Economists typically assert that cartels dissolve naturally after members cheat or become irrational. When computers are the actors, though, detection is faster and not prone to human errors or failings, making defection less likely. Automated participants can identify price changes more quickly, allowing defectors who lower prices at the expense of the group to be sifted out earlier. Given this dynamic, participants have little incentive to either “cheat” the group or to leave it. Put another way, computers are likely to handle the classic prisoner’s dilemma better than humans.
That Old-Time Economics
In Europe, by contrast, policy makers were ready and eager to throw textbook economics out the window in favor of new approaches. The European Commission, headquartered here in Brussels, eagerly seized upon supposed evidence for “expansionary austerity,” rejecting the conventional case for deficit spending in favor of the claim that slashing spending in a depressed economy actually creates jobs, because it boosts confidence. Meanwhile, the European Central Bank took inflation warnings to heart and raised interest rates in 2011 even though unemployment was still very high.
.. If you want to feel really depressed about Europe’s future, read the Op-Ed article by Wolfgang Schäuble, the German finance minister, that was published Wednesday by The Times. It’s a flat-out rejection of everything we know about macroeconomics, of all the insights that European experience these past five years confirms. In Mr. Schäuble’s world, austerity leads to confidence, confidence creates growth, and, if it’s not working for your country, it’s because you’re not doing it right.
Britain’s Terrible, No-Good Economic Discourse
The narrative I’m talking about goes like this: In the years before the financial crisis, the British government borrowed irresponsibly, so that the country was living far beyond its means. As a result, by 2010 Britain was at imminent risk of a Greek-style crisis; austerity policies, slashing spending in particular, were essential. And this turn to austerity is vindicated by Britain’s low borrowing costs, coupled with the fact that the economy, after several rough years, is now growing quite quickly.
.. As I said, in the United States we have mainly gotten past that, for a variety of reasons — among them, I suspect, the rise of analytical journalism, in places like The Times’s The Upshot.
Strength Is Weakness
.. a weaker euro makes European industry more competitive against rivals, boosting both exports and firms that compete with imports, and the effect is to mitigate the euroslump. Who loses? We do, as our industry loses competitiveness, not just in European markets, but in countries where our exports compete with theirs. America has been experiencing a modest manufacturing revival in recent years, but that revival will be cut short if the dollar stays this high for long.
.. And the most recent Fed minutes suggested that some members of the committee that governs monetary policy were thoroughly clueless, apparently believing that inflows of capital would make the U.S. economy stronger, not weaker.