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Commentary & analysis with a focus on European economic policy

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Progressive economists should support Remain not Brexit – a response to Steve Keen

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Update: Steve Keen replies to my critique here.

140 characters are not a good basis for a debate about complex issues. Let me extricate myself from a potentially useful but frustrating twitter “debate” and write a short response to Prof. Steve Keen’s call to support Brexit.

I follow Steve Keen’s economic work at a distance but with interest and sympathy. Although I have not sought to make a career out of economic theorising, I broadly share many of his views on endogenous money and the central role of instability, uncertainty and bank debt in understanding economic developments. I was therefore surprised and disappointed to read his justification for supporting Brexit. Even if he did not formulate it as such, his statement is bound to be taken as a recommendation by his numerous followers and supporters. Yet his reasoning in the article is poor and – this is the most charitable explanation I can find – politically extremely naive.

There would be some additional points to make, but let me just address Keen’s two main arguments. [Read more…]

The IMF on Greek debt – redefining chutzpah?

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A definition of chutzpah is murdering your parents and then claiming social benefits as an orphan. It is not widely recognised, but the IMF illustrates similar brazenness in the current debate on Greece’s debt burden.

While not exactly pretending to be an orphan, the IMF is currently getting a lot of sympathy for its position: it has come out increasingly strongly in favour of debt relief for Greece. On realistic assumptions the debt burden is unsustainable. The country can only recover if there is substantial debt relief. Its most recent debt sustainability analysis claims it was forced to provide loans when the euro crisis broke, alongside European institutions, against its better judgement, but now only massive debt relief will work.

Its realism has been welcomed, and contrasted favourably with the EU (and its German paymasters), which against all reason are insisting on more-or-less full repayment of past loans. In so doing the IMF has been feted by Greek commentators, the many EU citizens/taxpayers sympathetic to the plight of Greek citizens, and much informed economics commentary.

One certainly does not need to think of the IMF as a murderer. But one should be aware of three things.  First the IMF was not simply an innocent [Read more…]

Same ECB medicine, higher dosage – good but more needed

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The ECB has announced a further expansionary shift by beefing up a range of existing policy instruments. Barring unexpected positive shocks this will not be enough to break out of a deflationary environment and convincingly underpin growth and a rapid reduction in unemployment. For that to happen fiscal policy must turn expansionary and/or the ECB must cast caution to the winds and adopt new tools. At the press conference following the policy announcement ECB President Draghi gave a tantalizing glimpse that new tools may indeed be on the way: we may yet see monetary financing of fiscal policy, or helicopter money as it is popularly known. [Read more…]