I read an article on der Spargel's website this weekend that included this:
The dispute between Berlin and Paris was of a fundamental nature -- a conflict between two mentalities, but also between two schools of economic thought. Whereas the Germans were of the opinion that the supply side had to be strengthened and conditions for investment improved through reforms, the French called for buttressing the demand side. In times of recession, the French argued, the state must invest.
Although the Germans called it savings, a term with positive connotations, across the rest of Europe, many considered it to be the specter of "austerity," a cold-blooded, anti-growth policy. "The Body Economic: Why Austerity Kills," a book by Oxford Professor David Stuckler, has become a kind of bible for opponents of austerity. It's a brand of thinking that really hasn't taken hold in Germany, even though it is dominating the public debate in large swaths of Europe. It also shows just how far apart the Europeans really are from each other, despite being linked by a common currency.
By "brand of thinking" they mean "empirically verified economic theory", y'know.
I guess Kruggers must read der Spargel too, because he just came out with this:
Paul Krugman - I keep saying that Keynesian economics is right but the Germans won't listen. Wherein he says:
I’m scrambling on last-minute course prep, so not much blogging today. But yesterday’s Steve Rattner article, misuse of labor cost data aside, had me thinking about an issue that has had me annoyed ever since this crisis began: the constant efforts on the part of Very Serious People to turn discussions away from monetary and fiscal policy, recessions and sluggish recoveries, to the supposedly more fundamental issues of structural reform and long-term growth. Rattner dismisses the austerity/stimulus debate as “simplistic”; Jeff Sachs calls Keynesian concerns “crude”; many, many people (I’d guess an especially large fraction of those at Davos) are eager to get away from all this deflation stuff and talk about how what they imagine to be, or wish were, the really important issues like Big Data and a world that’s even flatter.
There were people like that during the Great Depression too — dismissing as naive any notion that you could put the unemployed back to work just by spending more, and surely technological unemployment was the real story, and anyway we should be looking at the broad sweep of history and institutions, right?
The Merkel smackdown alarm is sounding....
Second, more or less Keynesian macroeconomics — the macroeconomics of short-run fluctuations driven by aggregate demand — has worked very well in this long slump. While people were very seriously intoning that it was simplistic and crude to think that those little models could be of any use in a changing world yada yada, macroeconomists were making remarkable, counterintuitive predictions — about inflation (or the lack thereof), about interest rates, about the effects of austerity — that came true and were, if you think about it, an intellectual triumph. Yes, good macro tends to be simple, at least conceptually; but simple and simplistic aren’t the same thing, and by and large people who solemnly declared that things are more complicated than that ended up with lots of egg on their faces.
Oh cripes! He breaks out the nuclear weapon of empirical truth!
Merkel smackdown in 3, 2, 1...
Third, what’s really striking about all the talk about how long-run structural issues are the real thing is how fuzzy the thinking is. In a world that is short of demand, how, exactly, is structural reform that enhances the supply side (if it does) supposed to solve the problem?
If Europe’s problem is lack of competitiveness, why doesn’t a weaker euro solve it — and for that matter, why is Europe as a whole, and Germany in particular in trade surplus? For people who are supposedly so serious, the Very Serious seem remarkably casual about thinking things through.
Sometimes it takes a professor to sufficiently mock the fuzzy thinkers.
But of course Germans are famous for their thick skulls and bullheadedness, so don't expect them to clue in and thence save Europe for... I dunno, at least another ten years?
Or until, yet again, they leave Europe as a smouldering ruin with millions dead and millions more starving.