I hate it when the popular press calls figures like Nouriel Roubini and Niall Ferguson “top economists”. They are not. Proof – statements like this:
Im SPIEGEL geht der Ökonom noch weiter. Gemeinsam mit dem Harvard-Dozenten Niall Ferguson beschreibt er, was bei einem Zusammenbruch des Euro geschehen würde: “Der deutsche Wohlstand hängt eng mit der Währungsunion zusammen. Deutsche Exporteure haben durch den Euro Wettbewerbsvorteile. Und die Euro-Zone ist das Ziel für 42 Prozent der deutschen Exporte.” Roubinis Warnung: Die Hälfte dieses Markts in eine Rezession zu befördern, “kann nicht im deutschen Interesse sein”.
What they are basically saying here is two things: 1) a pseudo-mercantilist praise of exports and 2) it’s in the Germans’ interest to give others money, so that they can buy our stuff and we can export.
This is not top economics, this is voodoo economics at its best.
First of all: exports are NOT, repeat NOT per se anything inherently good (or bad), neither are imports. Exports are bad, however, if valuable goods are exchanged against valueless promises to be paid back in the future. And imports are a good thing, at least to the extent they mean final consumption. So, for politicians (which is bad enough), let alone “top” economists to say we need the Euro to be able to continue to export valuable goods against valueless promises is… I don’t know anymore what to say. Again: exporting less and importing more is not necessarily a bad thing for Germany. And this is what would happen, if the Euro was abolished and an appreciated new Deutschmark came along. We would import more, because it would be cheaper for us to buy stuff abroad. But cheaper prices for us abroad also means a positive wealth effect at home, so Germans can also consume more of domestically produced consumption goods, which would partially compensate the lower export demand from abroad and the lower consumption demand at home due to switching into imports. What matters anyway in the end is what Germans consume, not their income, or how much they work, or how much they save. Simple economics that seems to have eluded these “top” economists.
But really it’s their last sentence that defies any logic and that got me all riled up. They in effect say: it’s in the Germans’ interest to give others money, so that they can buy our stuff and we can export. Think about this for a moment. If this was a recipe for increasing welfare – we should just keep giving away stuff. It just does not make any sense. Why don’t we just keep that part of the pie that we have given Greece and company and eat it here in Germany (or at least invest it here in Germany – if Germans are too stupid to have a party)? Voodoo Economics.
Update: to be crystal-clear about this – even though it may sound like it, the above rant is NOT per se a plea for abolishing the Euro. But you have to use better arguments for keeping it than Roubini and Ferguson. John Cochrane for instance has made the argument that you can solve Europe’s problems with the Eurozone intact, if you are willing to do certain things.