Going back for a moment to the Spanish administration’s tendency to move the goalposts, we have also seen a permanent chorus of complaints from them that using Reel (sic) Effective Exchange Rate data to assess competitiveness is not valid or relevant in the Spanish case (those on whom this data fall negatively rarely are prepared to accept it has any), since Spain’s export sector has been well able to retain its share in global exports despite the distrortions produced by the property boom. Fine! Perfect! But then how the hell do you explain the difference between these two charts?
Here they are (we hope with permission of the author):
For our part, the question which occurs to us is: Does Edward Hugh think his readers are so stupid that he can get away with using industrial output (a purely tautological device, given that one must a priori assume unchanging national destinations for goods produced over the series in order for it to prove the point) as a proxy for competitiveness - made worse by the exclusion of the service sector from the calculation - instead of putting up actual exports, imports and balance of trade figures? We think that the charts below will help shed light on this conundrum.
Monthly goods exports have recovered from 2009 lows to, in the month of May, 12 percent more than what was their yearly average at the beginning of 2007 (not to mention that this change is far in excess of any European country's GDP growth over the same time). Goods imports, also as at the end of May, are at 8.5 percent less than those from three and a half years ago. The end result is the trade deficit seen in the second graphic.
It is fairly evident from these graphics that what has failed in Spain is domestic consumption, which is an entirely different - and far more diffcult - problem for policy makers than is international non-competitiveness. The question, however, remains. Why did Mr. Hugh post an irrelevant, and misleading to the point of being devious, chart of industrial output and not one of the statistics that actually measure what he claims to be the case?
Our gut feeling is that he might not want (much like the banking industry's generalized resistance to stress tests) to have facts knock a hole in his reputation. After all, his sure-fire 20 percent 'internal devaluation' panacea for Spain's trade balance (and hence, economic) woes certainly got him a lot of attention last May. Pity if that were not to be the problem.
Other suggestions gratefully accepted in the comments box.
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2 Comments:
For people saying that Spanish workers should be paid less because of Germany's success, it seems like Germany (and Japan) is actually the ultimate counter-example that reducing salaries is the way to compete with rest of the world's exporters (ie China).
If you compare German industrial workers to the rest of the world, they could still considered vastly "overpaid", butthey make it up in superior training, higher margin goods, quality-over-quantity etc.
These one-input models and attendant solutions are so asinine, anyway. Refuge of the intellectually impoverished.
You can make a very solid argument for the case that low wages - especially in the underground economy - are directly responsible for the housing bubble and its attendant misallocation of resources. If all those undocumented Ecuadorians and Romanians had been able to charge 20 an hour for schlepping bricks about the place, that whole thing would have come to a dead stop in 2001.
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