gracias por el comentario, pero en mi opinión, wishful thinking.

Iniciado por Alvin Red

Digamos que la fuente es mi particular ir-. Ya nos advirtió a varios amigos del estado económico de las cajas hace casi 3 años. Creo que postee algo de eso a mediados del 2007 en el hilo ir-.

El plan esta recién sacado del horno y dudo que la mayoría, por no decir casi todos, de los políticos sepan algo, incluyo también a la CEOE y sindicatos.

Iniciado por PasoLeati

"Sois los españoles de Oskar Schindler, trabajadores esenciales para la economía del Reich. Tranquilos que nada malo puede sucederos ..."

I have an interview with Paul Krugman in today's edition of La Vanguardia (in Spanish). Below I reproduce the English original. As will be evident, there are many topics about which Paul and I are far from being in complete agreement. But on one topic we are in complete harmony: the diffficult situation which now faces Spain, the need for internal devaluation, and the threat which continuing inaction on the part of Spain's current leaders represents for the future of the entire Eurozone.

One

Edward Hugh: In your NYT article "How Did Economists Get It All So Wrong", you state what I imagine for many is the obvious, that few economists saw our current crisis coming. The Spanish economist Luis Garicano even made himself famous for a day because he was asked by the Queen of England the very question I would now like to put to you: could you briefly explain to a Spanish public why you think this was?

Paul Krugman: I think that what happened was a combination of two things. First, the academic side of economics fell too much in love with beautiful mathematical models, which created a bias toward assuming perfect markets. (Perfect markets lead to nice math; imperfect markets are a lot messier). Second, the same forces that lead to financial bubbles – prolonged good news tends to silence the skeptics – also applied to economists. Those who rationalized the way things were going gained credibility until the day things fell apart.


Two

E.H. : The late Sir Karl Popper used to contrast what he regarded as science with ideologies like Marxism and Psychoanalysis, because there seemed to be no way whatever of consenually agreeing with their practitioners a series of simple tests which would enable their theories to be falsified. Some critics of neoclassical economics - including Popper's heir Imre Lakatos - have expressed similar frustrations. Do you think we economists are, as a profession, up to the challenge of formulating testable hypotheses in such a way that the public at large might come to have more confidence in what we are up to, or are we a lost cause?

P.K.: I really don’t think that’s a helpful way to pose this question. Economics is about modeling complex systems, and as such the models are always less than fully accurate. What economists do need, however, is some demonstrated ability to get big things right. They had that after the Great Depression, when Keynesian economics clearly made sense of both the depression and the wartime recovery. But now the profession needs to get back on track.


Three

E.H.: Comparing the types and levels of indebtedness in the United States as between 1929 and 2007 one factor immediately stands out, the importance in modern times of the financial sector. You have repeatedly drawn attention to this phenomenon, and to how the unbridled growth of the institutions associated with it inevitably sowed the seeds of the problem which eventually came. Is there a road back? Can we reduce the strategic importance of this sector in developed economies and still generate meaningful economic growth?

P.K.: We grew fine for 30 years after World War II with a much smaller financial sector. I think if we tax and regulate the sector, we can replace it with other, more productive uses of resources – everything from manufacturing to health care.

Four

E.H.: Another of the distinguishing characteristics of the global economy over the last decade has been the development of large and sustained imbalances, with the US-China one being only the most publicly visible. Here in Europe we also have strong and notable differences between export driven economies like the German and the Swedish ones and many of those in the South and East which have evolved models based on consumer and corporate indebtedness and import dependence. Do you think we have the policy tools available to address such issues, and if so, where do we start?

P.K.: On the domestic side in advanced countries, financial reform should help reduce debt reliance. As for the developing country capital surpluses, that’s heading for a big confrontation. In the end, either China in particular increases domestic spending, or there will be some kind of at least threatened trade war.

Five

E.H.: One of the standard pieces of economic observation about countries recovering from financial crises is that their recoveries are export driven. This has now almost attained the status of a stylised fact. But as you starkly ask, at a time when the financial crisis is generalised across all developed economies - whether because those who borrowed the money now have difficulty paying back, or those who leant it now struggle to recover the money owed them - to which new planet are we all going to export? Maybe we don't need to look so far afield. Many developing economies badly need cheap and responsible credit lines, and access to state-of-the-art technologies. Do you think there is room for some sort of New Marshall Plan initiative, to generate a win-win dynamic for all of us?

P.K.: Um, no. Not realistically as a political matter. We’ll be lucky if we can get the surplus developing countries to spend on themselves. My guess is that our best hope for recovery lies in environmental investment: taking on climate change could, in terms of the macroeconomic impact, be the ********al equivalent of a major new technology.

Six

E.H.: Last December you publicly warned of a burgeoning economic crisis on Europe's outer frontiers. Indeed you even went so far as to state that the center of the present crisis had "moved from the U.S. housing market to the European periphery" - and by periphery here I take it you mean countries like Ireland, Spain, Greece, Romania, Bulgaria, Hungary and the Baltics. With hindsight, and looking at how Europe sovereign debt, with Greece in the forefront, has suddenly become the "plat du jour" for the financial markets, this seems to have been extraordinarily perceptive. What was it about the situation on Europe's periphery that attracted your attention at such an early stage?

P.K.: Numbers, numbers, numbers. Those huge current account deficits practically screamed “bubble”. In general, it’s been amazing how useful even very rough measures of imbalance have been at predicting crisis, in everything from U.S. housing to Latvia. And that makes it even more amazing how few people recognized the warning signs.

Seven

E.H.: One of the most significant recent monetary initiatives - the Euro - is now nearly ten years old. On its fifth birthday Ben Bernanke described it as a "great experiment", do you think this de******ion still fits the case, or is it now possible to start to draw some tentative conclusions?

P.K.: It’s still very much an experiment. We’re only seeing the real downside now, as the eurozone tries to cope with the unwinding of large internal imbalances. Until we see how that goes, the judgment on the euro will remain in doubt.

Eight

E.H.: A number of Eurozone economies are currently in some difficulty due to their high general level of indebtedness and a loss of price competitiveness which makes exporting their way out of their problems quite hard. This issue becomes even larger given that these economies no longer have a currency to devalue, In a speech earlier this year in Argentina you said that Spain now had no alternative but to carry out a systematic reduction of prices and wages in order to restore competitiveness. For a Spanish public which is far from convinced that this is the case, could you briefly explain why this is so?

P.K.: Put it this way: for a number of years Spain could pay its way within the eurozone by selling assets, mainly real estate, as the inflow of capital financed a huge housing boom. That allowed Spanish wages to rise relative to those in other European countries. But now the housing boom has gone bust, and the big inflows of money are over. So Spain needs to compete in producing real stuff, such as manufactured goods. And it won’t be able to do that unless it has a major gain in productivity through wage reductions.

Nine

E.H.: In the Latvian context the expression "internal devaluation" has been advanced to describe this kind of wage and price correction process. The expression has a very attractive feel about it, but as you recently pointed out in your NYT blog (The Pain In Spain) the changes involved are far from easy to implement, with consequences which are normally none too pleasant for those on the receiving end. Indeed they bear a striking resemblance to what used to be called wage and price deflation in the 1930s. Have we really advanced so little in all these years, or are there now more sophistocated policy instruments available to public authorities to implement such changes in a way that parallels the monetary policy improvements which we have seen in action during the present crisis?

P.K.: I wish I had some clever suggestions. But the essentials of economics change much less than the façade. The truth is that Spain is very much in the same situation as gold-standard countries in the 1930s; in some ways worse, because it lacks the option of using trade policy as a substitute for devaluation. So deflation it must be.

Ten

E.H.: Finally, as one decade draws to a close, and another opens, are there any grounds for optimism? You often speak of the return of depression economics, is what we once called the "modern growth era" now decidedly over, or are we simply passing through an interlude, with a new dawn out there waiting for us, somewhere just over the horizon?


P.K.: We will recover eventually. And we have learned some things since the Depression, which was why this hasn’t been nearly as bad. Overall, leadership is better – I’m especially relieved that we have smart, well-intentioned people running my own country, which is a major improvement. So sure, things will improve. But it’s going to be a hard slog.

P.K.: Numbers, numbers, numbers. Those huge current account deficits practically screamed “bubble”. In general, it’s been amazing how useful even very rough measures of imbalance have been at predicting crisis, in everything from U.S. housing to Latvia. And that makes it even more amazing how few people recognized the warning signs.

Is Spain Getting Left Behind?
by Edward Hugh

This not unreasonable question was asked today by Ralph Atkins on the FT’s Money Supply Blog:

The economic news from Spain has turned more worrisome. Eurozone purchasing managers’ indices for manufacturing showed the region’s recovery humming along nicely (December’s final index reading at 51.6, up from 51.2 in November, was in line with the preliminary estimate released last month).

But Spain is heading in the opposite direction. Activity in its manufacturing sector continued to fall, and the pace of contraction in the fourth quarter was faster than in the third quarter, according to Markit, which produces the survey. Spain’s manufacturers are also reporting far steeper job losses than in other large eurozone economies, according to Chris Williamson, Markit’s chief economist.

Ralph certainly has a point here. Spain’s December PMI results are shocking, it posted 45.2 in December, just below the 45.3 posted in November, indicating a still substantial rate of contraction. Even more to the point this is the third month running where Spain has turned in the worst reading of any of the 26 countries included in JPMorgan’s Global Manufacturing Survey.

As Andrew Harker, economist at Markit, puts it:

“The December PMI data completes a dreadful year for the Spanish manufacturing sector. Output decreased in each month apart from a marginal rise in July, with demand showing very little sign of recovery. The weakness of demand, amplified by dire labour market conditions in Spain, means that while input costs are rising, firms are forced to continue to offer discounts, further harming margins.”

As Ralph points out, Spain’s high unemployment could be one reason why Spanish manufacturing output continues to contract - there is less demand for manufactured consumer products. But this does not explain why Spanish exports are also under-performing the eurozone average. As he says, to understand this you need to understand the competitiveness issue. Spain’s trade deficit has in fact deteriorated rather than improving in recent months, so something somewhere isn’t working.

And meanwhile, according to the latest Bank of Spain data, net external debt rose in the third quarter, to 955 billion euros, or just under 90% of GDP.

And the government deficit keeps rising and rising. According to estimates by Julian Callow, Chief European Economist at Barclays Capital, Spain’s general government borrowing requirement in the third quarter was around 33.96 billion euros (or an estimated 13.0% of GDP), up from 31.2 billion in the second quarter (around 11.9% of GDP).Based on this estimated Callow reckons the fiscal deficit to GDP ratio might come out at an average of around 11.5% of GDP for 2009, substantially worse than most estimates (e.g. the OECD’s mid-November estimate of 9.6% of GDP). I largely agree, and have been working on a rule of thumb estimate of 12% of GDP deficit (partly because I think GDP will finally come in lower than expected, and partly because I fear revenue will fall more than anticipated).

And to cap it all (for today) October house sales and new mortgages both fell back sharply from September.Take a good look at the two charts below (the first is the % drop in new mortages constituted from the peak, the second is a three month moving average of new house sales) I’m sure you’ll agree, they have recovery written all over them.

But to come back to Ralph’s initial point, I wouldn’t say that Spain is simply being left behind, it is actually going backwards. And now the screws are really - slowly but steadily - going to start to tighten. The first hint came last week with the announcement that the latest one year Euribor “fixing” had gone upwards for the first time in a year, due to the slow movement upwards of the Eonia inter bank rate (as forecast in this post). So mortgage interest rates are now going up, and it will be a long long time before they start to come down again. Secondly, while almost everyone in the private sector is busy adjusting prices downwards, a whole raft of government and local authority administered prices were raised on 1st January. And then, next July, VAT will also be raised. What all of these three moves have in common is that they are going to scoop domestic demand out of the economy. The first, in the form of interest payments to those who hold Spain’s external debt, and the other two in order to reduce the government fiscal deficit. That is, there will be no growth benefit from any of these moves, quite the contrary, which is why I say, Spain isn’t just being left behind, it is actually travelling backwards .