TGS has a particular fascination for the unabashedly interventionist streak exhibited by the blog, ‘Free Exchange’ hosted by ‘The Economist’ newspaper. The philosophical underpinning of that blog is that there is no problem in the world that cannot be fixed by a little lower interest rate and a little more government spending. There is always room for a rate cut or or money printing or government stimulus.
TGS finds very little to commend in such views. They are safely ignored. These bloggers go silent when their preferred solutions do not work or when the catastrophe they predict without more stimulus does not happen. Take Europe, for example. Even this blogger was surprised to see the massive improvement in Greece’ overall fiscal position and primary fiscal balance in the last three years. Greece has not imploded socially. The Euro is strong. In fact, it has quietly re-staked its claim to be the global reserve currency. Very few are taking note or acknowledging it. China must be disappointed at the resurrection of the Euro.
Yes, a lot can go wrong still. It is one thing to be able to face a crisis and it is another thing to start to grow from here, when global growth impulses are weak, for various reasons. This blog has discussed them repeatedly. The world has borrowed too much from future growth – literally and otherwise. It has to pay back. The repeated downgrade, by international agencies, of their global growth forecasts proves the point. Growth has to be ‘snatched’ from others. That requires a ‘beggar thy neighbour’ exchange rate policy. The Euro is too strong for its own good. Otherwise, a lot more pain will be required to be borne for peripheral Europe to achieve real (as opposed to nominal) competitive gains. That might be pushing the luck too far.
Anyway, TGS is digressing here. The point is that, including TGS, not many anticipated the Euro to be trading at 1.35 to a U.S. dollar in October 2013 or that Greece would be achieving a primary surplus.
If any one spots a Keynesian (where is Mr. Krugman?) acknowledging the European/German austerity ‘success’ (I am still prepared to concede the dangers of pushing austerity too far without the safety valves of global growth and a temporarily cheaper currency and hence the inverted commas), please bring it to my attention.
Now that this post has already taken too much space, I shall use the second part to comment on the specific topic of U.S. monetary policy on which ‘Free Exchange’ has held forth expansively in a recent post.