"Portugal exports more because wages have fallen and the economy shrank," according to Mark Blyth, Professor of Political Economy at Brown University in the United States, who was in Lisbon today to launch his book ‘Austerity: The History of a Dangerous Idea’ and to attend an austerity conference.
The current business model for Portugal, based on exports, may ultimately not be a good solution for the country, said the Scottish author who believes that the banks, not the increase in public spending, were the true cause of the European crisis.
"We can not all export the same time, someone has to be importing. This is called the fallacy of composition.* There is a problem in the way we all think about it, that everyone needs to export," said the Professor at the conference ‘Austerity, kill or cure?’
"Exports and imports are reciprocal - the fall in imports is due to Portuguese wages falling by 10%. Thus, people have less money and buy fewer imports which does not affect exports. Basically, we export more because our economy is smaller and people are receiving lower wages. I'm not sure this is a success," he said in a commentary that many sensible economists have agreed with for years including Jack Soifer.
Mark Blyth also criticized the lowering of corporation tax in several European countries including Portugal, stressing that this may not have the desired effect.
"The other thing that Portugal is trying to do as well as Ireland, Latvia, and the UK is to lower corporate taxes to encourage inward investment, but we can’t all receive investment at the same time," he said.
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* A good example of The Fallacy of Composition is – ‘If someone stands up out of his seat at a football game, he can see better. Therefore, if everyone stands up they can all see better.’
