Economists need a holiday

July 23, 2009

The economic crisis is steep, worsening. Green shoots this spring proved elusive. Except in China, for which a generally pessimistic IMF forecasts 7.5% growth this year, where the stimulus package, tough government intervention, and probably some data massaging provide for more growth than elsewhere. Some at Goldman Sachs believe even that China is going to pull us out of the recession – if one believes the message brought to Brussels last week. I am sceptical, as it appears – read here and here – that the Chinese government tends to persist in its past mistakes: the current mini-boom might well be short-lived. And are the Chinese rich enough yet to pull and the US Americans, and the Europeans, let alone all the others, out of their rut? [EDIT 24 July: Michael Pettis blogs about all these issues! Have a look.]

The press and specialized publications are full of irrational economics-bashing and laudable self-bashing economists (here and here), their status and self-confidence strongly shaken by their inability to stop the crisis from happening. More cool-headed analysis shows that the economics discipline remains as strong and interesting as ever (read here again), although some lessons will have to be learnt. As it turned out, many dangers were actually well known and well publicised, only no one wanted to listen. The boom times being what they were, some economists were also human, all too human,  enjoyed the spectacle of the global economic party of 2003-2007 and became less vigilant. Barry Eichengreen (here again) attributes this among others to the lucrative consultancy fees received by high-flying academics for speeches during luxury conferences hosted by the triumphant global investment banks. It seems of course true however, that economists must learn more about finance and vice-versa, this gap being one of the blind spots in the understanding of the world before the crisis. And the inherent instability of capitalism analysed by oft-disdained Marx and even Schumpeter has not died out, contrary to many recent views about the end of the business cycle. The Economist also had views on this economics issue last week.  

It seems to me that it is not so much the economists that should reassess their profession full on. It’s the financiers I am worried about. Goldman Sachs, primus inter pares among the maverick investment banks of late, is bullish: it has paid the highest bonuses ever to its employees. In the meantime the financial establishment apparently continues to dominate the scene.

This means either two things: the economy is not doing as bad as many say. Or financiers have not yet quite learnt their lesson and continue business as usual, potentially pulling us down even further a few months down the road. In either case, it seems that economists need to go on holiday – to be able to become more discernible again on what is actually really happening in the economy, and to take a well deserved break in these stressful times, since it really is not all their fault.

This morning I received my daily “Eurointelligence” newsletter that updates me on the main macroeconomic issues in Europe. It said: 

“Dear Readers,

The flow of good economic and news and commentary affecting the euro area has reduced to a trickle, so that we have decided to take a holiday. The news briefing will return on Monday, August 17.”

Happy holidays!


The Yekaterinburg BRICs and a closer look at their global reach

June 16, 2009

Today, Russia is hosting a summit of the BRICs, the emerging markets that seem to have only one thing in common, namely to have been lumped together by Goldman Sachs in 2001. The countries will discuss the global financial architecture and  their role in it. There’s lots of talk about them in the media. Let me pick up on two articles published in  Business New Europe today (subscription required), of which some abstracts below.

A first article reports on a map that was just developed of the actual global integration (investment, trade and migration) of the BRICs with the rest of the world:

“Consulting company Maplecroft has just produced the Emerging Powers Integration Index (EPII), which tries to go beyond the usual comparisons of GDP growth or trade and assesses just how dependant the rest of the world already is on the BRICs.


Read the rest of this entry »

Stinking euro-inertia

May 11, 2009

Not a very original idea for a post, to highlight an FT column everyone has probably read. But I am sure many people sitting here in Brussels and those expecting something from our good ole European Union in these days of trouble, sympathise with it – at least I do. Munchau’s column today says: “Like a fish, Europe is rotting from the head”. He said it. And yes, and the process really stinks.

Little complement to yesterday’s post

May 8, 2009

Please see previous blog post. I am adding this one to complement the discussion. Someone drew my attention to this very interesting article in the NY Times on a European welfare system ( a case study of the Dutch system) as seen by a US expatriate. “Going Ducth”, by Russell Shorto. Read the rest of this entry »

US and Western European social systems revisited

May 7, 2009

There is much talk about the US becoming “French“, “Swedish“, “socialist”….  because of its ongoing healthcare reform, stepped-up government intervention and high levels of public spending. This while the EU is having centre-right governments struggling to push through unpopular market-oriented reforms to boost economies that are lagging behind the US in dynamism. These are less prone to big hikes in public spending to sustain their economies in the ongoing crisis (not least because of a legacy of high levels of public debt and bigger welfare states).

The Wall Street journal today had an interesting feature comparing the fate of a laid-off industry worker in the US and in Germany and how the social systems in both countries affect their current well-being. Predictably: health care is the great dividing line. The US American also feels the crunch financially now, whereas the German has about one year to substantially start feeling the pain. Yet when reading the article with care one cannot avoid the impression that it looks overall rather equally tough on both sides, when it comes to uncertainty over the future. Which econonomy will ultimately be able to create jobs more quickly? seems therefore to be the fundamental question.

But are social systems between the US and EU so much different than is generally assumed? Read the rest of this entry »

Onslaught on the “financial oligarchy” from an unexpected corner

April 19, 2009

Who said IMF economists were bad guys serving the interests of financial globalization?

Simon Johnson, former IMF Chief Economist, is coming out in May’s edition of The Atlantic with a fascinating, highly provocative piece, on the collusion between the US’ “financial oligarchy” and the US government and how its persistence will contribute to prolonging the economic crisis. A long, but highly recommendable read. A few morceaux choisis: Read the rest of this entry »

Looking at another root issue behind the current economic crisis: housing policies

April 17, 2009

Somehow my modest insignificant little self can’t help thinking that the London G20 Summit (final communique here) and many national policies adopted to tackle the current economic downturn somehow haven’t been addressing a few core issues related directly to the current crisis. It’s been a useful feel-good and confidence-building event. But if one is to take an stringently rational approach to the crisis one would ask two simple questions: what has immediately caused the crisis? And what needs to be done in the future to avoid a repeat? This the G20 hasn’t done. Come to mind, for example: housing and mortgage policies, global macroeconomic imbalances and related monetary and financial policies. Read the rest of this entry »

Easter reading list

April 8, 2009

Whoever is wondering what good book to take home for Easter, a book with substance but that is not a dry academic treatise, maybe a few of the following recommendations might be of interest. I am not a person who is very good at keeping up with new book publications all the time, and who finds it important to catch up with old classics and books that are a few years old. The recommendations below reflect this. Read the rest of this entry »

Looking back at the G20

April 6, 2009

Two recommendations for those who want to take stock of the G20:

For French speakers, an excellent radio-show on France Culture with a few eminent French economists (if only that talent was allowed to have a greater say in the country…). One can listen to it until Friday.

And for other English-speakers who have read the newspapers, don’t miss the excellent warning and comment by the FT’s Alan Beattie today on G20, poverty, aid, etc: G20 pledges must amount to more than just hot air.

“Groupings that produce grandiloquent promises of international action are only worthwhile when they materially affect the domestic policy debates in their member countries. Breaking the G8 aid pledges has inflicted no significant political damage on anyone. (Italy is the worst laggard, and yet Silvio Berlusconi, one of the Gleneagles signatories, is back in power again in 2009.) In that regard, there is scant evidence yet that the G20 can perform any better than its widely discredited older cousin.”

G 20 week

March 31, 2009

Dear readers. I am pleased to announce that I will not feel obliged to comment on the G20 meeting.  Politically a very symbolic moment, because it aims to boost cooperation in the current global crisis, and because it enlarges the group of top decision-makers in the world economy from 7 (the G7 was created during the last big crisis in the 1970s) to 20 (roughly the economies that are responsible for most of the world’s production and trade), there is much doubt on what it can actually achieve. Anyway, my colleagues at ECIPE are doing a terrific job there at commenting on the crisis and the G20 from a trade policy perspective. A new paper is due out (see here: pb09011); there’s loads in the press as you will see on our website, where you can also subscribe to our newsletter and above all find a link to the quite provocative blog we have launched recently.