Hemlock for economic students
(Putting effective demand in the long run and prices of production together)
Tuesday, August 2, 2011
Why the euro is NOT the dollar
Nope, it's not because the ECB will not do the equivalent of quantitative easing, and because it allows the interest rates of euro denominated bonds in the periphery to go to the stratosphere, even though those things don't really help. It is because intra-european fiscal transfers are not large enough. The Economist has an interesting article in the last issue that shows intra-state transfers in the US.
Delaware transfers to the Union more than 200% of its own GDP, while New Mexico receives more than 250% of its own GDP in federal transfers (the difference of taxes paid to federal spending within the respective States). That is fiscal federalism.