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Paul Krugman on European Leaders’ Historical Memory

COMMENT: New York Times colum­nist and Nobel-Prize-win­ning econ­o­mist Paul Krug­man weighs in on the think­ing of Euro­pean polit­i­cal lead­ers. (Per­haps one could say Ger­man polit­i­cal lead­er­ship, in that they seem to be call­ing this par­tic­u­lar tune.)

Not­ing that the aus­ter­i­ty pro­grams being pre­scribed for Euro­zone economies in trou­ble are being linked to mem­o­ry of the Ger­man infla­tion of the 1920’s, Krug­man notes that the cur­rent poli­cies of Ger­man and Euro­pean lead­ers mim­ic those of Ger­man Chan­cel­lor Hein­rich Brun­ing. (Brun­ing is pic­tured at right.)

One might note in this con­text that those same aus­ter­i­ty pro­grams are being advo­cat­ed by the GOP and Amer­i­can right wing!

“Euro Zone Death Trip” by Paul Krug­man; The New York Times; 9/26/2011.

EXCERPT: . . . . And I see no sign at all that Euro­pean pol­i­cy elites are ready to rethink their hard-mon­ey-and-aus­ter­i­ty dog­ma.

Part of the prob­lem may be that those pol­i­cy elites have a selec­tive his­tor­i­cal mem­o­ry. They love to talk about the Ger­man infla­tion of the ear­ly 1920s — a sto­ry that, as it hap­pens, has no bear­ing on our cur­rent sit­u­a­tion. Yet they almost nev­er talk about a much more rel­e­vant exam­ple: the poli­cies of Hein­rich Brün­ing, Germany’s chan­cel­lor from 1930 to 1932, whose insis­tence on bal­anc­ing bud­gets and pre­serv­ing the gold stan­dard made the Great Depres­sion even worse in Ger­many than in the rest of Europe — set­ting the stage for you-know-what. . . .



2 comments for “Paul Krugman on European Leaders’ Historical Memory”

  1. I don’t know all that much about Paul Krug­man, tbh, but he does seem to be a decent & hon­est man.

    And you know some­thing? You are exact­ly cor­rect, Dave, when you wrote that “One might note in this con­text that those same aus­ter­ity pro­grams are being advo­cated by the GOP and Amer­i­can right wing!”

    Scary stuff, but this has to be put out there.

    Posted by Steven | October 17, 2011, 12:42 pm
  2. This is just a reminder that unwar­rant­ed obses­sions over the his­tor­i­cal dan­gers of infla­tion can destroy economies:

    Wash­ing­ton Post
    Secrets of the cri­sis revealed: What to expect from tran­scripts of 2007 Fed meet­ings

    Post­ed by Neil Irwin on Jan­u­ary 15, 2013 at 10:51 am

    For any­body who cares about how the coun­try end­ed up in this pre­car­i­ous eco­nom­ic state, a very big day is com­ing soon, as infor­ma­tion that has been under lock and key for the past five years will be shared with the world.

    The Fed­er­al Reserve keeps tran­scripts of its meet­ings to set mon­e­tary pol­i­cy, and releas­es them with a five year delay. It does not announce in advance when they will be released, but if the past is a guide, any day now we will be get­ting full tran­scripts of the 2007 meet­ings of the Fed­er­al Open Mar­ket Com­mit­tee. Tran­scripts of all eight reg­u­lar­ly sched­uled meet­ings, plus three spe­cial emer­gency ses­sions to respond to the ear­li­est rip­ples of the finan­cial cri­sis, will be post­ed to the Fed­er­al Reserve’s Web site.


    The rise of dis­sent. The FOMC had been a peace­ful place for most of Bernanke’s run as chair­man, with no dis­sents on pol­i­cy in 2006 or the first five meet­ings of 2007. But as finan­cial con­di­tions tight­ened, fac­tions start­ed to emerge on the com­mit­tee. Bernanke and New York Fed pres­i­dent Tim­o­thy Gei­th­n­er led a con­tin­gent that saw the summer’s finan­cial strains as dire risks to the econ­o­my and argued for eas­ing mon­e­tary pol­i­cy. Many of their col­leagues were more reluc­tant, see­ing no need to ease pol­i­cy while the econ­o­my was doing okay and there was a threat of infla­tion. Offi­cials have dis­sent­ed at most meet­ings since then.


    Res­cu­ing Europe. On Dec. 12 ‚2007, the FOMC, along with oth­er inter­na­tion­al cen­tral banks, announced new moves to prop up the glob­al bank­ing sys­tem. At the time, the term auc­tion facil­i­ty was being used as a tool to push mon­ey into a trou­bled bank­ing sys­tem with­out the stig­ma of banks hav­ing to go to the dis­count win­dow to request emer­gency funds. We now know, thanks to dis­clo­sures required by the Dodd-Frank Act and free­dom of infor­ma­tion law­suits, that the loans went over­whelm­ing­ly to the U.S. affil­i­ates of Euro­pean banks. It will be inter­est­ing to see how explic­it the com­mit­tee mem­bers were in dis­cussing the risks of using the Fed’s resources to help insti­tu­tions an ocean away.

    It’s a theme:

    Jan. 16, 2013, 11:05 a.m. EST
    Bun­des­bank recov­ers the reins in euro zone
    Com­men­tary: Unem­ploy­ment and com­pet­i­tive weak­ness key con­cerns

    By Michael Casey

    NEW YORK (Mar­ket­Watch) — In the end, the Ger­mans won.

    Six months after Euro­pean Cen­tral Bank Pres­i­dent Mario Draghi stirred up a hor­nets’ nest in Ger­many by push­ing through a plan to buy sov­er­eign bonds over the Deutsche Bundesbank’s objec­tions, no steps have been tak­en to imple­ment it.

    Yet even as Spain and Italy have balked at request­ing a finan­cial assis­tance pro­gram from the Euro­pean Union that would trig­ger such pur­chas­es, the tan­ta­liz­ing prospect of ECB inter­ven­tion has by itself spurred a ral­ly in Span­ish and Ital­ian bond prices, with their yields plung­ing. Over that same time frame, the euro has gained 10% against the dol­lar and 25% against the yen.

    While this recov­ery reflects con­fi­dence that the euro zone will remain intact, it doesn’t mean Europe is out of the woods. What it does mean is that the Bundesbank’s deep-root­ed Ger­man bias for strong mon­ey and price sta­bil­i­ty con­tin­ues to hold sig­nif­i­cant sway over the ECB. Whether that’s to Europe’s advan­tage or not remains to be seen.

    One ques­tion is how long will the rest of Europe can be com­fort­able with a strength­en­ing exchange rate when much of it is mired in reces­sion and des­per­ate for an export-led recov­ery.

    Jean-Claude Junck­er, Luxembourg’s Prime Min­is­ter and the head of the Eurogroup of euro zone finance min­is­ters, fired the first shot Tues­day when he report­ed­ly said the euro was “dan­ger­ous­ly high.” Juncker’s hyper­bole doesn’t jibe with the ECB’s pur­chas­ing-pow­er-adjust­ed trade-weight­ed exchange rate mea­sure, which is actu­al­ly below its long-term aver­age. But it sure­ly reflects the view of many strug­gling Euro­pean busi­ness­men, for whom a stronger cur­ren­cy is a drag on their com­pet­i­tive­ness.


    Posted by Pterrafractyl | January 16, 2013, 3:56 pm

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