Spring 2013 Brookings Panel on Economic Activity

papers here.   Includes:

Portuguese Economic Slump Caused by the Large Capital Inflows that Came with the Euro
Clues as to What is Happening Europe-wide; Outlook for the Future is Grim
by Ricardo Reis

Over the past 12 years, Portugal has been in a severe economic slump—growing less than the US during the Great Depression and Japan during the Lost Decade—and that slump was mainly caused by the country’s inability to efficiently allocate the foreign capital inflows it received after joining the Eurozone in 1999, according to “The Portuguese Slump and Crash and the Euro-Crisis.” Because Portugal was one of the first countries where the symptoms of the sovereign debt crisis were initially identified, it can help macroeconomists understand what has been happening in Europe more broadly. Portugal did not have a housing boom like Spain and Ireland, nor as rampant an increase in public debt as Greece, nor does it have Italian political instability: yet, since 2010, all five countries have been in a similar crisis.

5 replies on “Spring 2013 Brookings Panel on Economic Activity”

Reis ascribes the 2000/2007 slump in Portugal to:

First, underdeveloped credit markets in Portugal implied that most of the capital inflows went to fund unproductive firms in the non-tradable sector. This causes productivity to fall and the real exchange rate to appreciate, and it took resources away from the tradables sector. Second, because of generous past promises on old age pensions, the Portuguese government continuously raised taxes between 2000 and 2007.


So banks were borrowing within the EMU to fund unproductive firms while productive or potentially productive firms were starved of resources?

He downplays the impact of the drop of tariffs on sectors such as textiles and footwear which saw sharp declines in exports – – total exports fell 33% to the EU15 in 2003-2008 while exports from China and Eastern Europe grew.

Brazil has imposed dumping duties on Chinese and Vietnamese footwear.

It’s not clear how deep the sectoral analysis changes was, as such analysis of just headline data in Ireland usually leads to wrong conclusions.

Do we really need more intellectually dessicated guff to ‘explain’ our emerging regional (and global) economic regression? Not really.

The causal explanation(s) are so mathematically simple that I can readily understand why the ‘academic’ brigade dismiss these explanation(s): they seek a Holy Grail!

If your incomes regularly exceed your expenditures – you have a problem! What’s so hard to understand here? A very great deal it seems.

Sure, there are may conflicting and confounding variables (and ludicrous economic assumptions), but at bottom its whether or not you have a surplus (or deficit) when you complete your (non Enron-style) accounting.

We WEIRDoes* have, for perhaps the past 4 – 5 decades, racked up fiscal deficits. Its like we had a credit card with no credit limit! But Nature WILL post a limit – and is doing so. But most economists are neither scientists nor engineers so they may have zero understanding of natural limits, the natures of these limits, how to recognize that we have crossed over the inner limits of the margins and how to stop and regress back out of the limit margin – without causing widespread social and political turmoil.

Can some economist – any economist, explain to me why every state on this globe can ‘enjoy’ a continually increasing (annual, compounding) surplus – and none will NOT encounter severe economic, financial, social and political problems? Well?

*Western, Educated, Industrialised, Democratic (societies)

@ MH: ” … analysis of just headline data in Ireland usually leads to wrong conclusions.”


ps: Mea culpa! Bloody weather!!

“If your incomes regularly exceed your expenditures” should actually read,

“If your expenditures regularly exceed your incomes.”

The underlying problem in Portugal is that parents have the same mindset as they did in Ireland up to the 1950s’. That is that their children finish school at 16 and go to work. Any education beyond age 16 is wasted.

This becomes obvious when the children of Portuguese drop out of school in the developed countries. Inquiries have been conducted to ensure that the Portuguese students were not being discriminated against. Parental attitudes were found to be the problem.

I believe that the problem is being addressed in Portugal but improvement will come slowly.

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