Edward Hugh: Euro Doom Prophet
Today’s NYT has a longish feature article on Barcelona-based econoblogger Edward Hugh, whose work I’ve long admired and occasionally cross-posted at New Atlanticist. The piece is titled “The Blog Prophet of Euro Zone Doom.”
For years, almost nobody paid attention to the sky-is-falling alarms of Edward Hugh, a gregarious British blogger and self-taught economist who repeatedly predicted that the euro zone could not survive.
Living a largely hand-to-mouth existence here on his part-time teacher’s salary, he sent one post after another into the Internet wilderness. It was the height of policy folly, he warned, to think that aging, penny-pinching Germans could successfully coexist under one currency umbrella with the more youthful, credit-card-wielding Irish, Greeks and Spaniards who shared the euro with them.
But now that the European sovereign debt crisis is rattling world markets, driving the euro lower almost every day and raising doubts about the future of the monetary union, his voluminous musings have become a must-read for an influential and growing global audience, including policy makers in the White House.
He has even been courted by the International Monetary Fund, which recently asked him to fly to Madrid to assist in its analysis of the Spanish economy.
[…]
But as questions rise over how European governments can escape their debt trap and resume growth, Mr. Hugh, who has been pondering this topic for years, is for the first time being turned to for insights and wisdom.
His bleak message, in newspaper columns, local television and radio appearances, and in meetings with officials, is almost always the same: since Spain and other struggling countries of the euro zone like Greece, Portugal, Ireland and Italy cannot devalue their common currency unilaterally, they have little choice but to endure what would essentially be a 20 percent internal devaluation instead. That means their public and private sector wages need to fall by roughly that amount if those countries are ever to restore competitiveness, lift exports and bring in the cash needed to pay down their debts.
“Why haven’t these countries converged” with the rest of Europe? he asks. “It’s demographics. As populations age, there are fewer people in their 20s to 40s to buy new houses, so they save more. The younger a country is, the more dependent it is on credit to get growth.”
The piece is both a testament to the potential of the blogosphere — people without prominent institutional platforms can get their arguments aired in a way previously unimaginable — and to the value of being widely read rather than narrowly specialized. That’s not, alas, the route to fortune — or even necessarily a job — as an academic these days but it does sometimes lead to useful insights.
Beware the dark side of this kind of post-hoc selection: With 6 billion people out there, and possibly 1-2 billion on the internet, just about every possible position is held. Just about every prediction has been made.
To say someone was “right” really requires that they were right with the right rationale, and … this is the hard part … our real-world outcome was actually favored, and a low-probability occurrence.
It would be “wrong” to predict your next 3 coin flips will be all “heads,” but if I predict that I might be “right.”
Should have been “our real-world outcome was actually favored, and a NOT low-probability occurrence.”
(The “demographic” rationale is starting to be accepted, but my understanding is that ALL Greeks were borrowing, when loans went from very scarce and expensive to easy and cheap.)
I think Hugh was something of a trailblazer in calling out the structural difficulties of the Eurozone, notably the inability of national governments to use the normal tools to deal with shortfalls and the inability of central bankers in Brussels to do much about the fiscal habits of the constituent state actors.
“notably the inability of national governments to use the normal tools to deal with shortfalls”
Darn italics won’t go off … anyway, I’d say everyone knew this, which was why the European Union instituted a 3% of GDP debt limit. Greece blew through that to 12% of GDP.
Was that really demographics?
Following your pieces, I have read some of Hugh’s stuff. It was helpful when discussing theories and advice put forth by people like Schiff. Peter Schiff had advised being out of the dollar, into Euros and was an advocate of decoupling. Those don’t look so good right now. While it is not logical that the dollar would remain the world reserve currency forever, the Euro as an alternative made no sense. Common currency plus independent economies/governments spells trouble in my book.
Steve
Isn’t there an argument that the Dollar could remain the least-bad reserve currency?