Journalist of the year

Over the past few years no journalist has exposed the incompetence of the Eurocrats as mercilessly as Ambrose Evans-Pritchard:

The US, Japan, Britain, as well as the Swiss, Scandies, and a string of states around the world, are actively driving down their currencies or imposing caps.

They are tearing up the script, embracing the new creed of nominal GDP targeting (NGDP), a licence for yet more radical action.

The side-effects of this currency warfare — or “beggar-thy-neighbour’ policy as it was known in the 1930s — is an escalating leakage of monetary stimulus into the global system.

So don’t fight the Fed, and never fight the world’s central banks on multiple fronts.

Stock markets have already sensed this, up to a point, lifting Tokyo’s Nikkei by 23pc and Wall Street by 10pc since June.

. . .

The euro will reach $1.44, just as austerity bites in earnest, a ruinous mix. As France loses 50,000 jobs a month –and its car industry — François Hollande will agitate for use of Article 219 (2) of the Lisbon Treaty, exhorting the ECB force down the exchange rate. By then it will be too late. Scorched-earth policies will have destroyed is quinquennat.

Italy’s lira parties will not win the February elections. But a scotched Silvio Berlusconi will be more dangerous to the 2nd Monti commissariat on the outside, with his sharp media teeth. Italy will be ungovernable. But there will be no `Badoglio’ moment, no walking out, this year.

Spain’s jobless rate will ratchet up from 26pc to 30pc as Mariano Rajoy does what he is told, slashing and burning, in the midst of an accelerating housing crash. The anomaly is why the Left — in Spain, and across Europe — continues to back a reactionary EMU agenda that sets policy in the interest of creditors and drives youth unemployment rise to 55pc. La trahison des clercs.

It is always hard in socio-politics to foretell a snapping point. It can come suddenly, by a chance event, like Britain’s Invergordon ‘mutiny’ in 1931, or the shooting of French dockers in 1935.

Yet I see little to disturb Europe’s grim status quo this year. The riots of 2013 will be just as ineffectual as the riots of 2012. Contraction will grind on. Germany’s Wolfgang Schäuble will have his way.

Yet it will be a Pyrrhic victory. Euroland will be left behind as the rest of the world moves on, lagging US growth by almost 3pc of GDP for a second year, and certain to lag again in 2014, the “new normal”.

This is the year when it will become clear to many that Europe is in far deeper trouble than supposed; that it risks tipping into irretrievable decline; that it is wasting its precious youth at the worst moment, as the aging crunch nears, when it should have none to spare; that it is resorting to ever more coercive measures and autocratic methods; and all to save a currency that is the elemental cause of the disaster in the first place, and should morally be broken into its democratically-controlled parts.

There is no place for a monetary dictatorship in 21st Century Europe.

Clarity is a good start.

Read the whole thing.

Matt Yglesias once said that:

The Great Recession has revealed lack of capacity for engaging with monetary issues to be a major institutional weakness of the progressive movement.

That’s doubly true for the euro-left.

PS. My support for Japanese reflation does not imply support for the more loony aspects of the Abe administration.

HT:  Bruce Bartlett



17 Responses to “Journalist of the year”

  1. Gravatar of TravisV TravisV
    1. January 2013 at 07:44

    Prof. Sumner,

    Could you at least explain why emerging markets such as China tend to have much higher rates of inflation than relatively wealthy countries?

  2. Gravatar of Saturos Saturos
    1. January 2013 at 08:51

    Hmmm, not so sure I like the references to “global savings glut” and “structural trade depression”. Also, if he thinks the world is “embracing the new creed of nominal GDP targeting”, then why is he talking about “cycles” of growth and recovery? Certainly NGDPLT would end the business cycle, any remaining recessions would be not in the least regular.

  3. Gravatar of Saturos Saturos
    1. January 2013 at 09:03

    Other news from the Telegraph: Hollande is desperate:

    And why oh why can’t we have a better press corps?

  4. Gravatar of Saturos Saturos
    1. January 2013 at 09:04

    Why can’t we have better central bankers for that matter:

    That’s maybe a moot complaint, though, now that Carney is coming in. Fingers crossed.

  5. Gravatar of Mattias Mattias
    1. January 2013 at 10:18

    Then why have the European markets had such a good year, if the situation really is so dire as Ambrose Evans-Pritchard claims?

  6. Gravatar of TravisV TravisV
    1. January 2013 at 10:30

    Could it be that emerging markets allow higher inflation in an effort to pursue export-led growth?

  7. Gravatar of jknarr jknarr
    1. January 2013 at 12:28

    AEP points in the right direction, but he perpetuates reasonable-sounding myths of misunderstanding, incompetence, and calvin-ian cultural nonsense.

    The problem is that the supranational institutions (EU, ECB) interests are not those of the nation-states/populaces. The EU and ECB is actively working to destroy the nation-state democracies of Europe. Actively overextending debt and then gaining political control is a time-tested means of imperialism.

    This is a better Occam’s razor explanation than the kludge of monetary misunderstandings than AEP feeds his audience.

  8. Gravatar of ssumner ssumner
    1. January 2013 at 13:41

    TravisV, I’ve answered your question over and over. Don’t make me ban you from this blog. I’ve never banned anyone yet.

    Saturos, The business “cycle” has never been regular.

  9. Gravatar of Saturos Saturos
    1. January 2013 at 21:00

    I dunno, I just think people should no longer be passe about recessions post NGDPLT, expecting them as a matter of course.

  10. Gravatar of Benjamin Cole Benjamin Cole
    1. January 2013 at 21:18

    I’ll say it again: The era of independent central banks is best over.

    Independent mans a central bank can pursue exalted, even deified institutional goals (amid self-lionization) and ignore macroeconomic realities.

    Add on: Japan tried QE for five years, and probably should have done it longer and harder.

    Okay, USA: We may need QE hot and heavy for 10 years.

    The Fed becomes a revenue function. That’s a Treasury Department function.

    I notice economists cannot bear to talk about monetizing the debt as a virtue, and that central banks are best not run by “experts’ but by people accountable to the public.

    I will say it out loud: Print money to pay off federal IOUs, and put my President in charge of the operation. If he does a bad job, then I can vote him out.

    The Rube Goldbergian FOMC and Fed is an insult to democracy. Worse, it doesn’t work.

  11. Gravatar of Brian Donohue Brian Donohue
    1. January 2013 at 22:09


    “Certainly NGDPLT would end the business cycle”

    It’s comments like this that make The Movement sound kool-aidish to me.

    In my experience, there is a rhythm to business, such that sometimes your pipeline is full and you scramble to deliver and throw manpower at projects without regard to costs. Then sometimes the pace slows down and you take stock and a close look at the expense side of the ledger.

    This second phase, it seems to me, is what distinguishes a private enterprise from a government enterprise- the latter don’t go through regular bouts of ‘pruning’.

    I don’t see how NGDPLT can, or should, interfere with this rhythm.

  12. Gravatar of ssumner ssumner
    2. January 2013 at 08:17

    Saturos and Brian, I honestly don’t know how much of a cycle we’d get. I suspect the 2001 recession might have still happened, as the NGDP fluctuation was fairly small, and might have been in the “margin of error” for NGDPLT. On the other hand the Australian case suggests recessions aren’t inevitable, at least in terms of one per decade. So I have an open mind.

  13. Gravatar of Saturos Saturos
    2. January 2013 at 08:43

    Brian, you’re making a common fallacy, confusing individual and aggregate conditions (general vs partial equilibrium). Why should all business find themselves with a glut of goods being sold? Have people stopped wanting to buy stuff in general? If so then why are people still trying so hard to sell stuff.

    If you believe like me that 90% of the business cycle is monetary disequilibrium, then stabilizing the value of money should nearly abolish recessions. It’s not at all “natural” for a market economy to suddenly have millions of people thrown out of work, not one bit.

  14. Gravatar of Doug M Doug M
    2. January 2013 at 10:13

    “you’re making a common fallacy, confusing individual and aggregate conditions (general vs partial equilibrium). Why should all business find themselves with a glut of goods being sold?”

    1) why shouldn’t they?
    2) because there is feedback. The actions of one agent affect the conditions for nearby agents. It should be expected that one person can create a ripple that impacts many.

    “If you believe like me that 90% of the business cycle is monetary disequilibrium, then stabilizing the value of money should nearly abolish recessions. It’s not at all “natural” for a market economy to suddenly have millions of people thrown out of work, not one bit.”

    I would say that the majority of factors that lead an ecnomy are in fact real, some are politcal, and don’t underestimate the influence the weather has on the business cycle. “Monitary disequilibrium” my just be the tail of the dog.

    Economic growth arises when a resource is transferred to a higher valued use. Economic destruction happens, when the percieved (future) value is different from the actual value. This leads to overinvestment. Eventually, the perception will come into line with reality.

    Economic destruction (recession) is competely natural. The wind blows on the ocean and creates waves.

  15. Gravatar of Geoff Geoff
    2. January 2013 at 11:38


    Suppose that overnight while everyone was sleeping, a mischievous group of very powerful gremlins wanted to have a good laugh for themselves at our expense. Suppose they decided to move every single factory and capital good all over the country, in a random way.

    Imagine everyone waking up and going to work, only to find that their place of employment is no longer there.

    I am sure you can imagine that workers and investors will spend time finding out where the heck their assets are, figure out how to fix things, and get back to doing what they want to do. This will take time. It is almost a guarantee that workers will be laid off, and aggregate spending would fall, at least in the short run.

    Yet in aggregate terms, the same capital is there. The same “stuff” exists. The same money exists. The same everything exists in physical terms. All of it has just been re-arranged.

    Now, given the fact that aggregate spending has fallen and unemployment has risen, probably quite substantially, would it be correct to “blame” the unemployment and falling spending on insufficient money printing from a central bank authority? That the Fed “failed” to provide enough “stimulus” to “keep the economy going”, despite the fact that the capital base is a mess? I hope you will say of course not, that here the problem is definitely real, not nominal.

    Well, my question to you is how are you actually distinguishing real side problems from nominal side problems in the real world without gremlins and without money eaters? I hope that by my example you can’t ONLY go by the fall in aggregate spending, because if you did that, you would not be able to see the real side problems, as that is precisely what we have to discern and cannot miss!

    In other words, if you are going to claim yourself knowledgeable in being able to distinguish nominal side problems from real side problems, and conclude “this recession was caused by problems on the demand side”, then you are going to have to ground your argument on a foundation that does not itself define falling spending as a problem!

    For if you did that, then you would blame the above recession on a “timid” Fed, and not the gremlins, when the problem was caused by the gremlins that only APPEARS as falling spending if that is what you focus on.

  16. Gravatar of Brian Donohue Brian Donohue
    2. January 2013 at 12:29

    Saturos, I get what you’re saying, but it’s not like during a ‘recession’ 100% of businesses are negatively affected. Considering that businesses may be related to one another, isn’t a recession just a period when lots of businesses are simultaneously (and relatedly) ebbing? Nothing in historical experience with respect to length, timing, or amplitude of recessions warrants describing this process as “cyclical”, IMO. Things ebb, then they flow. C’est la vie.

    I don’t have an opinion on the “natural” pattern of employment conditions under a market economy. Again, I hear what you’re saying, but it seems to me there is enough interdependence among individuals that agggregate ebbs and flows don’t surprise me. Especially nowadays, there is a “national mood” that is relentlessly reported on ( UofM consumer confidence, NAM surveys), and an ever-changing ‘zeitgeist’ e.g. in financial markets. The herd lives, though maybe NGDPLT can smooth out the bumps a bit. Hey, I’m willing to give it a try, but I’m also trying to figure out the weakness here that will be obvious to everyone after 10 years of experience.

  17. Gravatar of Bababooey Bababooey
    2. January 2013 at 14:13

    PS. My support for Japanese reflation does not imply support for the more loony aspects of the Abe administration/

    That doesn’t help Milton Friedman in the left’s estimation.

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