Against the Troika by Heiner Flassbeck

Author:Heiner Flassbeck
Language: eng
Format: epub
Publisher: Verso Books
Published: 2015-02-11T05:00:00+00:00

Krugman’s more general conclusion is also right:

The point, in any case, is that accounting identities can only tell you so much. Anyone who claims that the identities tell you everything you know, without an actual model of how things work, is just doing bad economics.

However, when it comes to external savings and their accounting counterpart, that fundamental point appears to escape him.7 In response to the German critique of the Treasury attack on the German current account surplus, Krugman wrote:

It is a basic accounting identity that

Current account = Savings – Investment

Any story about the determination of the current account balance must take this identity into account. … So while it’s impressive that Germany can run a surplus despite quite high labour costs, and that’s a testimony to the quality of its stuff, ultimately the surplus reflects high savings relative to investment.

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