Competing theories on the crisis

The crisis is complicated by all kinds of competing theories. This is not just an economic crisis but rather a crisis in communication. With sound communication there wouldn’t likely be a crisis.

Consider the information overload: Newspapers every day, The Economist a new edition every week, Olli Rehn with a new report, Paul Krugman with a new book. Perhaps one in one hundred economists has a weblog that needs to be filled. (Quitting a blog is like admitting that you never should have started it.)

What to do about all these competing theories ? My advice is: the theory should explain the long run since 1900, otherwise it might be too fickle.

The second advice is to stay close to policy making (even when being creative). President Hollande is the standard bearer for investments and employment, against the hard wind of Germany austerity. Thus there is little need for newspapers and weblogs to argue for investments and employment, Hollande is already doing that job. In itself Germany sets the example of investments and employment too, rather more convincing.

Outsiders can give an argument that Hollande overlooks and that convinces Germany. This can be that Hollande might switch his gaze and look at what he can do in France itself. Some things can be very simple.

My own analysis fits these two criteria. The long run analysis shows that our democracies fail, with world war I and II and the long stagflation since 1970. Because politicians neglect advice from economic scientists. Now Olli Rehn must amend this from Brussels but it is wiser that each nation has its own Economic Supreme Court. For practical policy making, my analysis identifies the need for investment banks, readjustment of tax policies, and a new treaty on the euro.

Some people asked me what I think about the Modest Proposal by Yanis Varoufakis and Stuart Holland (2011). Well, I think that eurozone bonds are a bad solution for the long term. Hence No. Eurozone bonds however might be used in the short term for a moratorium to buy ten years of rest and stability to discuss the more fundamental changes. But that is it.

PM. Here is a discussion on Kantoos and Varoufakis’s reply. It shows that you can have long discussions especially when details are complex and easily misunderstood. Yet, it suffices to conclude that eurozone bonds are a bad solution for the long term, since they violate the no bail out condition. A better scheme is presented here.

It is frustrating, and sad for e.g. the people in Greece and his students, that professor Varoufakis does not get to study my analysis. Greece is in dire straits and people around the world are interested in hearing what the Greek themselves have to say on it. Professor Varoufakis travels around the world with much energy trying to explain that Modest Proposal. It is pity that the opportunity is lost and that the Greek academia do not present a convincing argument.

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