Friday, June 08, 2012

Are Greece and Paul Krugman decadent?

Amidst all the Jubilee hullabaloo in the UK, the second- and ultimately more significant- story remains the ongoing crisis in the Eurozone and the continued instability in the markets. The signs of a slowdown in the Chinese and the American real economies have put further pressure on the Eurozone economies that are still struggling to return to growth. 


The ongoing restructuring of the Spanish banking system has alerted the markets to the fact that their remains a significant capital requirement, even after the forced mergers of the Cajas. However, despite the more hysterical of the comments from UK commentators and politicians, the fact is that the Spanish economy does not have the same long term government problems as Greece does. The deficit issues are a function of the the banking system breakdown, not the series of policy mistakes that hampers Athens even beyond the banking crisis. As a result, although serious, there is far greater trust offered to Madrid- and that solidarity from Berlin offers far greater security for future recovery to Spain than to Greece.


Yet in the Baltic, there is growing frustration that the Mediterranean economies as a whole are not prepared to accept the restructuring that has already taken place in Estonia and Latvia, and over a longer period, in Germany too. Articles such as "Is Greece too Western to pull off a Baltic Rebound?" carry with them the clear implication that "Western"="Decadent".


If Greece will not act to save itself, then why should the poorer Baltic Countries act to save them from themselves?


Which brings us to the latest twitter-sphere spat against Paul Krugman. 


Krugman and his -shall we selective- use of charts to criticize the austerity policies of Estonia raised a fury in Tallinn, which was well expressed by President Ilves . So, a serving head of state took the unusual step of publicly rebuking the economist.


In fact such a dishonest approach to data presentation by Krugman is also decadent.


It underlines why Nassim Taleb regards academic economists as little better than witch doctors. Following Krugman's sloppy thinking would certainly undermine the moral hazard that should underpin any capitalist society.


The fact is that in economic policy, the soft options are just as ineffective in the long term as they are in most other spheres of life. That is what Krugman and the Left does not understand.     

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