March 11, 2015
It seems the paper is having more than a few problems with logic these days. (See yesterday’s concern that inflation in the euro zone will drop from a small positive to a small negative.) An article on the rise of Podemos, a left populist party in Spain, discussed Podemos’ program:
“The program also calls for new taxes on the wealthy and on financial transactions. It promises higher pensions and salaries, as well as a rise in spending on health care, education and other social services — without, however, elaborating on how those plans would be paid for.”
Presumably a main reason for new taxes on the wealthy and on financial transactions is to pay for the spending on health care, education, and other social services. It is also worth noting that the program calls for a shortening of the workweek (mentioned in the previous paragraph) which should help spread the work that is available. This wiill reduce Spain’s unemployment rate (currently close to 24 percent) thereby reducing the need for some public transfer payments like unemployment benefits.
At one point the piece tells readers about the boast of Mariano Rajoy, Spain’s current prime minister, that the country had the fastest growth in the euro zone last year at 1.4 percent. The piece did not tell readers that even with this growth Spain is still projected to have a per capita GDP in 2019 that is more than one percent lower than it was in 2007 before the recession. This would imply a far worse and more prolonged downturn than the United States experienced in the Great Depression. The I.M.F. projects the unemployment rate in 2019 will be 18.5 percent.
The piece also neglected to tell readers that Spain had been running budget surpluses before the recession. Unlike Greece, Spain did not have a problem with a profligate public sector. Its problem was a huge housing bubble and construction boom financed in large part by irresponsible German banks.
The article also at one point notes that a part of Podemos program is:
“revising the statutes of the European Central Bank to make full employment one of its goals.”
It would have been worth pointing out that this change would make the goals of the European Central Bank (ECB) the same as the goals of the Federal Reserve Board. The Fed has a dual mandate of price stability and high employment. Currently the ECB’s only mandate is to keep the inflation rate below 2.0 percent. As a result, its first president, Jean Claude Trichet, patted himself on the back when he left his post in 2011. Even though the euro zone’s economy was in shambles, he could boast that the bank had met its inflation target.
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