Tuesday, February 18, 2014

Peter Praet Goes "Structural", or the Eurozone Develops Sensory-Motor Amnesia

The ECB's Peter Praet, unsurprisingly, praised his own institution today, saying,"The ECB has been central in stabilizing the euro area economy. Looking ahead, the task of all euro area policymakers is to ensure that the improvement in confidence will be validated by actual outcomes. If implementation of structural reforms is pursued ambitiously and the reform momentum upheld, it seems likely that growth will surprise on the upside in the coming years."

You can read Praet's full remarks here. On the surface of it, there's little controversial about Praet's statement. The Eurozone periphery economies are certainly in need of structural reforms, and the achievement of such reforms would undoubtedly boost economic growth. But I'm going to object to his statement on the grounds that it's just another way of saying "It's structural." Marcus Nunes has done an excellent series of posts battling the notion that the downturn has been structural. Perhaps Praet did not mean it this way. But I find it very concerning when a central bank concerns itself primarily with structural reform rather than the appropriate provision of money.

I've been reading a very interesting book called "Somatics: Reawakening The Mind's Control of Movement, Flexibility  & Health" by Thomas Hanna. I'm only halfway through, so I'm not going to recommend it just yet, but its somewhat heterodox position is that many of the ailments we associate with old age start as responses to stress and trauma. They're misdiagnosed as structural (rather than somatic, or psychological) issues and therefore not treated at the fundamental level. Eventually the body begins to forget how to move in a natural way, only feeding the cycle of pain and inactivity. Hanna goes so far to say, "Age is a crypto-pathology... the basic problem [is] really the same: involuntary contraction of the muscles in the body's center of gravity, affecting the periphery of the body; or involuntary contraction in the periphery of the body, causing a compensating contraction in the center of gravity."

I'm sure you see the parallel. Again, I'm not disagreeing with Miles Kimball's view that money has a deep magic, and the supply side has a deeper magic (although I'm sure his wife, as a massage therapist, will readily grasp the importance of correctly diagnosing so-called structural conditions!). But there is a crypto-pathology afflicting the Eurozone, and no-one - least of all the ECB - should be allowed to forget it.