Ronan Lyons | Personal Website
Ronan Lyons | Personal Website

Send Merkozy back to Econ101 – Economic illiteracy and the EU fiscal compact

  • James ,

    I am very disappointed as I have always agreed with the authors general analysis’s.
    While the article is good there are some glaring holes it seems to me, in an ideal world his argument is sound, and in the theoretical realm.
    Consider the absence of consideration of the irrational markets, unless I am reading him wrong he is arguing that countries should be allowed to borrow unrestricted if they want to maximize growth. This assumes the presence of a market willing to lend to them.
    So long as growth rates predicted are achieved then there is not a problem, but if state spending far exceeds income and the growth never materializes…..then the market will disappear and no money will be available.
    Then obviously the country will quickly find it does not have the money to meet day to say requirements and a crisis will ensue.
    It is a question of balance, balance between risk and reward. And responsibility and irresponsibility.
    I will be voting yea for these reasons, and anyone making the argument against regulation following the greatest failure of regulation and it’s obvious effects should be more carefully in there thinking.

    P.S. ….one final point…..
    Do we want to allow the freedom to peruse maximum growth or protect against maximum collapse?
    We need to think about what balance between these two is best for stability, just look where the pursuit of maximum growth during the “boom” brought us.
    By we I am referring to Europe as a whole…….I don’t see a future world populated by giant emerging economies being a place we want to be isolated in alone on the outskirts of a Euro-zone.

    • Ronan Lyons ,

      Hi James,
      Thanks for commenting. I guess a different way of phrasing what I wrote above is as follows, which hopefully addresses your main point:
      If governments everywhere in the developed world stopped being passive in wondering whether markets were willing to lend and actively managed their budgets in such a way that all current spending was balanced and all capital spending was quantifiably growth-oriented, this would remove the markets having to guess about debt sustainability.

      I think your weakest point is the following: “anyone making the argument against regulation following the greatest failure of regulation and it’s obvious effects”. Let’s leave aside the point that the problem pre-2007 was not so much a lack of regulation as it was bad regulation. By your very simplistic rule, I could propose any old regulation now and no matter what its consequences – even if it leads to another bubble and crash down the line – we should accept it because more regulation is better than less regulation. What we need now is not plenty of regulation, but solid and efficient regulation – a small body of regulation that creates a level playing field and to the best extent possible minimises the ups and downs of economic cycles. That is a world apart from what you wrote.

      R.

      • James ,

        Thanks Ronan, for your considered and excellent reply.

        I agree with you, thanks for the fleshing out of the regulation point I made, it was indeed very poorly expressed on my behalf. I too am in favor of balanced well informed and enforced regulation.

        Your rephrasing did the trick, it does address my main point, and I agree.

        Thanks again, and keep up the good work.

        • Leo Allen ,

          Is it not the case that by putting this into an I/G treaty – which I was of the view specifically allowed for under A20 of TEU (Libson) and no vote needed – is to make the matter actionable at a european level.

          • The Austerity Games: Ireland’s Fiscal Treaty referendum redux | Ronan Lyons ,

            […] in the casualty list was the concept of opportunity cost: in other words, it’s not how bad or economically illiterate the Fiscal Compact is in and of itself, it’s about how attractive it is relative to the other […]

            • The Irish Economy » Blog Archive » Austerity games ,

              […] of opportunity cost: in other words, there’s not really much point focusing on how bad or economically illiterate the Fiscal Compact is in and of itself. We need to ask how attractive it is relative to the other […]

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