Report from Lindau: Day 1

The opening ceremony of the Lindau Meetings started with an address by the German Federal President Mr Christian Wulff. His address covered many of the issues raised after the financial crisis in Europe and tried to be quite consensual. He mentioned the unfairness of taxpayers funding rescue packages whilst CEOs still enjoy milliionaire bonuses. He acknowledged that financial markets are very important drivers of economic policy these days and that politicians are often too eager and not toughtful enough when respondind to them. But he also insisted in the German official rethoric where irresponsible spending by the Southern European countries is deemed as the main culprit of the situation. The response, Mr Wulff said, is that spending cuts and austerity must be enforced if the crisis is to be overcome.

The panel on "sustainability" that followed started with Roger Myerson thanking macroeconomic theories for improving standards of living since 1929. It continued with the rather inane interventions of two young economists. Then McFadden put his farming cap on and used agricultural methapors to describe the world economy. The last turn was for Joseph Stiglitz's. His words were probably the highlight of the day. He started by contradicting both Mr Wulff and Myerson by saying that spending cuts are leading countries to disaster as Medieval doctors' use of leeches were drove weak patients to death. Then he continued arguing that precisely macroeconomic theories led us to the crisis in the first place. Finally, he talked about the euro, doomed for disaster from the outset according to him, but still worth saving.

After the break Peter Diamond reminded central bankers that there is no clear reason why an inflation target of 2% is better than 3% and that price control, although important, should not become an obsession. On the other hand, Chris Pissarides addressed the gap in work hours between the US and Europe and highlighted two reasons: First, that activities such us health care, cooking or cleaning that in the US are "marketized" in Europe are performed by families, mostly because taxes are higher. And second, and more worrisome for Europeans, because public employment in education and health have increased considerably in the US compared to Europe.

Finally, the panel discussion on democgraphic change generetaed a very interesting debate between Prescott and Peter Diamond, especially regarding taxation of savings. Predictably, Prescott (in the phote) argued for no taxation on savings and actually went further and advocated the abolition of income taxation, that should be replaced by consumption taxation. Diamond on the contrary argued that no taxation of capital was not a good idea, as suggested by the negligible effect on savings after they were partially declared tax-free by Mrs Thatcher.

What has become evident after this first day of sessions is that there is a heated and healthy debate within the discipline. Huge names in Economics hugely disagree on huge issues. So let's keep on discussing.