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11/4/12

The European Monetary Union is the biggest ever victim of economic theory.


Several years of relatively smooth economic evolution in the 1990s (also called the Great Moderation) allowed several economists and bankers in power formulating a new, but obviously wrong, economic paradigm, which included the ability of central banks and governments to control economic and financial systems. In this paradigm, the role of central banks was described in tiny details except what to do when the system is running away. This current crisis was not considered at all and the sad words of Jean-Claude Trichet on the merits of economic models "“as a policymaker during the crisis, I found the available [economic and financial] models of limited help. In fact, I would go further: in the face of the crisis, we felt abandoned by conventional tools”were the best manifestation of his regret that the EMU was built on the basis of these theories and models. I think that the EMU is the biggest ever victim of economic theory. Never trust qualitative sciences and silver-tongue orators. Otherwise, the plane you fly will crash as the EMU.  

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