Is Finland's Economy Suffering From Secular Stagnation?

Finland's economy has been attracting a lot of interest of late. And not for the right reasons, unfortunately. The economy in a country previously renowned for being highly placed in the World Bank's "Ease of Doing Business Index" has just contracted for the third consecutive year. Once famous for being a symbol of "ultra competitiveness" (it came number 4 in the latest edition of the WEF Global Competitiveness Index) the country is now fast becoming the flagship example of another, less commendable, phenomenon: secular stagnation.The origins of the theory of secular stagnation go back to the US economist Alvin Hansen (see here) who first used the expression in the 1930s. The hallmark of secular stagnation, he said, was a series of sick "recoveries which die in their infancy and depressions which feed on themselves and leave a hard and seemingly immovable core of unemployment." This seems to fit the Finish case to a T.
Read More

Why Is Spain's Population Loss An Economic Problem?

"Growth theory was invented to provide a systematic way to talk about and to compare equilibrium paths for the economy. In that task it succeeded reasonably well. In doing so, however, it failed to come to grips adequately with an equally important and interesting problem: the right way to deal with deviations from equilibrium growth……..if one looks at substantial more-than-quarterly departures from equilibrium growth……….. it is impossible to believe that the equilibrium growth path itself is unaffected by the short- to medium-run experience…….So a simultaneous analysis of trend and fluctuations really does involve an integration of long-run and short-run, or equilibrium and disequilibrium. "
Robert Solow, Nobel Acceptance Speech

When the IMF said last year that Spain's unemployment level was unacceptably high, I was pretty critical of the fact that they didn't spell out the consequences of this, or offer any substantial policy alternative. The most obvious impact of this failure to find an alternative is being seen right now, with the emergence of political movements which could well turn the country's two party system completely upside down, and the steady flow of talented young people out of the country in search of work.
Read More

Does The Arrival Of Negative Interest Rates Change the Attractivess of Euro Membership?

This is the second in a series of posts (first one here) in  which I try to argue that the balance between costs and benefits of belonging to the European monetary union has shifted in the post crisis world, especially for heavily indebted countries such as those to be found on the European periphery.

The benefits of belonging (in terms of debt support given via ECB QE) have risen, while the disadvantages of being outside - as has been seen in countries like Denmark, Sweden and Switzerland - have also grown. This is not a complete cost/benefit balance sheet, but a limited exploration of just one area. That being said it is an area where exploration may help those who simply can't understand the recent determination shown by the Greeks to maintain their Euro membership, a determination which I think is difficult for those in London or the US (who are using a traditional deleveraging and monetary policy framework) to understand.
Read More