Matt Miller's Pain

The Post is one of those papers that doesn't expect the people who write on economics to have any knowledge of the topic. Hence we have Matt Miller telling us this morning about how resolving the euro zone crisis will require that German Chancellor Angela Merkel devise a plan for "apportioning pain."

Of course the opposite is true. The pain is wholly unnecessary and self-defeating. The obvious way out of the euro crisis is to require that the European Central Bank abandon its obsession with reinforcing its Maginot Line (its 2.0 percent inflation target) and instead act like a central bank.

This would mean guaranteeing the debt of the crisis countries and supporting a higher inflation rate across the euro zone. The former step would allow the crisis countries to borrow at an affordable rate. The latter step would allow them to regain competitiveness within the euro zone. If Spain and Italy can keep their inflation rates near 1.0 percent, while inflation in Germany and northern Europe runs at a 4-5 percent rate (driven by higher wage growth), then the economies of the peripheral countries will soon be competitive again with Germany and other core countries.

This is the only way to resolve the fundamental problem of the euro zone, which is the lack of competitiveness of the peripheral countries. It does not really require pain, except perhaps from psychopaths who suffer from the thought of prices rising 4-5 percent a year rather than 2.0 percent.

It is also worth noting that Miller wrongly says the crisis countries were profligate. While this may be true of Greece and Portugal, it certainly was not true of Ireland and Spain, both of which were running large budget surpluses prior to the crisis.

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written by Union Member, June 07, 2012 8:21

For Sociopaths like Miller income distribution is unequal, while the distribution of pain is unjust. The wealth goes to the top, the pain goes to the bottom. Those who cause the great recession, profit from it; while the innocent have to suffer austerity, a creation of sociopaths like Miller.

The obvious way out of the euro crisis
written by Paul, June 07, 2012 9:13

is to massively increase demand/consumption in Europe, especially in the PIIGS. Until these economies start growing again, there is no way out of the crisis.

Germany needs to stop its extreme hoarding of wealth and predatory trade practices.

help me understand
written by Ethan, June 07, 2012 4:18

(1) Isn't one of the problems that many northern European banks invested heavily in Greece and its banks and now face potential losses on those investments?
(2) Isn't then the attempted solution as much to help these (German) banks avoid losses as it is to help Greece and its banks to avoid default?
(3) If so, why shouldn't the Germans (taxpayers, banks, whatever) bear as much pain as the Greeks (workers, bank owners, whatever).

oh the pain, the pain
written by pete, June 07, 2012 5:29

Inflation above target will put pain on lenders with lower real rates of return. And of course, as we have seen since 1968 in this country, increased income inequality as higher unexpected inflation is best absorbed and hedged by upper incomes, i.e. very painful. Real wages have been basically stagnant over this period, while the returns to capital have been tremendous. 1972-2007 the inflation was double the rate it was from 1949-1971. That means purchasing power declines at twice the rate over this latter period. Of course 1968 was peak income equality, at also the birth of the Great Society, War on Poverty, soon followed by EPA and OSHA. Due to the usual regulatory capture, these well intentioned programs have performed abysmally and only prolong poverty and increase corporate profits. Higher inflation as a policy in europe or U.S. will only exacerbate the inequality.

You understand
written by PeakVT, June 07, 2012 8:41

Ethan - Yes, yes, and I see no reason why not.

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written by S.D. Jeffries, June 07, 2012 10:07

I'm not an economics reporter for a major newspaper, but even I know that Spain & Ireland weren't running budget deficits before the bottom fell out of the housing market taking those countries' financial health to the ICU. Is this just laziness, a lack of space to explain the differences, or purposeful ignorance? Where are the editors at the WaPo?

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