Nathan Newman <nathan.newman at yale.edu> wrote:
> There are political differences here, but there is also an objective
> evaluation of facts here that needs to be debated. Daniel Singer
> argued in his END OF SOCIALISM that the French experience of the early
> 80s showed the limits of traditional social democratic management of
> the economy from the nation-state level. In some sense, Blair and
> Schroder are conservative responses to that reality.
>
> At the nation-state governing level, is there a credible argument for
> management of the economy against the interests of the business
> community, where any gains in social justice won't be overwhelmed by
> the losses due to capital flight?
Providently, Lafontaine's main speech on the subject is translated in the newest New Left Review. His argument is that what is impossible at the level of the individual European nation state is possible at the level of Euroland for the same reasons that it is possible in the United States. A unified European economy would not only have a bigger GDP than the US, but perhaps more importantly, just as with the US, only 10% of its economy would in the export sector -- the high export proportions of today are mainly inter-Europe exports. So just as the US can run an expansionary monetary policy when it needs to without much inflationary risk, so could Europe.
Oskar adds further than the reason Europe has had a high unemployment rate for a decade is pure and simply because every country has been running a contractionary monetary policy for a decade -- except Britain, which left the European monetary system in 1992 precisely because it refused to do so. And for the last few years Euroland has been running a contractionary monetary policy pure and simply because it was trying to reach the contractionary goals set forth in Maastricht, i.e., because of international cooperative agreements. Change those agreement by the same means they were set up -- politics -- and you are perfectly free to change monetary policy and fix employment.
Of course, some people on this list might reasonably argue that what really allows the US to buck the trend is that we are the reserve currency. But interestingly, I don't think the mainstream economists Lafontaine is arguing against can avail themselves of that argument. In his recent book _The Return of Depression Economics_ Paul Krugman declares that the benefit to the US of being the reserve currency is between 0.1 and 0.2 percent of GDP, and if we lost that status, it wouldn't worry him a bit.
For leftists, the argument would be: it is quite possible for the Euro to become a reserve currency to, especially if they played the hardball we do. The may not have missiles, but they do have our bonds, especially in alliance with Japan.
Mainstream economists are always harping on the fact that rich countries do by far the lion's share of their trading with each other rather than wiht the third world. Lafontaine's argument is that is exactly what gives them the power they can set whatever wage standards they want, so long as they all agree.
Another interesting thing in Lafontaine's speech had to do with the harmonization of fiscal policy. The Economist and its ilk always carried on like this notion of his was the second coming of Bolshevism. But the same Economist (based in non-Euro Britain) has often said that the main strain on the Euro will come from the fact that, unlike the US, it won't have counter-cyclical payments that span all of Euroland. Which implies that the whole system would hold together better if it did. And what would such a system of unified counter-cylical payments look like if not like harmonized fiscal policies?
The Economist always adds that the Responsibility Pact is fiscal madness. So from their point of view, Lafontaine's desire to escape from what they themselves called a fiscal straitjacket is a sign of sanity rather than madness.
Johannes has convinced me that Oskar's political leave-taking was barmy. But I'm not yet convinced his ideas are.
Michael
__________________________________________________________________________ Michael Pollak................New York City..............mpollak at panix.com