Yanis Varoufakis and Joseph Stiglitz

April 9, 2015.

America’s Billionaires Owe You a Thank You Note

America’s Billionaires Owe You a Thank You Note

Economics and the Europe Crisis o

Paul Krugmam

BRUSSELS — America has yet to achieve a full recovery from the effects of the 2008 financial crisis. Still, it seems fair to say that we’ve made up much, though by no means all, of the lost ground.

But you can’t say the same about the eurozone, where real G.D.P. per capita is still lower than it was in 2007, and 10 percent or more below where it was supposed to be by now. This is worse than Europe’s track record during the 1930s.

Why has Europe done so badly? In the past few weeks, I’ve seen a number of speeches and articles suggesting that the problem lies in the inadequacy of our economic models — that we need to rethink macroeconomic theory, which has failed to offer useful policy guidance in the crisis. But is this really the story?

Paul Krugman

No, it isn’t. It’s true that few economists predicted the crisis. The clean little secret of economics since then, however, is that basic textbook models, reflecting an approach to recessions and recoveries that would have seemed familiar to students half a century ago, have performed very well. The trouble is that policy makers in Europe decided to reject those basic models in favor of alternative approaches that were innovative, exciting and completely wrong.

Signs of Intelligent Life in the Economics Profession

Dean Baker,

Last month, Larry Summers ripped into those arguing that more education is the answer to the country’s rampant inequality.

“The core problem is that there aren't enough jobs,” said the former Treasury Secretary under Bill Clinton and top economics adviser to Barack Obama. “If you help some people, you could help them get the jobs, but then someone else won't get the jobs. Unless you're doing things that have things that are affecting the demand for jobs, you're helping people win a race to get a finite number of jobs.”

He made these comments at a conference at the Brookings Institution put on by the Hamilton Project, the economics think tank funded by Summers’ predecessor at the Clinton Treasury, Robert Rubin.

If the significance of these comments is not clear, the most important economic figure of the Democratic Party mainstream was demolishing one of the party’s central themes over the last two decades. Summers was arguing that the problems of the labor force — weak employment opportunities, stagnant wages and rising inequality — were not going to be addressed by increasing the education and skills of the workforce. Rather, the problem was the overall state of the economy.

The standard education story puts the blame for stagnant wages on workers. The key to getting ahead is education. On the contrary, Summers argued at Brookings: The blame for the economic malaise goes to the people who design economic policy. It is their fault that workers aren’t able to secure decent-paying jobs.