About winners and losers: the Euro Area example

De Koning, Kees (2014): About winners and losers: the Euro Area example.

Abstract

In economic life, like in all walks of life, there are always winners and losers. The losers are the unemployed, often the young, the low-income earners, the individual households who lose their home due to repossession for non-payment of debt, the households who have no or a low savings level and the many who see their wages grow slower than inflation levels.

The losers in economic life, generally speaking, do not choose to be losers; they are willing to work but outside circumstances prevent them from (fully) participating in economic activities. To be a winner or loser in an economy is not just the result of some random events taking place; governments and central banks can create winners, but can equally create or become losers in the economic game themselves.

The collective U.S. banking system caused the 2006-2008 economic and financial crises. The U.S. banking system sold U.S. home mortgages to individuals in the U.S. and subsequently to investors in the U.S and in Europe in an irresponsible manner. The U.S government became as much a loser as all the Euro area countries.

In the Euro Area there are still far too many losers. All existing policy solutions, like a fiscal stimulus, an accelerated infrastructure plan, minimum wage increases and negative real interest rates all create losers apart from some winners. The Euro Area would really benefit from a policy that does only create winners without any losers. Such a policy could be the Economic Growth Incentive Method (EGIM). This method does not require more government debt; more individual household debt; a transfer of cash from one EA country to another; it will not increase the cost of labor; it does not require an income transfer from the rich to the poor; it does not require ultra-low interest rates and it will be a temporary measure only.

Perhaps an idea worth considering?

• Item Type: MPRA Paper
• Language: English
• Keywords: Euro Area countries, ECB, Economic Growth Incentive Method( EGIM), economic losers and winners, unemployment
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies

References

• Investments and Pensions Europe, London, U.K. IPE’s 2014 Guide to a €42.7 trillion Industry; the top 400 asset managers. June 2014

• Federal Reserve Bank, St. Louis, U.S., B100 Balance Sheet of Households and Non-profit Organizations 2008-2014

• Financial Times, London U.K. Friday 19 September 2014, Article on Pay Pressure. Reporting team: Chris Giles, Sarah O’Connor, Ben McLannahan and Claire Jones

• Mish Global Economic trend Analysis of 21 November 2013 by Mike Shedlock, Sitka Pacific capital management LLC, Snoma California, U.S.: Spain’s households income drops 10% from 2005.