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Posted on 04/07/2012 6:51:00 PM PDT by TigerLikesRooster
Rogoff: A centerless euro cannot hold
Editor's Note: Kenneth Rogoff is Professor of Economics and Public Policy at Harvard University, and was formerly chief economist at the IMF. For more from Rogoff, visit Project Syndicate's excellent new website or follow it on Facebook and Twitter.
By Kenneth Rogoff, Project Syndicate
With youth unemployment touching 50% in eurozone countries such as Spain and Greece, is a generation being sacrificed for the sake of a single currency that encompasses too diverse a group of countries to be sustainable? If so, does enlarging the euro’s membership really serve Europe’s apparent goal of maximizing economic integration without necessarily achieving full political union?
The good news is that economic research does have a few things to say about whether Europe should have a single currency. The bad news is that it has become increasingly clear that, at least for large countries, currency areas will be highly unstable unless they follow national borders. At a minimum, currency unions require a confederation with far more centralized power over taxation and other policies than European leaders envision for the eurozone.
What of Nobel Prize winner Robert Mundell’s famous 1961 conjecture that national and currency borders need not significantly overlap? In his provocative American Economic Review paper “A Theory of Optimum Currency Areas,” Mundell argued that as long as workers could move within a currency region to where the jobs were, the region could afford to forgo the equilibrating mechanism of exchange-rate adjustment. He credited another (future) Nobel Prize winner, James Meade, for having recognized the importance of labor mobility in earlier work, but criticized Meade for interpreting the idea too stringently, especially in the context of Europe’s nascent integration.
(Excerpt) Read more at globalpublicsquare.blogs.cnn.com ...
P!
I blame W.B. Yeats.
darling, i just lost my job, but economics professor b. t. mcbugger says i can get another job if we all just pick up and move to lower slobbovia. you’ve always wanted to travel, right? what, the kids? it’s a shock they have to learn lower slobbovian but economics professor h. d. hankey says foreign kids who don’t learn the native language will do so if they have enough economic incentive so we can just turn them out on the street with pencil cans instead of lunch pails, and they’ll do just fine.
we’ll all do fine, really. macro-economics theory tells us so! zbonay bzvorshna!! (”be happy” in lower slobbovian)
While mere mortals are struggling in Lower Slobbovia, he must be confident that he can relocate to a posh neighborhood of Shanghai. In time for mass uprising. Well, the latter would be “unexpected” development for him, though.
“require a confederation with far more centralized power over taxation and other policies than European leaders envision for the eurozone.”
Former IMF guy wants more centralized power for eurocrats. shocking/s
You know, economists suddenly begin to love taxes.
Well-stated sarcasm. UNaccountable bureaucrats/eurocrats are useless eaters.
Interestingly enough, I knew a few Rogoffs once. They were all full on Fabian Socialists or Communists.
Actually, the guy is taking a fairly conservative position by arguing against both global and supranational currencies. The Euro is doomed because there is no central structure, hence no fiscal discipline by most of its member states. Unlike the individuals calling for increasing amounts of money printing in order to save the sinking ship, (e.g. Bernanke et al.), Rogoff maintains that the monetary system is inevitably fatally doomed.
He doesn't go down this path, but one could effectively use his arguments against countries who attempt to peg their currencies against other country's currency for an extended period of time.
Personally, I enjoyed the article. Thanks for posting.
You caught that too.
I was wondering at this blithering nonsense of “labor mobility.” So... someone from Spain is supposed to just move to Germany and take up a job doing... what?
The thing is, different countries have different employment standards. Germans, for example, place a great deal of importance upon credentials. Their highly technical manufacturing economy requires that people have training as well as the technical language skills to read/write/analyze technical requirements, etc.
Then we can add in the issues of pay scales, which would be negatively depressed if the Germans did allow in the vast numbers of unemployed from places like Greece and Spain...
Yet economists publish papers filled with assumptions about this stuff.
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