Monday, August 25, 2014

Lindau Conference Economists Highly Critical Of Economic Policies That Are Wrong And Bad For Economy

"Anyone who fears inflation is stupid" was one of the comments at the Lindau meeting in which Angela Market gave the Keynote Address.  Nobel Laureate Christopher Sims told the audience that monetarists who believe the expansion of debt is like an expansion of money that produces inflation are wrong.  He argued that QE by central banks has not created a risk of inflation because it has not increased consumption.  Households understand that governments will have to deal with their debt burdens in the future.  The implication that governments will have to raise taxes and/or reduce spending has encouraged households to save more of their income. 

Nobel Laureate Vern Smith, who is not a Keynesian,  provided another reason for the slowdown in consumer spending.  Households are investing in housing which is considered to be a safe investment.  Even before the sub prime housing bubble, home prices were above their long run average relative to median income.  They are half way back to where they were in their peak in 2001.

Nobel Laureate Peter Diamond told the audience that government austerity policies are criminal.  Governments can borrow at zero real interest to make investments that will make their economies more productive in the future.  Instead they are letting human capital and infrastructure erode.  That will make western economies less competitive in the future.

I doubt that Angela Markel welcomed these comments from Nobel Laureates.  She is stuck with the austerity policies that she has advocated.  Political sentiment in Germany, and in many eurozone nations is not supportive of monetary and fiscal policies that would integrate the eurozone. 

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