Editors note: Brent in his comment below correctly points out that it is productivity adjusted real wages to which I refer. Moreover, for Germany pairwise comparisons with other countries make these wages lower than they would be if they had their own currency because the Euro is an average currency, whose value is lower than the DM would be. For the periphery countries the effect is the opposite and this is what has lead to them importing at an accelerated pace from Germany (exporting their jobs) for much of the last decade. What is more, for good stretches of the last decade real wages in Germany have been declining (exhibiting much of the vaunted labour market flexibility despite an economy with significant union representation). Finally, in trade models with imperfect competition the lowest cost producer may be kept out of the market because an established player prevents them from getting down the cost curve to a an economic level of efficiency. One more potential hurdle confronting the PIIGS wrt to German competition.
Wages need to fall to Eastern European levels, or else production will be moved. Italian firm shifts production to Poland in the night. Coming soon to entire Eurozone. (my thanks to Dan for the link)
Editors note: Brent in his comment below correctly points out that it is productivity adjusted real wages to which I refer. Moreover, for Germany pairwise comparisons with other countries make these wages lower than they would be if they had their own currency because the Euro is an average currency, whose value is lower than the DM would be. For the periphery countries the effect is the opposite and this is what has lead to them importing at an accelerated pace from Germany (exporting their jobs) for much of the last decade. What is more, for good stretches of the last decade real wages in Germany have been declining (exhibiting much of the vaunted labour market flexibility despite an economy with significant union representation). Finally, in trade models with imperfect competition the lowest cost producer may be kept out of the market because an established player prevents them from getting down the cost curve to a an economic level of efficiency. One more potential hurdle confronting the PIIGS wrt to German competition.
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Tonight I watched the first episode of the last season of Breaking Bad. The show has an unusual arc where the good guy at the start of the series slowly but increasingly becomes evil incarnate. And yet we cheer for him. Sure we have been fascinated with monsters, Tony Soprano, Hannibal Lector, Scarface. But I think it is different this time. The usual Greek tragedy plot line would demand that Walter meet some horrible demise, yet I don't feel that way this time.
I went for a walk in the forest after the show and couldn't stop thinking about it. This type of show would never have played in the 1980s. Art is a mirror of our time. AMC did an after show with the show's creator Vince Gillian and her Modern Family mom Julie Bowen. She said she is still cheering for Walter White and the show is a search for significance. I think that nails it on the head. Walter White is the blue collar disenfranchised 50 year old. When he is diagnosed with cancer his rich friends offer to bail him out but he opts instead for a life of crime. F**k the police! F**k the corporate establishment! F**k my uptight wife and friends. Walter is a man for our time. When is DEA brother in-law confronts him at the end of tonight's episode, he looks Walter in the eye and tells him he doesn't even know him.. Walter replies, ".... then maybe your best course would be to tread lightly." This is a message that all elites should hear in this world of increasing inequality and marginalization. Get enough Walter Whites together and the whole country will Break Bad. A scathing assessment of the lack of progress in Greece, other PIIGS and the failure of the IMF. My thanks to Brent for the tip.
A month ago I talked about this in a post titled "Send in the Clowns". I quoted a BIS report. "What central bank accommodation has done during the recovery is to borrow time – time for balance sheet repair, time for fiscal consolidation, and time for reforms to restore productivity growth. But the time has not been well used, as continued low interest rates and unconventional policies have made it easy for the private sector to postpone deleveraging, easy for the government to finance deficits, and easy for the authorities to delay needed reforms in the real economy and in the financial system. After all, cheap money makes it easier to borrow than to save, easier to spend than to tax, easier to remain the same than to change." Whole societies are being wrecked, needlessly.God help us all where this is going - the blowback against the elites is going to be epic. Babies will be thrown out with the bath water. There will be hell to pay. As I have been telling my students for years, high unemployment means household formation will be wrecked. Population growth has historically been 1/3 of real economic growth. Greece is now in the 7th year of recession, how much longer do you think unemployment will remain high? Gillian Tett of FT.
Two from Mish.(Both are reposts of other media sources)
In Spain "62% do not believe that the economic crisis has already had its biggest impact on the labor market and therefore the economy is recovering slowly, and, on the contrary, they think that "the worst of the crisis is yet to come". I am with the majority on this one. In Japan "Okuma, a Japanese machine-tool maker, has seen its stock price rise around 30% this year. Its customers have outdated machinery that needs replacing. But, for now, the company isn't investing. Instead, it is sitting on a pile of cash worth about $280 million—50% higher than its pile a decade ago, equivalent to one-fifth its annual sales, and more than twice the level required for the firm be deemed loan-worthy by a bank. Why? Senior director Chikashi Horie says the answer is simple. Okuma's clients "are not investing, not even to raise efficiency, so we are not investing either," he says. Okuma's thinking embodies one of the key challenges for Prime Minister Shinzo Abe's ambitious growth plan: persuading Japan's famously stingy companies to stop stashing their earnings in the bank, and putting the money to more productive use, helping complete—rather than short-circuit—the virtuous economic cycle." Oops. Abe's casual chain isn't working. More QE to the rescue? ...as their trade deficit narrows unexpectedly (by quite a bit indeed). How much Japanese adjustment will the world be willing to bear? I have many links on these pages that suggest QE is about competitive devaluation. Here are a couple.
Increased trade frictions are inevitable.
UK the only major economy to buck the trend. Mish
If they don't get youth unemployment under control. This is something I have been saying to my students, and on these pages, for years. (My thanks to Anthony for the tip.)
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