European Commission on fiscal multipliers

This post was written by Philip Lane

The European Commission has engaged in the ‘battle of the boxes’ with Box 1.5 in its new report a direct response to the IMF box on fiscal multipliers.

12 Responses to “European Commission on fiscal multipliers”

  1. David O'Donnell Says:

    Following the impenetrable and the basket of qualifiers …. I finally understood this bit of the box:

    “In general, a case-by-case approach to
    consolidation is warranted, whereby the speed of
    fiscal adjustment should be differentiated according
    to country-specific fiscal and macro-financial risks.”

    Phew! So, with Holland and Portes - time, timing and context matter.

  2. Aidan R Says:

    No amount of hiding behind technical jargon can avoid common sense rationality. Coordinated austerity across the Eurozone in the current global economic climate is killing economic and employment growth - and will continue to drive up the debt-GDP ratio in countries such as Ireland. It will not and cannot work.

    These technical abstractions simply increase the political space for business and financial interests to prevail.

  3. Joseph Ryan Says:

    @Philip Lane

    You are correct. The ‘Battle of the Boxes’ is about as good a description as one could give this nonsense.

    In order to defend a failed policy that has wreaked havoc, and that used specific multipliers that they considered appropriate at the time ,we are reduced to absurdities like;
    “The general conclusion fro macroeconomic models is that there is no single multiplier.” while going on to list a plethora of reasons why a multiplier might vary. An obfuscation being used as an excuse.

    Maybe it is time to put aside mathematical analysis based on irrelevant, out of context and out of time historical comparison and go back to basic logic.

    A person earning €500 net per week will spend all (100%) of it because he has to in order to survive. A person earning €5000 net per week will spend probably 20% of it, the balance being saved.
    Right now that saving is going nowhere. Yet the policy worldwide is to allow the person with €5,000 to keep all his money, even though it is being saved and to pummel the person on €500 per week, even though he spends all his money.
    When will the penny drop with these people, that wealthy people will hoard their money in bad times. The wealthy will not spend it. The poor must spend it. So if you want to keep up aggregate demand, do not hit the person on lower income.

    Maybe the penny has dropped. Maybe the policy makers know all this. I am sure they do. Maybe multipliers are just another ideological tool in economics to come up with the answer that suits the agenda that has already been decided on.
    So what multiplier do want today?
    We have any colour you want to suit whatever agenda you want.

  4. Shay Begorrah Says:

    @Aidan R on the European Commission’s tragi-comedy gold approach to macro-economics.

    These technical abstractions simply increase the political space for business and financial interests to prevail.

    The European Commission is more invested in protecting its idealogical prejudices and class interests then in preventing the European component of the global financial crisis from worsening the common good (something they may not even believe in). The defence of collective austerity has long gone beyond Jesuitical and into Jim Jones territory.

    Unfortunately I think your prior optimism that the EU elites will eventually join the reality based community is misplaced. The currently dominant factions in European institutions have too much political, personal and financial capital invested in “staying the course” with “strong determination” to consider backing down - even in the face of incontrovertible evidence.

    In the face of such sustained neoliberal fanaticism Ireland may need to assume a more Danish relationship to the EU. Friendly but detached.

    I think next March’s ritual sacrifice of money to the Euro-system would be a good time to leave the cult.

  5. Brian Woods Snr Says:

    @ DO’D: You beat me to it on that last para. How about that para before ‘Concluding Remarks’? Its mindbendingly obvious. So why say it?

    Why even bother doing the analysis if your raw data is known (and accepted) as being unreliable. Not to mention the known and also acknowledged un-reliability of you basic measuring instrument. “Who are these guys?”

    If you have a G*P of 100 units and you ‘inject’ 1 extra unit into your G*P then presumably, if you can do simple math (and your measuring instrument is kosher), the measured G*P output should now be 101.

    If not - then where are the ‘leakages’. Maybe there is an additional revenue return of 0.2; but then where is the 0.8? If your reliably un-reliable measuring instrument gives you a reading of 100.4 - have you ‘lost’ 50% of the nett input?

    This sort of Crapola has all the hallmarks of Hopium addiction.

  6. David O'Donnell Says:

    @Brian Woods Snr.

    “While fiscal multipliers are low in the very open Irish economy … ” (p. 63)

    No comment!

    Those whom the gods wish to destroy they ideologically sprinkle neoliberally and spin unashamedly …

    Time to check out another acre o spuds and an extra bank o turf …

  7. Aidan R Says:

    @ Shay Begorrah

    “The currently dominant factions in European institutions have too much political, personal and financial capital invested in “staying the course” with “strong determination” to consider backing down - even in the face of incontrovertible evidence”

    I fear you maybe right. But what is more worrying is that they cannot be voted out of office.

  8. Aidan R Says:

    For anyone in or around Germany in two weeks. Mark Blyth will deliver a public lecture at the Maz Planck Institute:

    Austerity: The Intellectual History of a Dangerous Idea

    http://www.mpifg.de/aktuelles/Veranstaltungen/Vortraege/2012-11_Blyth.asp

  9. Shay Begorrah Says:

    @Aidan R

    I fear you maybe right. But what is more worrying is that they cannot be voted out of office.

    It turns out that at high levels in international institutions “independent” is synonymous with “unaccountable”. In retrospect it was absolutely wrong headed to proceed to the level of EU control over economic and monetary policy we have now without some popular democratic checks on its power. We have technocratic policy makers the status of the judiciary.

    The more you think about it the more intractable the problem seems.

    Like the rest of the European Commission Ollie Rehn’s term does not expire until 2014 while the ECB’s charter will never be changed as long as the German bloc remains its current neoliberal with added currency fetishation pallor.

    We should retire to a safe distance if possible, if that it is not possible we need to make the crisis politically costly for the current policy makers.

    Which brings us back to next March’s Irish Wicker Man celebration of fiscal tightening in aid of the financial sector.

  10. Aidan R Says:

    @ Shay B

    “To make the crisis politically costly for the current policy makers”

    Indeed. But this will not remove the intellectual and ideational hubris that underpins European institutions and a lot of Irish economic commentary. When one can hide behind complex mathematical arguments to prescribe dangerous ideas it is hard to hold anyone to account. What history has shown us is that from the Cold war period onward is that was those countries who refused western US/IMF/Chicago school advise that managed to secure a relatively prosperous future. Those who took it (a lot of countries in Latin America, west Africa and Russia) got demolished. Why? Because the policy prescription, much like today, was based on a fictional market idea that had no empirical reality.

    Ireland is in a similar situation today. The only possibly of recovery is to refuse to accept the intellectual hubris of the ECB-EU Commission-IMF and Department of Finance consensus.

  11. Shay Begorrah Says:

    @Aidan R

    But this will not remove the intellectual and ideational hubris that underpins European institutions and a lot of Irish economic commentary.

    You will notice how quiet this thread is despite the awful implications of the European Commission being willing to dissemble about the effects and necessity of austerity in order to continue with its current failed policy.

    It is to deny the truth the oxygen of publicity. The advocate of the current EU economic and monetary policies are dangerous political extremists with some important sympathizers in Ireland.

    I think it is fair to compare they and their methods to those of the neoconservatives in the US after the September 11th attacks. They have clear goals: neoliberal economic reforms, diminished popular democratic control over monetary and fiscal policy (sensible rules instead!) and the privileging of capital over labour - more or less a classic twentieth century reactionary pose. They see the facts, or historical precedents, relating to the effects of austerity as utterly irrelevant.

    Why? They are not trying to deal with the consequences of the European component of the global financial crisis, they are using the crisis to remake Europe. Austerity is not a means, it is an end. See J W Mason’s lovely blog post Pain Is the Agenda: The Method in the ECB’s Madness.

    I think it is probably a waste of time engaging with the right of the economics profession as if they could be persuaded by reason and make the political nature of this inflicted crisis clear.

  12. Fungus the photo Says:

    Banking is an anglo-saxon weapon. Formed elsewhere, it has been most effectively employed in England and amongst its perceived enemies.

    Using it, creates pools of cheap labour and dashed expectations. It enables largesse from those who feed off of it. All who trust in nominal government are left confused. Bruton elder has said no one should be held accountable for falling into the banking trap. We are left therefore with no trustworthy leaders.

    Combine this with faulty weather causing famines and we have the French Revolution. Assuming this is avoided, we shall have population flight to wealthier countries, where largesse and investment is still possible.

    Mal-investment goes hand in hand with excessive debt creation. Once false employment in the FIRE sector has been eliminated, it will be possible to resume rational fiscal policy …. in a decade or so, or until NAMA is eliminated.

    I see Japan is now collapsing! Imperial ambition required a Plutonium facility, now under water, so to speak, and retention of disputed islands. Not possible to act as a lion next a dragon? Similar problem in Ireland ……. ?

    Consider the likely fate of Switzerland? Surrounded on all sides by the Euro-zone! They may have mined all the tunnels and bridges, but can they grow their own food? For once, depopulation means Ireland looks viable!

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