...to continue with the real world, as opposed to the stats...
I never said Rochester existed because of Kodak. If you go back and actually read what I said, what I said was that if any one export became too successful, it would kill the city. Which is what happened when Kodak became so wildly successful they distorted the economy of Rochester and killed it.
This is also what Kellogg did and is still doing to Battle Creek, and what GM and Ford did to Detroit.
In evolution, this is a known phenomenon: generalists thrive, while specialists gradually die off. Human beings are generalists. Mountain gorillas, who are closely related to us, are specialists. We live everywhere, in the billions; they live in one place in Africa, and number maybe in the thousands.
That was my point in that bit. But then I knew, as I said, that the wrong conclusion would be drawn. Everyone is too tied to their view of how the world works and won't take off their blinders to take a walk through their own town and observe reality in action.
Getting back to austerity, you have, as usual, the right analysis and the wrong prescription. You remind me so much of Mundell that I really wonder sometimes if you're him.
Austerity in Europe is a result of Germany doing a song and dance around what they've done to their neighbors, as Banjo's link, if anyone here bothered to read it (on the evidence, no one did) showed quite conclusively. The problem in Europe isn't fiscal deficits but trade deficits, and this is a predictable result of Germany dominating the eurozone and therefore getting, at all times, the correct rate of interest and the correct exchange rate for its needs, whereas everyone else in the eurozone only got the price of money they needed by sheer coincidence. The result, over time, in this case a very short time, is that one place, Germany, got all the benefit, and everyone else suffered.
There can be only one winner in a currency union. This is fine if you're a nation and have made that choice; but not so good if you're not. It's one thing for the north of Italy to subsidize the south, although the northerners still resent it sometimes, they will live with it, because blood is thicker than water and all that. It's another thing entirely for Germany to subsidize Greece, as we are now finding out.
As for the eurozone in the aggregate, it makes its living by selling German cars to the rest of the world. But if Germany itself, as we noted in my first rant here, is selling cars and exporting capital and therefore setting itself up to be another Detroit, that means somebody else somewhere else had better be working on something else for the eurozone to live on. If not, in not too long a time Europe won't even count in anyone's view of the world economy; the rest of the world will have passed it by. But for that someone else to be successful in the European multinational context, they're going to need to live in a place that has sovereign control over its own price of money.
You can now all go back to talking about "investment", "taxes", and the rest, and mistaking the effects and the byproducts for the cause and the solution.
