A variety of blogs and economists have noted that it appears now that Europe has entered into a game of competitive deflation, where each European economy attempts to slash its wages in order to produce cheaper exports to bring in Euros to pay its debts. There's just one problem with this: As Irving Fisher noted in *1931*, yes, almost EIGHTY YEARS AGO, the biggest problem with deflation is that it raises real interest rates and causes people to be unable to pay their debts, resulting in further financial instability.
So the solution of the Europeans is to... raise (real) interest rates by entering into a deflationary spiral, and somehow that will cure all their problems? And how, exactly, is that supposed to work -- magic sparkle pony dust erupts from stripper volcanos across the land and all is rainbows or something? Well, it is nice to know that American politicians aren't the only ones who are morons in the thrall of neo-Austrian claptrap when it comes to economics... but discouraging. It's as if stupidity is contagious, and Europe has caught the Andrew Mellon Flu.
-- Badtux the Economics Penguin
Wait...stripper volcanoes? Where can I see these wonders of nature?
ReplyDeleteAll of the lessons of the Great Depression, and the other pretty good one of 1920 have been . . . actually, not so much forgotten, as willfully ignored. Chicago School economics can't even spell Keynes's name.
ReplyDeleteIt's not sparkle pony dust, though. It's a visit from the free market fairy. Unfortunately, he looks like Miton Friedman in drag.
WASF,
jXb
Don't underestimate the power of sparkle pony dust. It cured my psoriasis.
ReplyDeleteAaron, the stripper volcanos are in the universe where unicorns are pink and cotton candy grows on trees. Just take a right over by the University of Chicago, look for their Economics department, and there you'll be.
ReplyDeleteJazz: I am not sure why it is that some people insist upon living in a different universe, one that has no connection to this universe, but I do wish they'd live in this reality. And uck, Milton Friedman in drag. I'm going to have to come up with a Free Market Fairy that looks like Milton Friedman in drag, with magic wand, sprinkling Magic Free Market Dust all over everything...
Ost, how can you tell that your psoriasis is cured with all that sparkle pony dust glittering in your hair and on your shoulders? Or is that the point?
- Badtux the Snarky Penguin