Sunday, 30 June 2013

The pain in Spain

By Tim Worstall

Yes, yes, I know that this Keynsian explanation for everything is all the rage at present. If only we artificially pumped up demand then everything would be just tootsie and fruit loops once again. However, hard as it may be for some to understand there really are structural problems in economies as well. For example, Scott Sumner tells us about Spain:
Note that during the depression of the early 1990s (when Spain still had its own currency) their unemployment rate rose from 16% to 24%. I don’t recall if they devalued during that cycle, but they certainly had the ability to devalue. And of course what’s striking about that period is not so much that Spain’s unemployment rate rose by 8 percentage points, but rather that it only fell to 16% at the peak of the previous boom! To say Spain has structural problems with its labor market would be an understatement.
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