I don't know why journalists, when writing about economics, invariably pick the least adequate people to be interviewed. Some time ago, there was a feature about unemployment for college graduates in the US... which talked about a woman with a dance degree. Now it's about a fucking cani [1] whose major accomplishment in life is pasting some rubber and metal together, earning 1200 undeserved euros a month. Before that, he did the same thing, earning 2500€ -- that ridiculous salary is the reason his Social Security benefits are so high. For comparison, many engineers here consider themselves lucky for earning 1000€/month.
What I find missing is how entrepreneur-social culture in Spain is, basically, the least funny joke you'll hear in all Europe. 23.3% of GDP are black market operations. The European country with highest quantity of 500€ banknotes per briefcase. 10% unemployment for workers with tertiary education. Esperanza Aguirre wanting to exile the poor from Madrid (it's a long story). Widespread, also not very covert, abuse from employers. That sort of thing.
Fortunately, the country is sort of duct-taped together, so it all works fairly well in the end. Not at all as gloomy as pictured here.
In 2007, at the peak of the property boom, I was working in Barcelona as video games programmer earning around 1700€/month after tax.
I felt lucky since most people I knew there ( including other programmers ) earned around 1000€ per month.
But I couldn't understand how the economy functioned when highly educated people working in Barcelona earned so little in comparison to living costs and still property prices kept on rising at double digit percentages.
Then I met a young guy who worked on building sites mixing cement and laying bricks. He said he loved to play videogames and he wanted to be a tester. When I told him how much I was paid he looked at me in disbelief and said he got 2500€/month and that I should man up and demand more or quit.
I guess in his trade at the time you could do that...
duct-taped together, so it all works fairly well in the end
There is much talk about being worse than in the past. Of course, what they mean is being worse than what they expected from extrapolating past improvements.
One example is employment inequality: in the past it was taken for granted (you found a job first, it's your right to keep it). Now there is a growing sensitivity to the unfairness in that. Youth unemployment was always high, whereas now, while being even higher, it's also seen as calling for deep trouble. In that sense it is similar to the increased sensitivity to domestic violence.
Another example: In the olden days people would just moan about the disappearance of small shops when big supermarkets came to town. Now there are consumer groups (grassroots urban shopping cooperatives). Not the result of regulatory change, or of the dire economic situation (most advertise themselves as eco-friendly first, cheaper second) but of greater sensitivity.
The problem with stimulus spending in a place like Spain is that someone will have to lend them the money to spend. They either have to charge pretty high interest (which exacerbates Spain's already high deficit) or give a discount on the interest, such that it no longer reflects the risk the lender is taking. Most anti-austerity calls seem to suggest the latter, which basically amounts to redistribution from those countries (Germany, Netherlands et.al.) that did not enjoy the easy living during the boom years that Spain did.
Germany isn't completely innocent here though either, even though it can look like they were frugal during the boom years.
From Michael Pettis [1]:
The strength of the German economy in recent years has largely to do with its export success. But for Germany to run a large current account surplus – the consequence I would argue of domestic policies aimed at suppressing consumption and subsidizing production – Spain and the other peripheral countries of Europe had to run large current account deficits. If they didn’t, the euro would have undoubtedly surged, and with it Germany’s export performance would have collapsed. Very low interest rates in the euro area (set largely by Germany) ensured that the peripheral countries would, indeed, run large trade deficits.
The funding by German banks of peripheral European borrowing, in other words, was a necessary part of deal, arrived at willingly or unwillingly, leading both to Germany’s export success and to the debt problems of the deficit countries.
Have we totally forgotten Keynes? My spending is your income. The resources of an economy (in this case, many of Spain's workers) are lying idle. The entire country would be wealthier if they were put to work.
Further, I don't know what you mean by "easy living", but Spain was more fiscally responsible than even Germany before the crisis. Spain's deficits are not the result of irresponsible borrowing and spending (as in Greece), but rather of a collapsed economy because the investment money (mostly German, etc) that flooded the country before the crisis evaporated just as quickly after the crisis.
The labor disparity between senior workers and young ones will lead to a lot more trouble. Irrational people take out their frustrations on the easiest target; irrational young people even more so.
I'm not sure if the article's doom and gloom is actually reflected in reality though. Most people are averse to letting society collapse (especially when they've had a history of it standing upright and stable for a long time).
Spain doesn't "just" need stimulus, it needs well guided and allocated stimulus or it will accomplish nothing.
>Spain doesn't "just" need stimulus, it needs well guided and allocated stimulus or it will accomplish nothing.
The last thing Spain needs is "stimulus". What they need to do is fix the labor market so it's possible to fire people. When employers can't fire people they only hire as an absolute last resort. That means companies can't exploit growth opportunities as easily and it means employers are unlikely to gamble on people who don't have a solid resume, i.e. young people.
I -Spaniard here living in Spain- tend not to believe those figures. Also:
1) Hiring is unbelievably costly due to Social Security.
2) Hence you tend to pay "in black".
3) People HAVE TO pay for the Soc Sec even though they do not earn enough for a living. At the very leas, 250 bucks per month whatever your earnings are.
4) We are spectacular liars at polls. Nobody in the black market will say he has a job.
So a grain of salt is required.
EDIT: although the outlook is really really bleak, there is no denying it.
True. Americans can't understand it without traveling and living abroad.
It is very easy for them to make business.
Also, lot of people here are in "paro" subsidy earning 400euros a month and working in the black, 600 or 700 euros. There are also lots of other subsidies like PER witch is part of the "social net" that make Social Security so expensive(a millennial is earning more than 2000euros before taxes make it 1000).
If they report they are working, they lose the subsidy.
It's called bankruptcy. I'd get on it. Austerity is going to start civil wars at this rate. Oh yeah, and next time, don't bail out banks run by sociopaths.
This week the Irish government who now unwillingly own a huge chunk of bank of Ireland said it could do nothing about the chief executive's generous salary. This despite further losses at the bank. Meanwhile further cuts in the rest of the economy.
but if you actually go to spain, it does not look like somalia.
nasty secret - all those unemployed? work anyhow, "black" as we say in austria - unofficial, tax free. 50% youth unemployment? if all that were real, there would be open war. yet bars, stadiums, beaches are full.
the official economy is getting smaller, the unofficial one is growing.
as long as there are illegal immigrants from africa working the fields in spain and not spanish people, the economy is not that bad.
It seems Iceland was in worse shape than Spain but they have managed to resolve their issues by revaluing their currency (similar to declaring bankruptcy?).
Why is Spain not able to do the same? I'm guessing it's because they are part of the EU and do not have their own currency?
I'd purposely avoid drawing any lessons from Iceland. We have the world's smallest independent currency and devaluation cut our purchasing power in half.
To have enough money left behind to pay the bills.
What countries have used it successfully to get out of recession and improve unemployment?
This worked in the (now seemingly ancient) past. Governments were a much smaller portion of the economy and taxes were much lower to begin with. These days, up to 50% of people can be employed by the government. When governments get that large, there is no possibility nor space for a recovery:
Stimulus: add more debt to an unpayable debt? increase taxes and chase out people who pay the largest sum of taxes?
Austerity: cut gov't pay and jobs? that leads to less tax revenue and higher unemployment... nevermind the fact that the party won't ever be elected again.
The only way to win at this is to not have an economy that depends so heavily on indebted government nor one that removes risks for the banking system. If a country is already at that point there is no moving forward. Declare bankruptcy, destroy your credit ratings and start over.
Sweden and Canada are the best two examples where austerity worked. Need to realize that there is no austerity in Europe, every economy is still spending more than they were just 5 years ago.
I do define it as living under your possibilities.
Having deficit is not austerity. Having to pay enormous debt and interest of malinvestments of the past bubbles is not austerity(you become debt slave not austere).
Tell the Germans to fuck off, leave the Euro, pull an Argentina, watch the new peso exchange drop to 1000 to 1 Euro, get a flood of French and Germans hunting for bargains, which generates jobs. But make customs treat these tourists like shit, just for a little passive aggressive revenge.
Yes! At this point, taking more money out of the economy will increase economic activity...no...wait...I'm with Keynes that this is the wrong thing to do.
Spain's problems are endemic; but most of Europe shows similar tendencies now - High level of entitlements, soaring deficits, lower cost efficiency and lumpen youth. Europe's post developmental problems need high level of innovation - but the youth do not seem particularly ready for it.
The SGS numbers are basically fictional. See this contemporaneous discussion of what really changed between the pre-1994 and post-1994 counting methods: http://www.bls.gov/mlr/1995/10/art3full.pdf. The current U4-U6 do include discouraged workers, they simply require the person to indicate on the survey that they have searched for a job in the past year rather than the unworkably vague prior methodology that simply asked whether the person wanted a job. See: http://www.ritholtz.com/blog/2012/08/discouraged-by-the-medi....
The most sensible employment measure is U4 (official unemployment + people who have searched for a job in the last year). U5 and U6 are far too sensitive to demographic changes to serve as a good basis for comparison. E.g. since the 1950's the work force has added a lot of female part-time workers that are counted in U6, but would have been stay-at-home wives in the 1950's and thus not counted as unemployed at all. Also, older people have always been over-represented among the marginally-attached, part-time work force, and as the population ages there are naturally more of this demographic. Both trends inflate U6, but neither are a negative indicator for the economy per se.
I'm guessing you're not here for any kind of rational discussion, but, could you explain a little bit about your motivation to post that comment? I'm not sure I've seen a pro-Krugman bias on news.yc. Even among most of those who think he's right, I'm not sure that deification is an accurate description.
In this case, it's particularly confusing, since Spain is one of Krugman's "look, austerity is bad" poster children.
[+] [-] lolcraft|13 years ago|reply
What I find missing is how entrepreneur-social culture in Spain is, basically, the least funny joke you'll hear in all Europe. 23.3% of GDP are black market operations. The European country with highest quantity of 500€ banknotes per briefcase. 10% unemployment for workers with tertiary education. Esperanza Aguirre wanting to exile the poor from Madrid (it's a long story). Widespread, also not very covert, abuse from employers. That sort of thing.
Fortunately, the country is sort of duct-taped together, so it all works fairly well in the end. Not at all as gloomy as pictured here.
[1] Like a chav, but Spaniard.
[+] [-] yeureka|13 years ago|reply
I felt lucky since most people I knew there ( including other programmers ) earned around 1000€ per month. But I couldn't understand how the economy functioned when highly educated people working in Barcelona earned so little in comparison to living costs and still property prices kept on rising at double digit percentages.
Then I met a young guy who worked on building sites mixing cement and laying bricks. He said he loved to play videogames and he wanted to be a tester. When I told him how much I was paid he looked at me in disbelief and said he got 2500€/month and that I should man up and demand more or quit.
I guess in his trade at the time you could do that...
[+] [-] opminion|13 years ago|reply
There is much talk about being worse than in the past. Of course, what they mean is being worse than what they expected from extrapolating past improvements.
One example is employment inequality: in the past it was taken for granted (you found a job first, it's your right to keep it). Now there is a growing sensitivity to the unfairness in that. Youth unemployment was always high, whereas now, while being even higher, it's also seen as calling for deep trouble. In that sense it is similar to the increased sensitivity to domestic violence.
Another example: In the olden days people would just moan about the disappearance of small shops when big supermarkets came to town. Now there are consumer groups (grassroots urban shopping cooperatives). Not the result of regulatory change, or of the dire economic situation (most advertise themselves as eco-friendly first, cheaper second) but of greater sensitivity.
[+] [-] auctiontheory|13 years ago|reply
[+] [-] mseebach|13 years ago|reply
[+] [-] jwcooper|13 years ago|reply
From Michael Pettis [1]:
The strength of the German economy in recent years has largely to do with its export success. But for Germany to run a large current account surplus – the consequence I would argue of domestic policies aimed at suppressing consumption and subsidizing production – Spain and the other peripheral countries of Europe had to run large current account deficits. If they didn’t, the euro would have undoubtedly surged, and with it Germany’s export performance would have collapsed. Very low interest rates in the euro area (set largely by Germany) ensured that the peripheral countries would, indeed, run large trade deficits.
The funding by German banks of peripheral European borrowing, in other words, was a necessary part of deal, arrived at willingly or unwillingly, leading both to Germany’s export success and to the debt problems of the deficit countries.
[1] http://www.mpettis.com/2011/07/19/current-account-dilemma/
[+] [-] jorgeortiz85|13 years ago|reply
Further, I don't know what you mean by "easy living", but Spain was more fiscally responsible than even Germany before the crisis. Spain's deficits are not the result of irresponsible borrowing and spending (as in Greece), but rather of a collapsed economy because the investment money (mostly German, etc) that flooded the country before the crisis evaporated just as quickly after the crisis.
[+] [-] eksith|13 years ago|reply
I'm not sure if the article's doom and gloom is actually reflected in reality though. Most people are averse to letting society collapse (especially when they've had a history of it standing upright and stable for a long time).
Spain doesn't "just" need stimulus, it needs well guided and allocated stimulus or it will accomplish nothing.
[+] [-] tsotha|13 years ago|reply
The last thing Spain needs is "stimulus". What they need to do is fix the labor market so it's possible to fire people. When employers can't fire people they only hire as an absolute last resort. That means companies can't exploit growth opportunities as easily and it means employers are unlikely to gamble on people who don't have a solid resume, i.e. young people.
[+] [-] fixxer|13 years ago|reply
Ireland is about 35 and it shows (little pale kiddies running around everywhere). That is the only one of the PIIGS I'm betting on.
[+] [-] pfortuny|13 years ago|reply
1) Hiring is unbelievably costly due to Social Security. 2) Hence you tend to pay "in black". 3) People HAVE TO pay for the Soc Sec even though they do not earn enough for a living. At the very leas, 250 bucks per month whatever your earnings are. 4) We are spectacular liars at polls. Nobody in the black market will say he has a job.
So a grain of salt is required.
EDIT: although the outlook is really really bleak, there is no denying it.
[+] [-] forgottenpaswrd|13 years ago|reply
It is very easy for them to make business.
Also, lot of people here are in "paro" subsidy earning 400euros a month and working in the black, 600 or 700 euros. There are also lots of other subsidies like PER witch is part of the "social net" that make Social Security so expensive(a millennial is earning more than 2000euros before taxes make it 1000).
If they report they are working, they lose the subsidy.
[+] [-] dade_|13 years ago|reply
[+] [-] barking|13 years ago|reply
[+] [-] pinaceae|13 years ago|reply
nasty secret - all those unemployed? work anyhow, "black" as we say in austria - unofficial, tax free. 50% youth unemployment? if all that were real, there would be open war. yet bars, stadiums, beaches are full.
the official economy is getting smaller, the unofficial one is growing.
as long as there are illegal immigrants from africa working the fields in spain and not spanish people, the economy is not that bad.
lies, damn lies and statistics.
[+] [-] raheemm|13 years ago|reply
Why is Spain not able to do the same? I'm guessing it's because they are part of the EU and do not have their own currency?
[+] [-] graeme|13 years ago|reply
They'd basically have to leave the Euro to do what Iceland did. And that would be complicated.
[+] [-] jiggy2011|13 years ago|reply
Iceland is also a lot smaller than Spain.
[+] [-] Herbert2|13 years ago|reply
[+] [-] robryan|13 years ago|reply
[+] [-] PKop|13 years ago|reply
http://blogs.ft.com/beyond-brics/2012/12/13/estonia-path-to-...
http://www.cnbc.com/id/100558455 http://www.guardian.co.uk/world/2012/jun/08/estonia-latvia-e... https://danieljmitchell.wordpress.com/2012/06/07/estonia-and...
(Of course there's debate over the particulars..)
[+] [-] skylan_q|13 years ago|reply
To have enough money left behind to pay the bills.
What countries have used it successfully to get out of recession and improve unemployment?
This worked in the (now seemingly ancient) past. Governments were a much smaller portion of the economy and taxes were much lower to begin with. These days, up to 50% of people can be employed by the government. When governments get that large, there is no possibility nor space for a recovery:
Stimulus: add more debt to an unpayable debt? increase taxes and chase out people who pay the largest sum of taxes?
Austerity: cut gov't pay and jobs? that leads to less tax revenue and higher unemployment... nevermind the fact that the party won't ever be elected again.
The only way to win at this is to not have an economy that depends so heavily on indebted government nor one that removes risks for the banking system. If a country is already at that point there is no moving forward. Declare bankruptcy, destroy your credit ratings and start over.
[+] [-] curt|13 years ago|reply
[+] [-] forgottenpaswrd|13 years ago|reply
I do define it as living under your possibilities.
Having deficit is not austerity. Having to pay enormous debt and interest of malinvestments of the past bubbles is not austerity(you become debt slave not austere).
[+] [-] anonymoushn|13 years ago|reply
[+] [-] guelo|13 years ago|reply
[+] [-] yekko|13 years ago|reply
[+] [-] seanmcdirmid|13 years ago|reply
[+] [-] known|13 years ago|reply
[+] [-] brianbreslin|13 years ago|reply
[+] [-] znq|13 years ago|reply
[+] [-] superflit|13 years ago|reply
The Economy is only taking a 'siesta' (nap)..
These 'uptight' anglo-saxon coutries only think about work... (sarcasm)
[+] [-] anuraj|13 years ago|reply
[+] [-] Tangaroa|13 years ago|reply
Unemployment in the US is near 15% including U6, or near 23% if using pre-1994 counting methods: http://www.shadowstats.com/alternate_data/unemployment-chart...
(On that subject, I'm looking for work in the north SF bay area, Sonoma/Marin region)
[+] [-] rayiner|13 years ago|reply
The most sensible employment measure is U4 (official unemployment + people who have searched for a job in the last year). U5 and U6 are far too sensitive to demographic changes to serve as a good basis for comparison. E.g. since the 1950's the work force has added a lot of female part-time workers that are counted in U6, but would have been stay-at-home wives in the 1950's and thus not counted as unemployed at all. Also, older people have always been over-represented among the marginally-attached, part-time work force, and as the population ages there are naturally more of this demographic. Both trends inflate U6, but neither are a negative indicator for the economy per se.
[+] [-] ashleyblackmore|13 years ago|reply
Why not put a CV/homepage link in your profile?
[+] [-] brianbreslin|13 years ago|reply
[+] [-] unknown|13 years ago|reply
[deleted]
[+] [-] Dewie|13 years ago|reply
[+] [-] marquis|13 years ago|reply
[deleted]
[+] [-] krugmanlol|13 years ago|reply
[+] [-] antiterra|13 years ago|reply
In this case, it's particularly confusing, since Spain is one of Krugman's "look, austerity is bad" poster children.
[+] [-] Afforess|13 years ago|reply