Posted by: Dirk | March 22, 2010

Dirk Ehnts 30,000

Sometime this weekend visitor number 30,000 visited my blog. No expert predicted it, but it happened nevertheless. Thanks for all the attention, the comments and occasional mails. This blog has been a great tool for me to write down my thoughts so I can come back and check what I was thinking about certain issues at a certain date.

Starting in summer 2007 to study more macro – I had focussed on development economics and economic geography in the years before – while the world economy unravelled was sure interesting. Like a doctor can learn more from a sick person, an economist can learn more from a sick economy. And sick it is.

Predicting that things will continue to go on like they did in the recent past is not very scientific, yet before the crisis hit us that would explain the state of macro. A lot of theories were not taught because there was no optimizing agent in them. Take the theories of Hyman Minsky (of the Minsky moment), Irving Fisher (of debt deflation), Richard Koo in his balance sheet approach based on John Maynard Keynes (of the General Theory) and Axel Leijonhufvud (of the corridor model), and many more: these economists had been largely forgotten. Yet their work proves has explanatory power now, when other theories have failed.

How economics came to be that way, I don’t really care too much. What I care about is how economists can help to explain what has happened and give hints as to how we can get out of this mess. In June 2009 I have described the idea of making China spend its dollar reserves, and by now I would suggest that Germany and Japan as well as all the other surplus countries need to spend more as well. This will not happen by itself, probably a new institution is needed. Maybe remodelling the WTO along the old ideas of the International Trade Organisation (ITO) would be a step in the right direction.

Although I will be really busy in the next months I will try to continue this blog. The financial crisis is not over, it was just moved from the private to the public sector. Reforms have been disappointing so far. Paul Volcker is struggling with financial sector reform in the US, the EU is entangled in a row with Britain, which is protecting its financial industry. On the international level, the FSB is not very active, which does not surprise me since it is chaired by Mario Draghi, who was working at Goldman and Sachs in London at the time Greece got its loans from the same institution. Apart from this, I think that economic imbalances are the key to the crisis, and this is still not understood by policy-makers.

Well, it seems like there is a lot of work left. To be continued…

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