Archive for October 12th, 2011

Why Greece’s current account deficits never corrected?

October 12, 2011

Aaron Tornell &  Frank Westermann   solve this mystery on why Greece current account deficits never corrected. In previous crisis economies, their current account deficits were reduced sharply as currency weakened leading to higher exports and there was no capital flow from other economies forcing countries to balance their account.

In Greece case we know currency cannot weaken but that is just one part of the story. What is even more interesting is how Greece continues to get capital from Eurosystem central banks. So there is no real pressure to make adjustments as well:

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Pure lemon juice is barely drinkable..similarly pure market economy is barely workable

October 12, 2011

A superb article from Dani Rodrik who writes on Friedman’s ideas and its impact on the world. Next year is Friedman’s 100th birth anniversary and Rodrik looks at what  the great economist offered to the world economy.

He says despite Friedman’s major work being in mon pol and consumption economics, he is always remembered for his compete defence for free markets:

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How the crisis shaped Iceland’s new constitution..

October 12, 2011

The crisis in Iceland led to a revolution (called nicely as pots and pans/kitchen revolution as these items were used to create noise in public gatherings). Interestingly, the revolution which started to protest against financial crisis and favoring financial firms led to a bigger call to have a new constitution.

We have debated the impact of crisis on so many things – central banking, financial regulation, teaching etc etc. On constitution is pretty interesting.

Thorvaldur Gylfason of Univ of Iceland writes on this fascinating set of events in Iceland. He begins saying previous crisis too led to changes in constis:

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