James Galbraith Reports On A Conference Of European Economists About The Crisis

James Galbraith summarizes the discussions about the euro zone crisis at the University of Texas. The conference included 20 economists from Europe to discuss the problems in the euro zone. The first problem that he mentioned was the imbalance in competitiveness between Germany and nearby nations. Over time the imbalance in competitiveness was bound to create trade surpluses in Germany relative to the South. The problem is not in the imbalances, per se, it has been in the way that the imbalances have been treated. The US has similar imbalances between the North and the South. The federal government has dealt with this problem by channeling military spending to the South and by funding infrastructure projects in the South. This has reduced the competitiveness gap and it has encouraged private business to locate in the South. In other words, the North has transferred wealth to the less competitive South.

The other problem in Europe is that its banking system, like that in the US, is organized for the benefit of bankers and many of its "innovations" have created problems. Attempting to grow an economy by the use of debt will always lead to booms and busts. He also points out that making the banks take haircuts on Greek debt will not help Greece. It primarily helps countries that want to lessen the burden of the state in dealing with the problems. Greek banks and pension funds will bear the burden of the loss. He is not a fan of using the private credit markets to fund government debt. He fears that the super rich in Greece have their money in safe storage elsewhere. They will not suffer as much from the crisis as the ordinary citizen.

He was asked what the consensus in America was on the euro zone crisis. He said that he was not aware of any consensus, and if there were a consensus he would not pay any attention to it. Galbraith is a maverick among American economists. We need more mavericks like Galbraith.