17 Nobel laureate economists bickered over the wisdom of austerity measures when they met this weekend in Lindau, Germany and St. Gallen, Switzerland.The one thing they agreed on is that growth will suck.
German Finance Minister Wolfgang Schaeuble said the global economy may see “seven lean years” as a result of austerity measures.
Here’s more of what the economists had to say:
– Robert Mundell, Reinhard Selten, and Myron Scholes came out in favour of austerity, according to Bloomberg. Mundell advocated “draconian methods [in Greece] to attack entitlements in welfare spending, to cut back on things that cause the problem.” Scholes also advocated a true debate on entitlements in the U.S.
– Joseph Stiglitz came out in the anti-austerity camp, saying cost-cutting measures right now go “in exactly the wrong direction.” In economies that have adopted austerity during recessions, he said, “the economy goes from a downturn to recession and from recession to depression. Why countries are voluntarily doing that in Europe is beyond me.” Eric Maskin agreed.
On the future of the euro and the EU (from the Globe and Mail)
– “I don’t think the euro is on the verge of collapsing,” said Mundell. He added that Europe will be forced to become “something like the equivalent of the United States of Europe.”
– Most economists did not think any countries would leave the euro, but Joseph Stiglitz added that, “A consensus is emerging among economists, which is it would be better in terms of contractual complexity for Germany to leave than for Greece to leave.”
– Edward Prescott said, “I’m optimistic. Europe has to reform. They are going to sit down, agree and implement reforms. And then Europe will boom and overtake the United States.”
Mundell, the intellectual father of the euro, also advocated that the Fed and the European Central Bank cooperate to fix the euro-dollar exchange rate. He argued that investors introduce volatility into markets when they switch between the euro and the dollar.