Paul Krugman explains the Euro debacle to us, but I am drawn to his brief revisionism in which he explains that, as usual, liberals are always right and conservatives are always wrong:
But what’s the meaning of the eurodebacle? As always happens when disaster strikes, there’s a rush by ideologues to claim that the disaster vindicates their views. So it’s time to start debunking.
First things first: The attempt to create a common European currency was one of those ideas that cut across the usual ideological lines. It was cheered on by American right-wingers, who saw it as the next best thing to a revived gold standard, and by Britain’s left, which saw it as a big step toward a social-democratic Europe. But it was opposed by British conservatives, who also saw it as a step toward a social-democratic Europe. And it was questioned by American liberals, who worried — rightly, I’d say (but then I would, wouldn’t I?) — about what would happen if countries couldn’t use monetary and fiscal policy to fight recessions.
I wonder what right-wingers he has in mind? Some Euro-economists took a premature victory lap in 2009 reviewing the skepticism of American economists to the whole Euro project from 1989 to 2002; they open with a quote from Milton Friedman (not a lefty) and highlight the skepticism of Anna Schwartz (not a lefty) and Martin Feldstein (not a lefty). They also note a number of Federal Reserve economists and other academics among the skeptics, but no names leap out at me as left or right. And believe it or not, I can't recall Bob Dole's view on the EMU. Or George Bush's. Give me a minute (and an Advil...)
But was it all doom and gloom from Americvan economists? In an eerily prescient piece from December 1998, Paul Krugman predicted the current situation but Moved On:
For all the seven long years since the signing of the Maastricht treaty started Europe on the road to that unified currency, critics have warned that the plan was an invitation to disaster. Indeed, the standard scenario for an EMU collapse has been discussed so many times that it sometimes seems to long-time eurobuffs like myself as if it has already happened - perhaps because it is modeled on the real crisis that afflicted the European Monetary System back in 1992.
Here's how the story has been told: a year or two or three after the introduction of the euro, a recession develops in part - but only part - of Europe. This creates a conflict of interest between countries with weak economies and populist governments - read Italy, or Spain, or anyway someone from Europe's slovenly south - and those with strong economies and a steely-eyed commitment to disciplined economic policy - read Germany. The weak economies want low interest rates, and wouldn't mind a bit of inflation; but Germany is dead set on maintaining price stability at all cost. Nor can Europe deal with "asymmetric shocks" the way the United States does, by transferring workers from depressed areas to prosperous ones: Europeans are reluctant to move even within their countries, let alone across the many language barriers. The result is a ferocious political argument, and perhaps a financial crisis, as markets start to discount the bonds of weaker European governments.
Well, here we are, right on the brink of the creation of "euroland", and it is now clear that none of the problems EMU critics have warned about will arise, at least for a while.
So Krugman is a self-described "eurobuff". Well, that might simply mean he follows it closely. But eventually we get his Big Finish:
So what do the europessimists - the people who believe that the whole experiment will come to grief - say now? Well, they have a new argument.
"They"? Shouldn't that have been "We", since Krugman has always been right about everything?
Since you ask, let's move on to that new argument:
Pretty clearly, Europe is not about to tear itself apart because it cannot agree about monetary policy. In fact, everyone but the central bankers now *does* agree about monetary policy. The clear and present danger is, instead, that Europe will turn Japanese: that it will slip inexorably into deflation, that by the time the central bankers finally decide to loosen up it will be too late.
These Europeans, they are a subtle race. And this time they may have subtled themselves into a very tight corner.
Europeans are a "race"? I guess it's a social construct. And they "may" be in a tight corner. Or not. Thanks for sharing.
I think that back in reality, American economists were Euro-skeptics across the politcal spectrum, including that fair-weather fan, Paul Krugman. I have no doubt that somewhere some American business leader classifiable as right-wing advocated for a Euro just for simplicity. But I just don't recollect a lot of cheerleading for the Euro from anyone.
ONE DAY, WHEN THE TIMES HAS A COLUMNIST WHO UNDERSTANDS INTERNATIONAL TRADE:
I can resist no more - I love this recent apologia for Solyndra from Paul Krugman:
These days, mention solar power and you’ll probably hear cries of “Solyndra!” Republicans have tried to make the failed solar panel company both a symbol of government waste — although claims of a major scandal are nonsense — and a stick with which to beat renewable energy.
But Solyndra’s failure was actually caused by technological success: the price of solar panels is dropping fast, and Solyndra couldn’t keep up with the competition. In fact, progress in solar panels has been so dramatic and sustained that, as a blog post at Scientific American put it, “there’s now frequent talk of a ‘Moore’s law’ in solar energy,” with prices adjusted for inflation falling around 7 percent a year.
The Commerce Department in Washington on Wednesday opened an investigation sought by American manufacturers who accuse the Chinese of “dumping” solar panels into the United States at prices, aided by government subsidies, lower than the cost of making and distributing them.
Solar-panel prices have come down sharply, it's true, but the reason is not big efficiency gains. Under Moore's Law, computer chips doubled their capacity every 18 months. It took 25 years for commercial solar panels to double their efficiency to today's 10% or so, and no "transformations" appear to be in the offing. Solyndra went bankrupt because its panels, with 12% efficiency, couldn't be delivered at a competitive price.
The solar-panel price collapse has two causes: Chinese overproduction and decisions by governments around the world that it no longer is politically feasible to subsidize the industry. Listen to the words of Chairman Michael Ahearn of First Solar Inc. on a conference call last week: "Declining subsidy pool . . . Shrinking subsidy programs . . . European countries reducing their subsidies . . . No significant new state-level solar programs . . . Moving downward in terms of subsidies . . . A much lower subsidy level . . . Solar industries feeding mostly off of legacy subsidies in California."
MORE ON MOORE: Per this chap, solar price per watt has fallen at 7% per year over the last couple of decades (ignoring installation, land, etc.). Per the old rule of 72, that means it halves every ten years, not quite as breathtaking as the eighteen month time frame for processors. And eventually, physical reality will take over as solar panel efficiency will peak near 100%. (OK, micro-processors will reach a physical constraint when data is stored on individual sub-atomic particles, but we are long way away there, I think. And isn't there a Heisenberg Uncertainty issue? Forget I asked...)