Friday, November 11, 2011

The Greek Central Banks wants to stay in the Euro

Greece will stay in the Euro and tolerate high unemployment for no reason because the Greek Central Bank wants to remain chained to the European Central Bank.

Greek central bankers, just like all central bankers, went to the same economics programs and learned the same nonsense about how deposits create loans, and how governments must tax in order to spend. Even if Greek wanted to go back to the drachma, I don't think there's anyone in Greece capable or interested in actually running a sovereign currency. Why bother when you can't tell the difference anyway?
Both Monti and Papademos look to be corporate liberal internationalists of the kind that in the U.S. end up in the Treasury Department. Papademos went to college and grad school at MIT and taught economics at Columbia from the mid-70s to the mid-80s. He even served as senior economist for the Federal Reserve Bank of Boston in 1980. Returning to Greece in 1985 to work as chief economist of the Bank of Greece, he rose to the post of the bank’s Governor; then served as Jean-Claude Trichet’s chief deputy at the European Central Bank from 2002 to 2010, returning again to Greece in 2010 to become an economic adviser to Prime Minister George Papandreou.

Monti went to college in Italy, but completed his graduate studies in economics at Yale, where he studied under James Tobin (which I suppose increases the chances that he supports a financial transaction tax). He was an economics professor and university administrator in Italy from 1970 through 1994, then was appointed to the European Commission, where he was handed various economic portfolios, including those on financial services and competition.
Where is their Financial Bismarck? How could such a man survive grad school?


Blogger Calgacus said...

Well Tobin, an old Keynesian, wasn't so bad & antedated the modern "deposits create loans", "tax in order to spend" twaddle. A Tobin epigone would be a tremendous improvement over any of the ECB technocrats, but Monti will not even be that.

3:38 AM  
Blogger winterspeak said...

Really? Do you have a (Tobin) link?

10:00 PM  
Blogger Calgacus said...

Too tired to do much now. He called himself an "old Keynesian". Imho in between Samuelsonian Keynesian (who would still be better than today's usual self-styled "Keynesian") & the real stuff: the post-Keynesian Keynesianism of Keynes, Lerner, etc. Here's a basically positive billyblog mostly on a paper of Tobin.

3:45 AM  
Blogger Ramanan said...

James Tobin was a genius.

He brought stock-flow consistency in Macroeconomics and worked on methods such as portfolio theory. The endless debates in Nick Rowe's blog about the blur between money and bonds has its roots in Tobin's portfolio allocation (which blurred it).

Many of his papers made heavy use of flow of funds.

In spite of this, Tobin continued using the IS/LM model calling it trained intuition!

I think he knew how economies work but struggled to put across his ideas because he used some neoclassical formalism in his own methodology.

And IMO, he knew central banking well ;-)

10:07 AM  
Blogger Ramanan said...

"and how governments must tax in order to spend."

Saturday Quiz

"1. A sovereign national government has to tax in order to spend"
Correct answer according to the blog: True.

For some reason, wording such as these - which I have definitely seen since long - have caught my attention only these days, especially since these are oft-repeated.

I know that you mean but because of the usage of such language by the Chartalists, the message that the government has powers to deficit spend becomes harder to get across.

Because, all said and done the government needs the taxes :)

11:58 AM  
Blogger winterspeak said...

i read through the tobin stuff, and it's pretty good! Surprised and impressed.

ramanan: don't know what billy's getting at. I think the answer is "false".

5:17 PM  
Blogger beowulf said...

I give Tobin credit for having the brass balls to quit a draft-exempt War Production Board job after Pearl Harbor to serve as a Navy line officer.
"In his book, "The Caine Mutiny," [Herman] Wouk immortalized his friend as the character Tobit, a midshipman with "a mind like a sponge ... ahead of the field by a spacious percentage."
After serving four years on the U.S.S. Kearny in the Atlantic and Mediterranean, ending his naval duty as executive officer of the ship, Mr. Tobin returned to Harvard to earn his doctorate."

8:45 PM  
Anonymous Anonymous said...

Hi Winter,

RE: " Even if Greek wanted to go back to the drachma, I don't think there's anyone in Greece capable or interested in actually running a sovereign currency."

I am guessing it's about assessment of Greek productivity and quality of output. That is, if Greece goes back to the Drachma, it might have to devalue so bad for it's product to be competitive in the World - to pay back its debt with dollar or Euro earnings - that it might get doused with inflation or cut back on Energy consumption to the point of losing all quality of life. Maybe, all things considered, Greece is better off for itself to stay in the Euro welfare umbrella? Working extra-hard might not be an option that Greeks want to go for, although the RoW might think otherwise.

9:57 AM  
Blogger winterspeak said...

Ohm: Maybe. But, it may also be good for the Greeks to go back to having to create more of their own stuff for a change. Giving up BMWs and Mercedes, and having to make a local, national car might be just the thing to occupy the nation's youth.

And I'm sure the CHARIOT, or whatever they choose to call it, won't be that great, but so what? Can't be worse than what we were driving 40 years ago and we got around fine.

10:50 AM  
Anonymous Anonymous said...

Yeah. Essentially whether the sapped Euro countries stay in the Euro or not is also influenced by RoW willing to bail out Eurozone. If the RoW refuses to play ball, they would have to exit Euro by necessity. By choice, they are trying not to, disregarding "having to make a local national car might be just the thing to occupy the nation's youth"....Guess, Welfare habit dies hard!

12:13 PM  

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