Angela’s final hour, according to Stiglitz and Piketty

Listening to Ο Διγενής (Ριζίτικο) – Ν. Ξυλούρης, Γ. Μαρκόπουλος

 

Some economists signed below letter in the Financial Times, June 5, on the final hour. When I do my petitions then I try to make a point. Let us read this open letter and identify its holes.

Title: In the final hour, a plea for economic sanity and humanity

The suggestion of a final hour is scare mongering. It is not true either, because it is a safe bet that there will be another hour after that. Subsequently it is insulting to Angela Merkel: as if she has not been working hard on economic sanity and humanity. If you want her to read something then find an appealing title, something like: “How to get Putin pay attention and listen”.

Signatures

Groucho Marx didn’t want to join a club who wanted him as a member. One can look at the signatures for a long while and wonder why one would want to be on that list. If these would be 100,000 economists from Europe, well, perhaps. A single European Nobel Prize winning economist might be sufficient, but there isn’t one on the list. I need to ask Hillary Wainwright from Amsterdam what she thinks about the censorship of economic science in Holland. (After Greek Statistics we also have Dutch Economics.)

Prof Joseph Stiglitz, Columbia University; Nobel Prize winner of Economics, Prof Thomas Piketty, Paris School of Economics, Massimo D’Alema Former prime minister of Italy; president of FEPS (Foundation of European Progressive Studies) Prof Stephany Griffith-Jones IPD Columbia University Prof Mary Kaldor London School of Economics Hilary Wainwright Transnational Institute, Amsterdam Prof Marcus Miller Warwick University Prof John Grahl Middlesex University, London Michael Burke Economists Against Austerity Prof Panicos Demetriadis University of Leicester Prof Trevor Evans Berlin School of Economics and Law Prof Jamie Galbraith Dept of Government, University of Texas Prof Gustav A Horn Macroeconomic Policy Institute (IMK) Prof Andras Inotai Emeritus and former Director, Institute for World Economics, Budapest Sir Richard Jolly Honorary Professor, IDS, Sussex University Prof Inge Kaul Adjunct professor, Hertie School of Governance, Berlin Neil MacKinnon VTB Capital Prof Jacques Mazier University of Paris Dr Robin Murray London School of Economics Prof Jose Antonio Ocampo Columbia University Prof Dominique Plihon University of Paris Avinash Persaud Peterson Institute for International Economics Prof Mario Pianta University of Urbino Helmut Reisen Shifting Wealth Consultancy Dr Ernst Stetter Secretary General, FEPS (Foundation fro European Progressive Studies) Prof Simon Wren-Lewis Merton College Oxford

Copyright

The copyright of the open letter has been transferred to the Financial Times:

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don’t cut articles from FT.com and redistribute by email or post to the web.” (Financial Times website)

This is not handy. If you want to distribute your open letter to all kinds of newsmedia, you should not transfer the rights to a single newspaper. See why I don’t blog at the Financial Times.

It actually means that I am also handicapped in deconstructing this open letter. I can quote, of course, but deconstructing everything becomes less inviting. I intended to deconstruct it all, but now, seeing that awkward copyright statement, I lose my enthusiasm.

Opening paragraph

“Sir, The future of the EU is at stake in the negotiations between Greece and its creditor institutions, now close to a climax. To avoid failure, concessions will be needed from both sides. From the EU, forbearance and finance to promote structural reform and economic recovery, and to preserve the integrity of the Eurozone. From Greece, credible commitment to show that, while it is against austerity, it is in favour of reform and wants to play a positive role in the EU.” (Letter by Stiglitz et al. FT June 5 2015)

  • Please don’t address Angela Merkel as “Sir”.
  • Why is it a concession from the EU to exercise forbearance and finance, which they have been doing all the time ?
  • Why is it a concession from Greece to present a credible commitment ? Don’t they claim that they have been doing so all the time ? Or, are Greece’s “best friends” now back-stabbing the Greeks ?
Are these impartial economists or members of Syriza ?

“Syriza is the only hope for legitimacy in Greece. Failure to reach a compromise would undermine democracy in [sic] and result in much more radical and dysfunctional challenges, fundamentally hostile to the EU.” (Letter by Stiglitz et al. FT June 5 2015)

  • Are these impartial economists ?
  • Aren’t there other political parties who have some views on reform and such ?
  • Shouldn’t economists be highly critical of incompetent Yanis Varoufakis, the Syriza minister of finance ? See my earlier criticism, or discussion of Angela riding this minotaur.
A new Marshall Plan ?

“Consider, on the other hand, a rapid move to a positive programme for recovery in Greece (and in the EU as a whole), using the massive financial strength of the Eurozone to promote investment, rescuing young Europeans from mass unemployment with measures that would increase employment today and growth in the future”  (Letter by Stiglitz et al. FT June 5 2015)

  • Yes, of course, see for example my Economic Plan for Europe, and this short text in eKathimerini 2011. Was there one single response from a Greek economist – such as Yanis Varoufakis ? No. See actually my list of papers on the crisis.
  • There is one crucial difference between the rosy view by Stiglitz & Piketty & friends and my more mundane analysis: they assume that the Eurozone will forget about the past, and for the future believe Greece again in whatever Greece promises, while I adopt the more realistic position that there has been a break-down of confidence already. 

Compare: Berlusconi did not ask for a bail-out but Tsipras does. Why would Tsipras think that the Eurozone loves him more than Berlusconi ? Earlier I indicated the link between Russia and Greece – the orthodox church – but why does Tsipras make a solo trip to Russia without taking account of sentiments in the rest of Europe on the Ukraine, or like in Holland on MH17 ?

Berlusconi did not ask for a bail-out but Tsipras does

Berlusconi did not ask for a bail-out but Tsipras does (2008, Source: wikimedia commons)

Thus, a new Marshall Plan is not going to work, unless there are firm regulations in place.

  • It boggles my mind that Greek policy makers do not understand this.
  • It boggles my mind that a political party like Syriza performs such populism, to promise relief without actually presenting a credible plan to achieve this. Surely, populism gets you elected, but does one not have a grain of responsibility ?
  • It boggles my mind that above supposedly serious economists support such populism instead of developing a plan that would actually work. James Galbraith is partly excused for presenting the “Modest Propopsal” jointly with Yanis Varoufakis and Stuart Holland. But he should know about my criticism. Obviously Angela Merkel will not be easily convinced either (e.g. on eurozone bonds).
Conclusion

Economic scientists must observe impartiality. Economic proposals should be backed-up with a minimum of a plan. Analyses should clearly indicate where parties are in error, and otherwise allow for a “core” (see the Edgeworth diagram) with a range of possible compromises. None of these are provided by Stiglitz & Piketty et al. The letter is a miserable failure.

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