Ülo Ennuste Economics

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Just obviously Krugman’s primus inter pares macro-studious – Finland

Letter, Sept 1 

Just obviously Krugman’s primus inter pares macro-studious – Finland

Sir/Ms, Indeed – Finns have even double-quick translated into Finnish two latest monographs by Krugman as yet:

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Lopettakaa tämä lama nyt!

Paul Krugman

Lama: talouskriisin syyt, seuraukset ja korjauskeinot”

Paul Krugman

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And obviously have taken these very academically knowledge based and actually as recipe-books in the macro-policy and mechanisms design spheres (at least half-demagogically we may say so – as in the Finnish scholarly institutions seemingly Ed Phelps name will be preferred).

Indeed since the financial crisis, Finland has enjoyed an impressive Krugmanian non-retrenchment and government-backed Keynesian intervention spending policy recovery – especially in the welfare economics spectrum on most significant indicators metrics*: since 2008 moderate real  private and government consumption growth, employment practically almost stable (in the measurement error bands), no real wage growth cuts at all had implemented/occurred, latest 2013 2Q  GDP growth solid “nil”** (NB!  GDP growth is a third rate indicator in the post-normal macroeconomic theories*), high R&D level, economic inequality stable-low, etc. Last but not least – in the interest of prospective sustainability of economic welfare growth (especially in the terms of actual individual consumption –  see Eurostat “AIC”) – governmental new substantial borrowings are politically con-sensually projected in the coalition – just keeping in mind first of all prospective natural demographic development complications and probably for expanding international donations – and  – if I am not mistaken – Finland will be still hanging on the AAA rating as the prospective real structural changes are supported by sound knowledge based institutional and mechanism reforms – not only locally but also by Brussels e.g. considering recent implementations of new mechanisms like ESM and European Semester (much under the design by PhD Olli Rehn).

Most importantly – according to* Finland has in this crisis practically suffered no recompensable national social or sutainabilty losses from teh Krugmanian specter (see e.g.**) – if I am not mistaken .

Or take another comparable caliber country with obviously “Non-Krugmanian retrenchment/cutting  policy economy” e.g. Portugal – just with the fuzzy massive governmental and private sector real spending cuts since the crisis and anomalous labor exodus and increasing economic inequality etc.

Indeed since the financial crisis Finland has “beaten” Portugal in many-many dimensions and ways e.g.: Portugal’s 2013 2Q growth was ominously -2% (minus! in the yearly comparison), employment and real wages recently much lower of the pre-2008 level, barbarous economic inequality***, anomalous outflow of workforce, diminishing GDP potential and sustainability, R&D rate incomparably low, obviously future living standard derogation in the EA17 context etc.

The conclusions about rationality of Krugmanian-Finnish  macroeconomics evolutionary symbiosis at least in the case of Portugal comparisons are yours – Ms/Sir (see also ****).

*) http://ec.europa.eu/economy_finance/publications/european_economy/2013/pdf/2013_05_03_stat_annex_en.pdf

**) http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/2-14082013-AP/EN/2-14082013-AP-EN.PDF

***) http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tsdsc260

****)  http://krugman.blogs.nytimes.com/2013/08/31/the-arithmetic-of-fantasy-fiscal-policy/?smid=fb-share&_r=0

Appendix – Abstracts from:  NYT.com August 31, 2013, 4:10 pm

Paul Krugman „The Arithmetic of Fantasy Fiscal Policy“

Sometimes — usually, though not always, in a belligerent tone — people ask me, well, how big do you think the stimulus should have been? How much debt should we have run up? Regardless of the tone, that is actually a question worth answering. With the benefit of hindsight, we do know roughly how depressed the economy has been; we have reasonably good estimates of the effects of government spending; so we can put together an estimate of what would have happened if we had, in fact, pursued a policy of government spending sufficient to keep output at potential. …

How much government spending would have been required to close that gap? The evidence is now overwhelming that when you’re at the zero lower bound the multiplier is greater than one; see,e.g., Blanchard and Leigh. Suppose we take a multiplier of 1.3, which is fairly conservative. Then it would have taken $1.76 trillion in spending over the past 4 1/2 years to close the output gap. Yes, I know, it would have been politically impossible — but we’re just doing the economics here. …

So the net extra debt we would have run up with my fantasy stimulus turns out to be a round $1 trillion. OMG: ONE TRILLION DOLLARS!

But how bad is that? It’s about 6 percent of GDP. And remember, also, that GDP would have been higher — it would have been at potential, not well below. So at this point, instead of where we are — with federal debt at 72 percent of GDP — we would have had federal debt at 76 percent of GDP. Does anyone seriously claim that this difference would have caused a fiscal crisis?

And in return for those 4 points on the debt ratio, millions of American families would have been spared the hardship and humiliation of mass unemployment, lost houses and savings, and more. We can further argue that by avoiding the corrosive effects of long-term unemployment, we would surely have avoided substantial damage to America’s longer-run economic prospects, which in turn means that future revenue would be higher — and my fantasy fiscal program would probably have improved, not worsened, our fundamental fiscal position. … “

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September 1, 2013 - Posted by | Uncategorized

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