine the path of inflation. The eurozone was not at the zero bound in 2011, and indeed the ECB was repeatedly raising rates to slow inflation. Had there been more fiscal stimulus, the ECB would have raised rates even more, offsetting the effect. That’s what an inflation target means. If you don’t like it, then don’t target inflation."
http://www.themoneyillusion.com/?p=28695&cpage=1#comment-379862
Ok. Let's not target inflation. Inflation targeting was always a terrible idea anyway. I mean it was a real conservative victory, which came ironically, just at the time that the US Congress made the legal mandate of the Fed to target both inflation and unemployment.
As I just said in a conversation with Greg, I do think that an NGDP target might be a step up over inflation targeting though Greg criticizes NGDP targeting as well.
"I agree there are problems with targeting inflation, mainly because "inflation" is a man made problem. Its a finance term not a real economy term. Price increases are not inflation per se. And yes prices can increase for demand or supply reasons.
Still to consider growth as well as inflation could be a step up even with Greg's point taken. At least as a second or third best policy.
In the comments section, Sumner reitereated something he's said before-that any debt relief Greece gets must be done in exchange for 'structural reforms' like lowering the minimum wage, etc. The usual Right wing suspects.
In that vein, Tony Yates had a recent post that suggests that whatever 'structural reforms' Greece might need might take on a quite different hue for a country like Greece.
https://longandvariable.wordpress.com/2015/02/10/greece-acemoglu-and-robinson/
In the case of Greece structural reform might mean a stronger state to deal with private 'oligopolists' that have too much control.
In a recent piece of Sumner over at Econlog he talks about those who are literate or illiterate to discuss economic matters.
"I don't think many people would be insulted if you told them that they are not qualified to debate quantum mechanics, or biochemistry. But they do get offended when you tell them they are not qualified to debate macroeconomics. Why is that?"
"Perhaps because people can immediately recognize that fields like physics and biochemistry are way over their heads, but macro looks deceptively simple. Macro uses a lot of terms like money, saving, interest rates, investment, income, demand, unemployment, inflation, exchange rates, debt, deficits, etc., that seem to correspond to things in our everyday experience. And we obviously do have opinions on things in our everyday experience. And we are entitled to those opinions. But in fact almost none of these terms mean the same thing in macro as in everyday life. Commenters are often puzzled by the S=I identity. How can it be an identity if I were to decide to put some money under my mattress and yet investment did not rise at that same moment? They don't realize that putting money under your mattress is not what macroeconomists mean by saving."
"And the same is true for the others. When people hear about the Fed pumping money into the economy they wonder who the lucky duckies are that get all this money. They think of money as being like wealth. "Bill Gates has a lot of money." Um, no he doesn't, not 'money' in the sense that I use the term (cash and bank reserves.) It also makes a huge difference to a macroeconomist whether you are talking about real or nominal exchange rates, and yet most people don't know the difference. People often don't know that home building is capital investment, and contrast people who "save" with those who "spent" money on a new house (a nonsensical statement to a macroeconomist.) They think an unemployed person is an adult without a job. They don't know the difference between supply-side and demand-side inflation, and hence think inflation reduces living standards. They think deficits are bad because, well because they sound bad. Or because families have to live within their means. Or because current account deficits mean we are exporting jobs (not true.) Or that current account deficits mean we are borrowing money from the rest of the world (not true, although even some macroeconomists believe this one.) Or that "income" is that stuff you report on your 1040 form. Or that the "G" in the GDP=C+I+G equation is government spending. Or they think demand means something like "amount purchased." Or they confuse the money market with the credit market. BTW, the media feeds these misconceptions."
http://econlog.econlib.org/archives/2015/02/have_an_opinion.html
So when Merkel says 'You cannot new debt to old debt' she's not saying anything silly like all these examples.
P.S. Sumner's discussion here of being economically illiterate did piggback on a column Krugman had written about Michael Kinsley going inflationphobe without understanding economics.
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