Wednesday, July 25, 2012

Michael Stephens — What Matters Is What We Do Next

Martin Essex of the Wall Street Journal flags Dimitri Papadimitriou and Randall Wray’s recent Policy Note on the eurozone, “Euroland’s Original Sin.” The Note traces the root cause of the eurozone’s struggles, including the solvency issues and bank runs in the periphery, to a fundamental design flaw in its setup: national governments gave up currency sovereignty by adopting the euro but retained responsibility for their own fiscal policy.
Essex chooses to focus on a footnote that quotes some early predictions by those associated with the Levy Institute, which is fine. But it’s important to note a couple of things here. First, the point is not that the euro project was predicted to run into trouble in general, but that in these quotations the problems were predicted to flow from a particular structural flaw: the separation between fiscal policy and monetary sovereignty. And this is important for reasons that go beyond a prescience contest. The predictions serve as a useful guide for figuring out what needs to be done to save the euro project
Getting it right isn’t about being able to say “I told you so,” but about having the credibility to say “here’s what should happen next” ....
Essex titles his post “Who Warned About the Euro First?” But the point of the Policy Note (and even of the footnote that forms the basis of Essex’s post) is not to stake some claim on behalf of the quoted authors to being the first to get it right; nor even to claim that only those affiliated with the Levy Institute got it right (hence, Garber). Whether you figured it out the month before Wynne Godley published “Maastricht And All That,” or last Thursday, the point is to understand as clearly as possible what’s going wrong in the eurozone and to use that understanding to help push for solutions—that’s where this conversation needs to go, and that’s where the Policy Note tries to take us.
Read it at Multiplier Effect | The Levy Economics Institute Blog
What Matters Is What We Do Next
by Michael Stephens