Guilty As Charged: Irish Standup Celebration Puts Economics In The Dock

November 29, 2015 Nemes Random

The court is in session. The jury has actually been selected and the general public gallery is packed. The clerk has actually sworn in the very first witness and the trial in Kilkenny’s courtroom No 2 is prepared to start.

This, though, is a tribunal with a difference. It is not a specific in the dock however economics. The occasion belongs to the Kilkenomics celebration, four days in which economists, financial experts and media analysts are asked questions by Ireland’s standup comedians.

Although it sounds a bit odd, the concept works – not least because the comedians pull the economic experts up if they beginbegin to talk in lingo. The concept is to debunk economics and turn it into Davos with jokes. There is laughter in the courtroom when the comedian Karl Spain asks the jury: “Have any of you ever been hurt by financial experts in the past?”. The quip is well-aimed. It is a great deal of fun.

This year, the main destination was Yanis Varoufakis, the previous Greek finance minister. His appearance highlighted the reality that while the eurozone crisis has vanished from the headlines, the underlying problems continue to be unsettled. Greece is being turned from an industrialized nation to a developing nation.

It was a shame that Varoufakis left prior to the trial of economics, considering that he would have been an exceptional witness. When it come to Greece, economics is guilty as charged.

The point was made by Heiner Flassbeck, who is unusual because he is a German financial expert who thinks his nation is the issue rather than an example to be followed by the rest of Europe.

“Germany is to blame,” Flassbeck informs the court. “Germany got it incorrect from the start of monetary union since it triedattempted to live below its means.”

Asked to discuss, Flassbeck states that after the German monetary union deflated domestic demand, wages didn’t keep paceequal inflation so living requirements fell. Companies couldn’t offer at house and investment was weak, however thankfully there was a security valve: countries such as China were industrialising quick and wanted the premium production items that were Germany’s speciality.

Nations in the rest of Europe struggled to match the improvement in Germany’s productivity. The circle might only be squared by Germany reinvesting the profits it was making on its exports. This took the form of capital circulations from Germany to the weak countries of southern Europe, which became heavily indebted and vulnerable to the monetary crash that came along in 2007.

At that point, one option would have been for the Germans to assist the rest of Europe through a modern form of the Marshall Plan, a 4 year postwar monetary dedication by the United States to reconstruct the economies of nations ravaged by war.

But Angela Merkel, with the assistance of other nations in northern and eastern Europe, did refrain from doing that. Instead, Berlin chose that the option was to export the German model to Spain, Greece, Portugal and Ireland.

The economics behind this was that wage cuts and less generous welfare would minimize the rate of labour. Economics books say that if you reduce the cost of something the need for it will go up. However demand for labour in Greece and Portugal did not go up: it dropped amazingly.

Why? Easy, states Flassbeck: exactly what’s true holds true of the market for potatoes is not real of the marketplace for labour. “Potatoes do not buy other goods”, he informs the court. “If you cut the price of individuals you cut their ability to purchase other items. It has actually been a catastrophe for the whole of Europe.”

No lessons have actually been learnedgained from this catastrophe, according to Flassbeck. “Having actually attempted it in Greece, Portugal and Spain, the Germans now say “let’s try it in France and Italy too”.

The experience of the recent past shows Flassbeck’s point. Another witness, Martiacute; n Lousteau, was Argentina’s youngest ever economics minister between 2007 and 2008, and discusses to the court how his nation got away from its own death spiral in 2001.

At the turn of the centuries, Argentina looked similar to Greece today. It had actually tied the peso to the dollar in an effort to sweat inflation out of the economy but the result had actually been an extreme depression and increasing debt.

In early 2002, the crisis came to a head. Argentina deserted the dollar peg and devalued. It stated it would not pay its international lenders. It stated that those members of the general public who had gotten home loans in dollars might have them redenominated in pesos making them budget-friendly. Within 5 months, Lousteau notes, the economy was growing once again.

True, he states, Argentina is now back in trouble. It has 25 % inflation, poor growth and a big budgetdeficit spending. However it is the political leaders who are to blame for failing to discover the right lessons from the past. In the 1990s, he adds, the issue was that political leaders listened too much to the economic experts; today the problem is that the cautions of economic experts have been neglected.

There was much talk in 2008 and 2009 about how the near-death experience of the worldwide financial system would result in a new economics. This hasn’t really happened yet, although events such as Kilkenny suggest there are lots of people yearning for a different way of doing things.

Richard Murphy, who has been the source of numerousa lot of Jeremy Corbyn’s economic policies, consisting of “people’s QE”- the creation of cash to spend for facilities tasks – is a huge draw. Stephanie Kelton, financial advisor to Bernie Sanders, who is challenging Hillary Clinton for the Democratic election in the US presidential race, tells the mock trial that capitalism needs to work for more than just the top 1 % of earners. Improvement in the economy is not filtering down, she says, and the anger is manifestingappears itself in the popularity both of Sanders and Donald Trump.

In a sense, there are 2 issues. One is that economics in the years preceeding the crash was dry, mathematical, irrelevant and wrong. The second is that politicians have been slow to selectdetect the concepts of financial experts who have challenged the orthodoxy. They have actually rather have actually tried to go back to company as usual. It is not simply economics that requires to show its importance, however politics too. Both have a legitimacy problem.

So here’s a question. If, as seems virtually inescapable, the shock treatment for Greece fails, what takes place next? Will there be calls for still more self-defeating austerity or will somebody stand up to Germany and state adequate is enough?

Flassbeck says there is a need in Europe for individuals strong enough to stand up to Germany. “My fear is that it will be Marie Le Pen who will do it.”

Economics,

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