Mittwoch, 6. November 2013

Those Foolish Economists Hurray Its Blame Game Time (again)

A couple of days ago SPON reported about the furious response of German economic leaders, including a spokesperson of the german Wirtschaftsministerium, to some critical words found in a recent semiannual report of the US Treasaury. Now Paul Krugman wrote in the NYT under the head line "Those Depressing Germans":

"Furthermore, as it happens, Germany isn’t blameless. It shares a currency with its neighbors, greatly benefiting German exporters, who get to price their goods in a weak euro instead of what would surely have been a soaring Deutsche mark. Yet Germany has failed to deliver on its side of the bargain: To avoid a European depression, it needed to spend more as its neighbors were forced to spend less, and it hasn’t done that.
German officials won’t, of course, accept any of this. They consider their country a shining role model, to be emulated by all, and the awkward fact that we can’t all run gigantic trade surpluses simply doesn’t register"
While I agree to the extend with Krugmans macro economic analysis, that not every one can generate surpluses but there must be deficit counter parts, I like to remind him to this list, that not only shows Germany, China, Saudi Arabia and Japan leading the list with tremendous current account surpluses, but also shows the US at the other side of the spectrum with an outrageous current account deficit for decades now. And this despite the fact that most of the 88 US trading partners, who have the corresponding surplus, have a floating currency in respect to the US$. So the argument used towards China doesnt hold. The question, which arises is, How come? How come that not only the globalized economy generates such inbalances, but every economy itself shows this kind of inbalances, when you zoom into it.
Regardless what economy you pick, you will find a wealth and income distributions that are right skewed. Which means that there are a few capable to accumulate tremendous surpluses while there are a lot of others who barely survive or sink into debt. And when you track the development of skewness (the increasing distance of mode, median and mean) of such distributions over time, you will discover that this will increase. How come, that not only on a global level, but on every scale you choose, we find the same patterns of inbalance or disequlibrium?
How does Krugman want to explain this with models and theories that are "equilibrium centric"?
I think there is no way to find explainations or solutions for these serious problems, as long as you stay within the house of equilibrium centric thinking. Move on. The response of german economic leaders to the critique in the US Treasury report is very disapointing. It shows in a painful way unbelieveable ignorance towards some very basics of economics. But it would be at least as painful to watch an "progressive" economists of Krugmans calibre walking into a simlar trap of ignorance towards strong indications that our economies are out of equilibrium systems?

Sapere Aude!

Georg Trappe

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