Noah denkt™  -
    Project for Philosophical Evaluations of the Economy
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We cannot return to the innocent Citroën 2CV world of late
Comparing notes on Keynes austerity and the EURO currency union with Paul Krugman, and Václav Klaus, first
drafted on March 12, published on March 13, 2013

If anything,
the outcome of the Italian parliamentary election has made it necessary to engage, yet again, in a
serious soul searching about the best possible interpretation of the economic reality we live in. To help you pick
your side we would like to offer you a head to head with two of the most relevant economic thinkers of our times,
Nobel laureate
Paul Krugman, and former Czech President Václav Klaus. Here we go.  
Paul Krugman’s Position
Noah denkt™’s Position
Mr. Krugman says that governments are overly
obsessed currently with reducing the deficit since
austerity measures in times of a deeply depressed
economy will only worsen that depression and lead
to an even more devastating unemployment rate
than we actually have at this point. .

Historically, he would argue, it is no problem to run
a deficit that it is higher than 100% of GDP. Britain
has done it for a long time, and it wasn’t a problem.
Japan even reaches 200% of GDP and it isn’t a
problem. So there is no reason to fuss over an
80% debt rate at a time when the economy badly
needs counter-cyclical investment from public

Mr. Krugman agrees though that fiscal deficits
eventually need to be reduced. He would submit
though we still have quite some time left (perhaps
until 2025) until such cutting measures need to be
introduced on a substantial scale.

Continuing with the current austerity measures will
however lead to an entire generation being lost in
the doldrums of a badly performing economy. This
will not only entail a substantial loss of skills on the
part of those who suffer from long-term
unemployment. No, it may also have dramatic
consequences for the coherence and viability of a
democratic system as such.
Noah denkt™ believes that it isn’t just governments
that worry about the current debt levels, - it is the
markets that do so as well. (Witness among others
the downgrading of countries like France, Britain and
the US; witness Rick Santelli’s ranting against the US
debt and witness the huge spreads between German
and Spanish bond yields.) And the fact that markets
do worry about the current debt levels may have
something to do with the unwillingness of earlier
governments to reduce the deficit when they had an
opportunity to do so. But this may not be the only
reason why markets fuss about state deficits.

It may also be that observers somehow sense
80 years of applied Keynesian theory have left our
societies with such a degree of moral decay (witness
the erosion of party membership, the lack of
consideration for the common good in everyday life,
the sense of entitlement, the disintegration of family
structures, the degree of cynicism in public relations
etc…) that we simply can’t go on with applying the
same pain killing methods.

Much rather does it appear as if it is time now to give
people the opportunity to understand that it isn’t up
to others but to ourselves only to find the hope, the
confidence and the staying power which will allow us
to manage our future adequately.   

In other words, it is our opinion that there is a
generational challenge upon us which we
should address sooner rather than later
. And if
dealing with this challenge requires putting
substantial sacrifice then we should remind
ourselves of the what the greatest generation has
done for us and accept our own plight as well.
Václav Klaus’s Position
Noah denkt™’s Position
The former Czech President Václav Klaus argues
that local currencies are necessary adjustment
mechanisms that allow countries to recalibrate
their economic strength according to the realities
that they find on the ground. Hence, any attempt
to establish a fixed exchange rate system between
countries sooner or later has to fail, since the
fluctuating pressures of disparaging economic
realities in those different countries eventually
become so huge that they are impossible to
withstand. (Witness the inevitable end of the
Bretton Woods-system, witness the disaster of
Argentina’s currency board system against the US
dollar, witness the disintegration of the former
Czechoslovakian currency union).

In view of this, it is, according to Mr. Klaus, quite
irrational to believe that such widely different
countries as Greece and Finland, to name just a
few examples, could continue to prosper while
sharing the same currency. Unfortunately, the
opposite is true. And as long as the authorities in
the EURO-zone do not recognize that they are
fighting the laws of nature by insisting on a
currency union for 17 member states, the EURO
zone countries will not have a chance to leave the
recessionary environment that they are currently

But, it isn’t the unreasonably large currency union
alone that, in Mr. Klaus’s view is hampering the
European growth perspective. It is also the
interfering, decree-wielding power of an overly
bureaucratic regime in Brussels that does so. And
last but not least, it is the patronizing and
dependency generating character of the
European welfare state that does so. Unless,
there is substantial change in these three areas (i.
e. the European notion of welfare state, the
market debilitating power of bureaucracy and the
overly ambitious reality of a currency union)
Europe cannot hope to prosper.
On most counts Noah denkt™ is in agreement with
President Klaus. We have also come around to
that Greece needs to leave the EURO
currency. We share Mr. Klaus’s conviction that the
European welfare state needs fundamental reform.
And we support his view that Brussels needs to be
less intrusive when it comes to imposing the shape of
bananas etc…

We are not as sure though as Mr. Klaus is, that the
EURO currency union will only be viable if the
number of member states is reduced to six or seven
relatively homogeneous countries in Northern
Europe. After all, it has to be recognized that
economic reality is quite different even inside
individual member states. (Just witness the difference
between Germany’s prosperous South and its
impoverished North East). And still no one seriously
believes that the currency union between say
Bavaria and Mecklenburg-Vorpommern should be

No, what ultimately decides if poor and rich countries
can prosper inside the same currency union is the
political determination in subject countries to do so.
And here we need to ask our devaluation-prone
brothers in the South whether they truly
believe that our societies continue to afford a
return to the old Citroën 2CV days of late?
doubt that. Instead, we believe that the world of
Gento, Pirri or Butragueño has just as much
disapperared as that of Francoise Sagan, Claude
Chabrol or Louis Malle. After all, it can’t be denied
that we do want to enjoy the spoils of a CR7-
Champions-League environment. And so we should
embrace our forward-looking aspirations and stop
romanticizing about the good old local days gone by.
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The commentary and the reasoning that was provided on this page is for informational and/or educational purposes only and it is not
intended to provide tax, legal or investment advice. It should therefore not be construed as an offer to sell, a solicitation of an offer to
buy, or a recommendation for any security or any issuer by WL & his LSV or its Noah denkt™ Project. In fact, WL & his LSV
encourage the user to understand that he alone is responsible for determining whether any investment, security or strategy is
appropriate or suitable for him. And to leave no doubt as to what this means we urge our user to also note our extended

Keynesian theory, austerity, EURO rescue effort, currency union, austerity policies versus
pro-growth policies, supply side versus demand side politics, Reforming the European
welfare state, flaws of the Euro currency union, cutting fiscal deficits in times of recession
Update posted on March 15: Finally, for all of those of you, who do not trust Noah
denkt™'s economic analysis, you may want to listen to Latvia's Prime Minister Valdis
Dombrovskis instead. He appeared on March 15 on CNBC to highlight his country's
success with EURO-style austerity.
To see the interview, please click here.