krugman 1994 competitiveness a dangerous obsession

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Competitiveness: A Dangerous Obsession Paul Krugman THE HYPOTHESIS IS WRONG I N JUNE 1993, Jacques Delors made a special presentation to the leaders of the nations of the European Community, meeting in Copenhagen, on the growing problem of European unemployment. Economists who study the European situation were curious to see what Delors, president of the EC Commission, would say. Most of them share more or less the same diagnosis of the European problem: the taxes and regulations imposed by Europe's elaborate welfare states have made employers reluctant to create new jobs, while the relatively generous level of unemployment benefits has made work- ers unwilling to accept the kinds of low-wage jobs that help keep unemployment comparatively low in the United States. The monetary difficulties associated with preserving the European Monetary System in the face of the costs of German reunification have rein- forced this structural problem. I t is a persuasive diagnosis, but a politically explosive one , and every- one wanted to see how Delors would handle it. Would he dare tell Europe an leaders that their efforts to pursue econom ic justice have pro- duced unemployment as an unintended by-product? Would he admit that the EMS could be sustained only at the cost of a recession and face the implications of that admission for European monetary union? PAUL KRUGMAN is Professor ofEconomics at the Massachusetts Insti- tute of Technology. H is most recent book is Peddling Prosperity: Economic Sense an d Nonsense in tbe Age of Diminished Expectations (W. W. Norton). [28]

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