This story is not getting as much attention as one would think in the American media, but Greece, Spain and Portugal are facing major financial crises that may end with the countries defaulting on their debt. If this happens, you can be pretty sure that the deficit scolds will use this as cautionary tale, e.g. “don’t let us be like Spain, enact `entitlement reform’ now”, etc.
Krugman points out that Spain’s budgetary practices have not been particularly irresponsible, that in fact they were running a surplus when the economy was good:
As Europe is roiled by sovereign debt fears, it’s important to realize that the crisis in the largest of the PIIGS (Portugal, Ireland, Italy, Greece, Spain) has nothing to do with fiscal irresponsibility. On the eve of the crisis, Spain was running a budget surplus; its debts, as you can see in the figure above, were low relative to GDP.
So what happened? Spain is an object lesson in the problems of having monetary union without fiscal and labor market integration. First, there was a huge boom in Spain, largely driven by a housing bubble — and financed by capital outflows from Germany. This boom pulled up Spanish wages. Then the bubble burst, leaving Spanish labor overpriced relative to Germany and France, and precipitating a surge in unemployment. It also led to large Spanish budget deficits, mainly because of collapsing revenue but also due to efforts to limit the rise in unemployment.
Montysano
And so the return to a feudal society continues apace. We’ll all be Chinese factory workers soon.
Woodbuster
Yes, and everyone will read and understand all that Krugman says, thereby avoiding excessive clusterthunking about the deficit.
HA!
Tomlinson
I think anyone who deficit scolds and is not in favor of HCR and attacking the military budget with a cleaver needs to be forced to wear a scarlet H (for hypocrite) at all times. Or maybe have it tatooed onto their forehead.
Montysano
Meanwhile, Don Vito Paulson is on my NPR, yammering about “difficult choices” and “hard work”.
DougJ
@Woodbuster:
Uh, he was citing figures here.
superluminar
@DougJ
Nice Clash reference, BTW.
Carry on, also.
benjoya
o ma corazon!
burnspbesq
Is there also going to be a “train in vain” thread today, in honor of the partial closure of the DC Metro?
DougJ
@burnspbesq:
Is there also going to be a “train in vain” thread today, in honor of the partial closure of the DC Metro?
Any excuse for a Clash thread!
The Grand Panjandrum
Should I stay, or should I go?
burnspbesq
If the Spanish financial crisis drives Real Madrid into bankruptcy, all the pain will have been worth it.
jeffreyw
linky
Bill H
I don’t understand some of what Krugman says. Some I think I understand to be just Democratic cheerleading. Some I understand and it makes sense. Some sounds like “American exceptionalism” to me: every bad thing that happens in another country doesn’t apply to us, or we are exempt in some manner. And some things sound just plain stupid.
Like, we can allow the debt to become as large as we want and repaying it won’t be a problem. Allow it to become 70% of GDP, then just mark time and the GDP will grow to the extent that the debt as a proportion of the GDP will shrink. When the GDP has grown enough the debt has shrunk, without us having paid anything back, to 5% of GDP then it will be easy to repay it.
If that isn’t a magic pony, then there is no such thing as magic ponies.
I think Krugman writes things on varying degrees of some sort of medication.
Akbar Zib (FKA jeffreyw)
This comment conveys no new information.
burnspbesq
The Irish finance bill that was introduced in the Dail earlier this week is a schizoid dog’s breakfast of questionable tax policy. The Irish can’t decide whether to be deficit hawks or to try and grow their way out by making Ireland an even more attractive tax haven for US-based multi-nationals.
jeffreyw
Damn you Word Press! A fine joke ruined, again.
Bobzim
I heard Dylan Ratigan talking about this yesterday and he said a lot of it was banksters shorting Spain, Greece, and Portugal’s debt.
burnspbesq
@jeffreyw:
Wait a sec. We are told that “Allahu Akbar” means “God is great,” but in the case of this guy “Akbar” is said to mean biggest.
If he changes his name to “Magic Dick” and brings a harmonica, will they let him in?
jeffreyw
@burnspbesq: Only if he has a back stage pass.
SRW1
You’re right on Spain but probably not on Greece:Like Spain, Greece is a member of the EU and the Euro zone and therefore has signed the so-called ‘stability pact’. One of the goals of this agreement is to limit member countries from running ‘excessive deficits’ (with ‘excessive’ being defined as more than 3% of GDP; Hallelujah, those were the days).
As the public finances of Greece are now in world of hurt, the maneuvering of the previous Greek government has come under closer scrutiny. Turns out they systematically beautified their financial situation with the help of complex financial transaction (cross-currency-swaps based on fictitious exchange rates) . To do this, they had help from real professionals, namely nobody others than our friends from Goldman-Sachs.
burnspbesq
@Bill H:
That’s a pretty blatant misrepresentation of Krugman’s views.
When he goes Keynesian, he is a very orthodox Keynesian. He absolutely believes in a return to fiscal responsibility. However, unlike the Republicans (and some idiot Democrats) in Congress, he understands the lessons of 1937, and doesn’t want a premature return to deficit hawkery.
I’m sure you know all that.
me
@jeffreyw: “He has wife you know, Incontinentia … Incontinentia Buttocks.”
Kirk Spencer
Bill H,
The most consistent error on the keynesian deficit is the belief keynesians say deficits are fine all the time. Keeping it REAL simple (almost criminally so), they say pump the deficit in the bad times and pay it off in the good.
Also, a percentage of a number is going to be a smaller percentage of a larger number. 70% of the lower (and I’ve no idea how you decided that number) may be 50 ,40, or even 30% once the economy has recovered and improved even before it’s paid off.
valdivia
Also interesting to note–that these are three countries that transitioned to democracy in the 70s (late 70s) precisely because of the promise that joining the European Union held. And their societies and economies benefited greatly. Together with Ireland these were the countries whose backward economies were most transformed into modern vibrant ones because of their joining the Union. Their problem, like here in the US, were housing booms and the amount of speculation by their banks on the housing boom in their countries and others.
So the a-holes conservatives can put a sock on it.
Brick Oven Bill
Spain is a lesson that when bullshit is tried by economics, bullshit loses. According to Wikipedia:
Spain has the target of generating 30% of its electricity needs from renewable energy sources by 2010, with half of that amount coming from wind power. In 2006, 20% of the total electricity demand was already produced with renewable energy sources, and in January 2009 the total electricity demand produced with renewable energy sources reached the 34.8%.
I will now correct Wikipedia.
In January 2009 the total electricity demand produced with renewable energy sources reached the 34.8%. This was during a moment when the wind was blowing. In parallel with the blowing wind, conventional sources of electricity equal to 98% of the wind energy being generated were idled, being operated in an inefficient manner, which wasted fossil fuels for no reason whatsoever.
So all of the good money that went into making the metal for these turbines, and winding the electrical motors and generators, and batching the concrete for the foundations, was one big fucking waste.
And now Spain is screwed.
SRW1
Brick, you’re a dick.
Chad N Freude
If you google “zib”, hilarity will ensue.
Chad N Freude
@Brick Oven Bill: There are a lot of areas in Spain where there are frequent moments of blowing wind, like almost constantly. By a strange coincidence, the Spanish have placed wind turbines in some those areas.
Sadly, the wind in Spain does not blow nearly as hard as Brick Oven Bill.
DougJ
@Bill H:
You really sound
like an idiotignorant here. I’m sorry, but there’s no other way to describe your comment.I don’t want to be a jerk about it, but seriously, go read a little about economics before you comment on the subject again.
Chad N Freude
@Brick Oven Bill:
Got cite?
Chad N Freude
@DougJ: That’s harsh. I think he’s just ignorant.
DougJ
@Chad N Freude:
Fine.
Brick Oven Bill
T. Boone Scraps Wind Farm.
1. The federal subsidy for wind power is $23.44/MW-hr.
2. T. Boone’s Wind Farm was to contain 4000 Megawatts of wind turbines.
Multiplying $23.44 times 4000 equals $93,760 / hr in federal subsidies for this wind farm which was to cost $10 billion. Let us now consider T. Boone’s rate of return on investment assuming that these windmills were to work, and he was to sell…
Absolutely zero power:
$93,760 times 24 equals $2.25 million per day in federal subsidies
$2.25 million times 365 equals $821 million per year in federal subsidies
Now, we come to his rate of return on investment, if these things were to work:
$821 million divided by $10 billion equals 8.21% rate of return, which is pretty good, considering that if you produce electricity, people are usually willing to buy it, to cook food and things like that.
Now consider why T. Boone walked away from the project.
Chad, the cite was from E.On Netz, a German energy integrator in their annual report. This information has subsequently been removed from the web. But using our reasoning skills, we know that the wind is intermittant, electrical demand is constant, and electricity cannot be stored.
El Cid
If Spain would just stop all the spending, it would fix their problems. I know this because this one time I talked to a guy who owned a small business and when times were tight he had to fire a guy. This means I know stuff.
Svensker
@burnspbesq:
OK, if you want to pedantic, Great Penis, instead of Biggest Dick. That make you happy?
Svensker
Oh, carpy pooh, triggered the moderation gods.
DougL (frmrly: Conservatively Liberal)
@Chad N Freude:
You know those things called ‘White Papers’, authoritative reports relating a particular subject? Well BOB has those beat with his ‘Brown Papers’. Brown? Yes, brown. That’s because he pulls them out of his ass whenever he needs to wave them around.
BOB’s facts are guaranteed to clear the room every time they are ‘aired’.
Brick Oven Bill
Rachel is employed by General Electric, whose Chairman Immelt is Barack’s economic advisor. General Electric also sells windmills. Knowing the nature of these people, I cut the words from E.On Netz’ annual report, and put them on my computer, anticipating that they would be removed from the Internet.
Behold:
“Wind energy is only able to replace traditional power stations to a limited extent. Their dependence on the prevailing wind conditions means that wind power has a limited load factor even when technically available. It is not possible to guarantee its use for the continual cover of electricity consumption. Consequently, traditional power stations with capacities equal to 90% of the installed wind power capacity must be permanently online in order to guarantee power supply at all times.”
E.On Netz went on to explain that as increased wind capacity was installed, like to 30%, that the conventional backup requirement would increase, if I recall correctly, to 98%.
If Rachel would go to lunch with me, I could explain all of this to her, and we could also have a very pleasant lunch.
DougJ
All right, Bill, that was too harsh — I’m sorry.
But the key point here is that Spain’s problems are caused by a crappy economy, not by a government that was spending too much (since they had a surplus til recently). If you accept the central premises of Kenynesian economics, then one way to help our own economy is with more spending, which in turn does lead to a bigger deficit. The idea is that, while in the short run this increases yearly deficits, in the medium term it decreases them by growing the economy, which leads to increased revenue.
Whether what Krugman is saying is wrong or not, it’s not a pony plan. It’s what most economists outside Chicago believe.
El Cid
Can someone remove the BOB unit’s batteries for a while? It’s really not funny.
Brick Oven Bill
Facts, especially ones that challange popular dogmas, rarely are El Cid.
Chad N Freude
I’ve been trying to respond to BOB, but my “Submits” don’t show up.
Chad N Freude
@Brick Oven Bill: The EON Netz report is available from a number of anti-wind websites, e.g., here. Your point is taken, but it would be a lot more effective if you presented it as a rational argument in a discussion or debate rather than a semi-mystical Olympian pronouncement.
I was not aware of the EON Netz report, and I thank you for pointing it out. Are you in the energy industry? Or a researcher? It’s hard for me to imagine a pizza maker being this interested in this subject.
I think my previous attempts to respond failed because of a second URL, omitted from this try.
henqiguai
@Tomlinson (#3):
Etched. Yep, just watched Inglorious Basterds last weekend.
El Cid
@Brick Oven Bill: I could copy and paste all sorts of facts here, you fake poster d***-head, but just like yours they’d have nought to do with the topic.
Martin
@DougJ: Well, Krugman suggests that the local government dumping money into jobs has furthered the economic problem.
Krugman is pointing out one problem of the euro, where you have a common currency base across nations with uncommon economies and labor markets. The parallel to the US is Michigan who probably at this point cannot prop up their economy internally, but needs fed intervention. Michigan cannot be saved by state spending. That’s what Spain lacked from the EU.
He’s not pointing at government spending as being a problem or a solution, he’s pointing to the problem of asking an economy that doesn’t have control over their monetary policies to save themselves and how that’s unrealistic, even for an economy that has been managed responsibly. Bottom line, since the fed manages the dollar, the fed has to be in some way involved in keeping state economies stable. Basically he’s telling all the soc!alism screamers to shut the fuck up – we have evidence of what happens when the independent economy doesn’t come to the aid of the dependent ones.
You actually do see this relationship working quite well in the south – though nobody there would ever admit to it. The state governments give sweetheart tax deals to any company that wants to move there, robbing the state of revenues, but the state relies on the fed to subsidize their public services far beyond what they pay in federal receipts. They use federal spending to steal economic growth from larger states and then bitch about federal regulation and spending. It’s shameless, but it’s a system that doesn’t exist in the EU, as Spain illustrates.
DougJ
@Martin:
Good points.
SRW1
Oh, and can I repeat that Brick is a dick. For the simple reason that his cause-effect claim on Spain’s financial problems is pathetic.
By the way, the claim that electrical demand is constant is rubbish. There is such a thing as base load and peak load in the grid, with base load typically less than half of peak load. So, there is almost always idling capacity. And idling doesn’t mean running full steam.
chrome agnomen
spain obviously did not cut taxes enough.
Chad N Freude
@SRW1: It’s not a question of base load vs peak load, it’s a question of capacity to handle peak load.
Mark S.
If you want to be completely depressed, read this:
via
Geez, more people probably believe the moon landing was a hoax than understand a basic economic principle. We’re fucked.
Jesse
I live in Portugal. People here are aware that the country’s economy is in tatters; these are tense times. There was a protest yesterday in Lisbon of public sector workers who are complaining about a proposed freeze in their wages (instead of a hike of 4.5%).
Nutella
Spain and Ireland are grim examples of what happens when a country has too much growth in a single sector. The real estate bubble hit them hardest because too much of their recent growth was in real estate and construction.
(I don’t know anything about Italy, Greece, or Portugal so have nothing to add about those countries.)