Don't say 'Who could have known?'

[girl gone mad]

Once again, the post-Keynesians were correct.

http://neweconomicperspectives.blogspot.com/2011/11/to-those-who-got-it-right-we-salute-you.html">Predicting the Euro's Demise: To Those Who Got it Right, We Salute You!

To many of the world's most highly-regarded economists, the Eurozone's meltdown has come as a major surprise. Committed to the belief that One Market needs One Money, most economists expected the Euro to serve as an important complement to Europe's integration. But, as Cullen Roche at Pragmatic Capitalism has pointed out, those who recognized how the monetary systems actually work saw the writing on the wall, as the seeds of the Euro's own destruction were unwittingly put in place right from the beginning. Wynne Godley was the first to point out that the unprecedented divorce between the Eurozone governments' monetary and fiscal powers would place its members in a fragile position and render them powerless in the face of a crisis. It was a warning that Cullen suggested might amount to "the greatest prediction of the last 20 years." Similar praise came just last week from John Cassidy of The New Yorker magazine, who dedicated an entire piece to Godley's insights, calling him "The Man Who Saw Through the Euro."

In honor of Professor Godley we sought permission to reprint his 1992 article Maaschrict and All That in its entirety. It's a piece that is suddenly getting a lot of attention, as journalists and other commentators search for something, anything to help them understand why things in the Eurozone have unfolded so badly. As one of Britain's most accurate economic forecasters, Wynne was accustomed to getting things right. Many contributors to this blog owe a great deal to Wynne. He taught us to develop stock-flow consistent macro models, emphasizing that every financial flow must 'come from' somewhere and 'go' somewhere and that these flows lead to stock adjustments that affect balance sheets and ultimately the stability of the economic system. Wynne passed away in 2010 but his insights continue to impress. With any luck, those seeking solutions to the present crisis will rediscover his work and learn from the warnings he issued in 1992, before the ink on the Maastricht Treaty had even begun to dry.

By Wynne Godley:

(snip)

The central idea of the Maastricht Treaty is that the EC countries should move towards an economic and monetary union, with a single currency managed by an independent central bank. But how is the rest of economic policy to be run? As the treaty proposes no new institutions other than a European bank, its sponsors must suppose that nothing more is needed. But this could only be correct if modern economies were self-adjusting systems that didn’t need any management at all.

I am driven to the conclusion that such a view – that economies are self-righting organisms which never under any circumstances need management at all – did indeed determine the way in which the Maastricht Treaty was framed. It is a crude and extreme version of the view which for some time now has constituted Europe’s conventional wisdom (though not that of the US or Japan) that governments are unable, and therefore should not try, to achieve any of the traditional goals of economic policy, such as growth and full employment. All that can legitimately be done, according to this view, is to control the money supply and balance the budget. It took a group largely composed of bankers (the Delors Committee) to reach the conclusion that an independent central bank was the only supra-national institution necessary to run an integrated, supra-national Europe.

http://neweconomicperspectives.blogspot.com/2011/11/to-those-who-got-it-right-we-salute-you.html">more...

[sparc5]

1. re: Don't say 'Who could have known?'

Way to go girl gone mad, keep spreading this essential information.