14 December 2011

BBC: Economics Graphs of the Year

The BCC has a neat feature that policy wonks will love -- 11 top economists select their "graphs of the year." My selection from those 11 is shown above. It shows dramatically some of the policy illusions that we have lived under for much of the past decade or so, and which have unraveled dramatically in recent years. Policy analysts, politicians and the public have big jobs ahead in 2012.

11 comments:

Mark Bahner said...

Hi Roger,

How do you think this relates to your September 7th post, courtesy of Martin Wolf, that the U.S. government should "listen to the markets" and borrow, borrow, borrow?

I think this graph perfectly illustrates my counterpoint at the time: markets can change their minds very quickly. Just look at Greece, Portugal, and Ireland.

Or Enron. Or Bernie Madoff.

Roger Pielke, Jr. said...

-1-Mark Bahner

I don't think that it relates in the slightest ;-)

But it does related to this one:

http://rogerpielkejr.blogspot.com/2011/12/economy-stupid-or-is-it-innovation.html

Ultimately the issue has to do with rate of return. If one expects that gov't spending can lead to growth at a higher rate than today's interest rates, then borrow makes sense, and of course vice versa.

It is a legitimate debate with plausible views on either side.

Mark B. said...

Let's see now... There was a consensus in Europe that the Euro would bring a brighter future. Just sign the treaty and a rising tide would lift all ships. Meanwhile, the (Euro)-skeptics were ridiculed and insulted as cranks and loons.

How''s that consensus working out for them?

DaveJR said...

Mark B, indeed, and if you didn't see it first time around, you'll get a chance to watch the replay when any deal done to "save" the Euro inevitably puts Euro politics first and Euro economics second.

I think the fate of the european experiment is, ironically, foreshadowed by the country of its capital, Belgium. A single country, politically divided by cultural history.

dljvjbsl said...

Later graphs show a different and more serious explanation for the crisis in Europe. Unit labor costs in Spain, Portugal Greece etc have grown faster than the EU average and their exports have fallen probably as a result.

So it looks to me, and I have read it in accounts by economists, that this is not a debt problem. The problem is that the Greeks etc have used borrowed money to pay themselves higher wages and as a result priced themselves out of the market. This is a ongoing structural problem caused by the Euro and not some debt issue. Normally these inflated wages could be decreased by currency devaluation. However the Euro and European politics prevent this.

The Euro was a bad idea

We are all in serious trouble because of that bad idea and European politics

Mark B. said...

-5- dljv - whatever

On the other hand, the Germans kept rates low so that the Greeks could borrow to buy their BMWS and keep German factories running. And in any case, everyone knew that the Greek numbers were a kludge when they entered the Euro, but they all papered over it to keep the EU and the Euro-zone growing. Because they knew that when it stopped growing, it would die. The busy work of expansion kept the public and the market's eye off the ball. Lehman Bros collapse began the awakening of the markets, which is still continuing.

Abdul Abulbul Amir said...

.

The root problem is that the Greeks et al have been consuming more wealth than they have been creating. This can go on for a short time, but to go on for a long time requires someone else to provide that wealth.

The political issue at the moment boils down to trying to convince Germans they need to work to their late 60's so Greeks can retire to the beach on a nice pension in their early 50's. Good luck with that.

.

Gerard Harbison said...

The Economist had an (IMO) insightful comparison of the Euro with the Gold Standard. The Gold Standard worked wonderfully for most governments until 1929. Then it became a millstone. I wonder what a similar comparison of interest rates 1925 - 1935 would show.

But it would appear the Euro died, effectively, in 2009. It's currently running around like a chicken with its head cut off.

jgdes said...

All of you who are critical of the Euro must be shocked to discover it is still doing better than the dollar or the pound.

But at least these countries are trying to pay off their debt. The US clearly intends to default.

Meanwhile the ostrich-like UK Europhobes now tell us massive devaluation of the pound against the Euro is a great thing. Yet the same clowns had said the exact opposite when the pound was high.

Oh I see it now, it must be the ability to have a highly volatile currency that you can print on demand that is great. Yeah right!

The only thing the European banks and smaller Euro nations got wrong was in copying the debt crazy Anglo-Saxon ideas, in the foolish presumption that they might know what they were doing. Meantime while US and UK banks have either closed or been bailed out, I don't see that happening yet in Euroland. It might still happen but at least they lasted out longer.

Gerard Harbison said...

All of you who are critical of the Euro must be shocked to discover it is still doing better than the dollar or the pound.

'Better' in this context means what? The Euro this morning is at $1.30, which is very close to its 12 month low. The smart money says it's going lower.

The only thing the European banks and smaller Euro nations got wrong was in copying the debt crazy Anglo-Saxon ideas, in the foolish presumption that they might know what they were doing. Meantime while US and UK banks have either closed or been bailed out, I don't see that happening yet in Euroland. It might still happen but at least they lasted out longer.

How delightfully stereotypical of you.

dljvjbsl said...

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But at least these countries are trying to pay off their debt. The US clearly intends to default.
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US debt is designated in US dollars. The US government can create dollars out of nothing. It is difficult to conceive of a reserve currency country defaulting when all it has to do is to create teh money to pay its debts.

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