Not wanting to be outdone by Martin Feldstein, Laurence Kotlikoff (recently based known for his Limited Purpose Banking proposals) is the latest US-based economist to bring his analytical skills to bear on the Greece’s problems to diagnose an instant solution:
Is there some way that Greece can devalue without devaluing?
There is, indeed. The government can implement wage and price controls for, say, the next three months, with these controls covering not just the growth in wages and prices over the next three months, but also their initial levels. Specifically, the Greek government would decree that all firms must lower their nominal wages and prices by 30 per cent, effective immediately, and not change them for three months. After three months, everyone would be free to put prices and wages back up.
This is an interesting proposal. Indeed, if this decree-based approach proves to be successful, it could then be applied to other areas. For instance, in the sphere of justice, the Greek government could decree that people should obey the ten commandments. And, if it works in Greece, we should try the decree approach here. After all, we’re all in favour of evidence-based policy formulation.
23 replies on “Today’s Instant Solution to Greece’s Problems”
“After all, we’re all in favour of evidence-based policy formulation.”
Evidence-based, maybe, but what is this “policy” whereof you speak?
From that column: “Laurence J. Kotlikoff is professor of economics at Boston University. ”
ISTR at least one other flat-out whackjob from there; is that where Harvard sends the guys even they don’t want to show in public?
Titter ye not, It’s Ludicrus Maximus – When the Forum Loses Its Decorum!
My favourite bit, though, is in the first paragraph:
“Prices and wages within Greece are too high and can’t readily be adjusted downward…This, together with profligate government spending, is the generally accepted explanation for the run on Greek bonds.
[b]I know too little about the Greek economy to agree or disagree with this prognosis.[/b]”
But hey, that’s not going to stop me!
Somebody’s been slipping happy juice into the Charles River.
Americans struggle intuitively with SOE macroeconomics. I think it’s because the exchange rate of the $ has been equal to 1 for so long.
There is a real market opportunity here for the sponsors of this site, as English-speaking economists who know SOE macro and the workings of the euro area. The US media’s idea of getting a European perspective on the Greek crisis is to call up media, academic or market people in England (presumably because it’s convenient. These are usually smart enough, but in no way qualified to give a view from inside the euro zone (and in some cases unable to conceal their antipathy for the euro). Go for it!
Colm McCarthy says..”I think it’s because the exchange rate of the $ has been equal to 1 for so long.”
The apparent failure of a 30 year Treasury auction last week maybe an inflection point in the downgrading of the reserve currency.
Indirect bidders were 28% as opposed to the normal 36-40% .
There was a massive jump in direct bidding which is mostly secretive but suspicions are the Fed was buying in secret in addition to the high total of 11% that is known it purchased.
There is some merit in the suggestion!
It is currently based on government induced fantasy. So unlikely to work as Karl’s humour shows.
To actually capture the hearts and minds of the enslaved and deluded, some facts and calculations, (rest calm mes amis, economists slaver at the word calculations!) may be necessary.
Let us disconnect current prices and determine values instead! 30% may be accurate, by God! But probably not. For the EZ as a whole and from Greece and all the other nominally sovereign constituents.
All the bubble value should be extracted and explained to the population, once a day, for the next two years. Eventually, people will accept that fractional reserve banking is a dangerous weapon in the hands of psychopaths and that more than a mere licence is needed!
State banks! Aaaah! State banks will conduct all clearing and retail banking operations. After all, we have now established that states must pay for all banking losses and bonuses! A crisis, is so useful for understanding reality.
His proposal may then receive a more polite hearing. Naturally, the US population cannot be allowed to be exposed to that explanation. I think his colleagues may shut him up very quickly!
This is the beginning then. Another assault on the populace by those involved in terror may be necessary. In WWII and WWI despite the recession, billions in bonds were raised, amid patriotic fervour.
Oh dear. The insane in charge of the manic an stupid….. the long term effects of illegal and legal drugs on populations is surely something worthy of study? I understand that the media in the USA are all powerful ion maintaing the desired illusions. Perhaps a more pinpointed attack than on their entire economy would be more merciful? But wiser heads are in charge.
What makes you think there is a solution? Government sponsored fantasy that there is a cure for every ill? When values have been inflated and then destroyed. What happens? Adjustment with loss of entire industries….
@colm – indeed!!
Intersting that Koltikoff cites the large swings in pertrol prices as evidence that prices are nto sticky in the US – he must not have followed the price of oil over the last couple of years!
It is remarkable though that some people across the pond seem to think that those running Europe need some of their ‘good advice’ – “In-
Out-In ‘Currency Unions'” and now “State Controlled Prices” akin to what was practiced behind the Iron Curtain!!
The article in the telegraph is interesting (thanks @Pat Donnelly) in that it raises more seriously the possibility of Greece not being bailed out. Those in favour of a bailout will argue that anything else is going to totally undermine the Euro. Those against a bailout will argue that the membership of Greece in the EZ totally undermines the Euro.
As has been mentioned, the USA is finding it difficult to unload dross, borrow money from non americans………. Interest rates are rising……
Don’t you just love instant solutions and sticking plasters?
Anyway, I’m trying to think of a line along the lines of “What’s the difference between Ireland and Iceland?” but coming out as “What’s the difference between the Greeks and the Greens?”….. in light of the recent ‘evidence based’ support given by the Greens to Mr O’Dea.
All suggestions welcome.
The Greeks are fighting back!! The Handelsblatt reports that Greek politicians are annoyed about the German government’s approach to the Greek Tragedy.
Aparently the government wants to see concrete plans while one left wing politician had a go at Germany over unpaid (and unpromised) compensation to the Greek victims of the Second World War. He also asserted that German banks were making money at Greece’s expense.
I suspect this is going to go down just as well as the Greek prime ministers statement last week that this is really a EZ problem. German public opinion is firmly against any bailout.
whats that phrase about not biting off the hand that feeds you….
Apparently petrol is being rationed in Greece as the strike by customs officials is stopping supplies from getting to the pumps.
@Karl Whelan, Com McCarthy
These wheezes are proving contagious. In today’s FT Sam Brittan supports Feldstein’s scheme and also makes the incredible statement that countries with their own currency “can pursue a fiscal policy attuned to domestic needs, without being dependent on the international bond market”. Tell that to Iceland …
The dirt tracks around Merrion Square are getting crowded with all the recovering ayneen_randites and fundamentalist chicago_ites and fried.bread.mandites ……. might I sugges that we not overload the blog (hence protecting the dirt tracks) with the patently disoriented drivel from all those leading economic lites who are stuggling to come to terms with the collapse of their foundational assumptions in mid to late 2008. We do have a duty of care and it is ethically and morally questionable to discuss their existensalist struggles in the public sphere. Poor dears!
Update: Mairrt_een Felt_steen and Mokababybob are doing OK, but still struggling to handle the counter-clockwise direction. No evidence to support the rumour that a few distinguished Irish economists, mostly silent in recent times, have been spotted peering over the wall (-;
… and the Germans are fighting each other! Monty-Python at its best … but more into the Latin and the Roman as distinct from the Greek … the Ff_dee_pee and the Cee-S_D must be driving Angela nuts at the mo. What odds she dumps the Ff_dee_pees and cuts a deal with the Left? Or casts some admiring glances in the direction of her X – the social democrats?
@David O’Donnell – indeed, the dream coalition is rapidly turning into the nightmare coalition. Interesting too that the FDP are starting to fight with each other – we are getting into full scale riot territory. The Chancellor is not amused.
I suspect though that the one thing they can agree on is Greece!