ECOSOP Critical Digest: 6.12.11

Written by  //  December 6, 2011  //  Critical Digest, Economic & Social Policy  //  3 Comments

The week of reckoning for the European Union: The countdown begins

Today marks the start of a very important week for the Eurozone. The world is looking to western Europe as it attempts to comprehensively solve all of its existential problems rather than simply kick the Euro can just a little further down a dark road. Italian Prime Minister Mario Monti announced a €30 billion package of austerity and growth measures yesterday. Today, France and Germany hold talks at the very highest level over how to keep the Eurozone going. As a measure of US concern, Secretary of State, Tim Geithner, will also be floating around on the periphery of these and other talks in Europe all week. On Thursday, the European Central Bank has a monetary policy meeting, which will reveal whether there is broad agreement over the way forward between Euro leaders – Angela Merkel, Nicolas Sarkozy and Mario Draghi, the president of the ECB. On Friday, the European summit begins at Brussels to thrash out permanent solutions to the sovereign debt crisis, even as its constituent countries seem headed for economic recession. Talk is even floating around of a fundamental amendment of the EU treaty to establish a fiscal union in addition to the existing monetary union.

Can the Euro be saved in a week? In this article in the Financial Times, Wolfgang Munchau is typically downbeat over the prospects of significant change over the next week. We can only hope that European leaders are a little more sensible than he suggests.

Is financial sector efficiency a myth?

The Occupy movement has motivated a debate on the importance of a financial sector as protesters refuse to buy the line that the world would be a horrible place if banks weren’t allowed to earn enormous profits. In an interesting debate over just how badly the world needs a financial sector that is taking place on Vox, Thomas Philippon writes a fascinating little article arguing that the financial system today is barely as efficient as that of 1910. The cost of intermediating funds from savers to borrowers is no less than the equivalent cost one hundred years ago, suggesting that a decade of financial innovation has not reduced inefficiency. Trading, however, is significantly cheaper today and volumes traded have soared to very high levels since 1910. Philippon leaves us with absorbing questions: why is financial trading so important, and does it really improve social welfare?

A hysterical catfight between the history boys

A fiery battle is taking place in the pages of the London Review of Books between roving intellectual, Pankaj Mishra, and the polemical pop-historian, self-proclaimed financial expert, and television pundit, Niall Ferguson. In this strongly worded, yet coherently argued book review, Mishra criticizes Ferguson’s book, Civilisation: The West and the Rest, for being patronizing, packed with outdated ideas and just plain deceitful in many regards. Ferguson is no stranger to controversy, having scrapped viciously with Paul Krugman and Jeffrey Sachs, both of whom have unsubtly reminded the Scotsman that he is less Renaissance Man and more dilettante in the fields of economics and financial regulation.

Frankly, I don’t know quite what sort of response Ferguson expected from reviewers (particularly the LRB) to a book with a name that includes “the West and the Rest”. He certainly pretends to be outraged by the tone of Mishra’s review and the allegation of racism, which he claims Mishra has leveled at him. The battle has raged for a month with the latest salvos being fired last week. Elsewhere, Ferguson has threatened to sue Mishra and the LRB and has assured at least some writers that he will “hound [Mishra] in print” in a way he has never been hounded before. Much excitement awaits us all.

3 Comments on "ECOSOP Critical Digest: 6.12.11"

  1. Alok December 7, 2011 at 8:07 am ·

    Thanks for reminding me of Pankaj Misra’s deflation of a very pompous ass.

    This, and Mihir Sharma’s takedown of Suhel Seth totally made my day when I read then.

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