Monday, June 27, 2011

Sweden, Germany, and robustness

I mentioned in earlier posts the concept of Black Swan introduced by Nassim Taleb, which argues that we need to build system that are robust to strong and unpredictable shocks, instead of trying to prevent those shocks. Neil Irwin has an interesting article in the WaPo today on how Sweden managed to go through the crisis almost unscathed. Let me cherry-pick one of the point to talk about robustness:

Fiscal stimulus can be more effective when it is automatic.Sweden didn’t do much in terms of special, one-off efforts to spend money to combat the downturn. There was some extra infrastructure spending and a well-timed cut to income tax rates, but the most basic response to the government was to do what the nation’s social welfare system — lavish by American standards — always does: Provide income, health care and other services to people who are unemployed.
You probably heard about the Kurzarbeit program in Germany where workers reduced their work hours but keep their wages at the same level thanks to the government funding for the gap. In September 2009, the OECD was saying that the program saved 500,000 jobs(later reports seem to show some limitations to the program though) , while the economy shrank at a faster rate than the US economy in terms of GDP for instance.

In any case, the idea of automatic stabilizers is, I think, the typical example of mechanisms to provide robustness to big shocks. I was looking to translate "amortisseur", because the term reflects the robustness factor. Well, it translates as "shock absorber", so I guess I'll give up on the metaphors.

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