David's Brain: Greece + Groceries = Detroit

Pingree's Potato Patch
Studying the Economics of Detroit

I was just reading about the Euro crisis again on Brad DeLong's blog, and I had a thought. The basic narrative from DeLong and Krugman regarding the Euro is that most of the countries having problems right now had major price runups during the pre-implosion period due to capital inflows, and now that the economy has declined the only way they can recover is either

  • massive deflation, which will be accompanied by a lot of pain to their citizens, and possibly trigger complete collapse, or
  • the big Euro countries (particularly Germany) boost their consumption, increasing their imports from the rest of Europe, and thus improve the intra-Euro trade balance of the smaller countries.

This idea of within-currency import/export balances got me thinking about Detroit's situation. In some regards we're in the some position as the PIIGS, needing to export more to the rest of the US to gain ground. The flip side is spinning up economic activity by capturing a larger portion of the economic cycles we're already involved in, basically the local-based economics ideas taking hold in Detroit; I guess at the national level that would essentially take the form of protectionist policies, which I assume are blocked by the EU agreements.

None of this is brilliant, just a parallel which jumped out at me that seemed worth recording. It also reminds me of the need to brush up on small-country fixed exchange rate trade policy, which I've been meaning to do for a while.

Categories: Blog, GreatRecession, To Do List