Dani for President

‘Rodrik states something rather obvious: The short and the long run are linked, and to make sure that the intended long run effects of a policy materialize, we need to ensure that it is compatible in the short run with the macroeconomic environment and with other policies. This view is not surprising from an economist who has always recognized the complexity of economic phenomena, and the importance of institutions to accompany market processes.’ Tämä keskustelu liittyy myös edellisiin blogikirjoituksiin tänään.

Sparse Thoughts of a Gloomy European Economist

Dani Rodrik has an excellent piece on Project Syndicate. I strongly advise reading and sharing it. Rodrik points out that structural reforms (if well designed, I’d add) tend to destroy jobs in low productivity sectors, and to create them in high productivity ones. He then argues that for the second effect  to happen, the high productivity sectors need to face strong demand. This is not happening right now, so that structural reforms, where implemented, are only contributing to depressing employment and growth. He concludes that the very success of structural reforms depends on fixing the short run aggregate demand deficiency problem, through standard Keynesian policies. The zest of the paper is in the last two paragraphs:

Ultimately, a workable European economic union does require greater structural homogeneity and institutional convergence (especially in labor markets) among its members. So the German argument contains a kernel of validity: In the long run…

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