The Blog Prophet of Euro Zone Doom
For years, almost nobody paid attention to the sky-is-falling alarms of Edward Hugh, a gregarious British blogger and self-taught economist who repeatedly predicted that the euro zone could not survive.
Living a largely hand-to-mouth existence here on his part-time teacher’s salary, he sent one post after another into the Internet wilderness. It was the height of policy folly, he warned, to think that aging, penny-pinching Germans could successfully coexist under one currency umbrella with the more youthful, credit-card-wielding Irish, Greeks and Spaniards who shared the euro with them.
But now that the European sovereign debt crisis is rattling world markets, driving the euro lower almost every day and raising doubts about the future of the monetary union, his voluminous musings have become a must-read for an influential and growing global audience, including policy makers in the White House.
He has even been courted by the International Monetary Fund, which recently asked him to fly to Madrid to assist in its analysis of the Spanish economy.
“It’s quite nice, actually,” Mr. Hugh, 61, said with amusement as he leaned back in a plush town car that was taking him to his latest speaking engagement organized by the Círculo de Economía, an influential business lobbying group in Barcelona. “I am meeting all sorts of interesting people and they are paying me to have lunch with them.”
But in other ways, his life has changed very little. Last week, in fact, he even had to borrow money from friends to buy clothes presentable enough to allow him to address the conference of Spanish politicians and business executives. He still mostly supports himself by teaching English to locals here, where he has lived for two decades.
“I guess I am countercyclical,” he said with a laugh. “For all the years during the boom when everyone was doing well here, I wasn’t doing anything. Now I am a household name in Catalonia.”
Well, not quite. The idea of the economist as a pop celebrity in the mold of a Nouriel Roubini, whose early prediction that the United States housing market would collapse later brought him fame and a worldwide consulting brand, or a Paul Krugman, the Nobel-winning economist who writes an Op-Ed Page column for The New York Times, is still unformed in Europe and in particular in Spain.
But as questions rise over how European governments can escape their debt trap and resume growth, Mr. Hugh, who has been pondering this topic for years, is for the first time being turned to for insights and wisdom.
His bleak message, in newspaper columns, local television and radio appearances, and in meetings with officials, is almost always the same: since Spain and other struggling countries of the euro zone like Greece, Portugal, Ireland and Italy cannot devalue their common currency unilaterally, they have little choice but to endure what would essentially be a 20 percent internal devaluation instead. That means their public and private sector wages need to fall by roughly that amount if those countries are ever to restore competitiveness, lift exports and bring in the cash needed to pay down their debts.
“Why haven’t these countries converged” with the rest of Europe? he asks. “It’s demographics. As populations age, there are fewer people in their 20s to 40s to buy new houses, so they save more. The younger a country is, the more dependent it is on credit to get growth.”
Germany, where the average age is 45 and rising even as the population is beginning to shrink, is a nation of savers, and public policy has encouraged keeping wages under control and building up export industries.
By contrast, the younger Greeks, Irish and Spaniards went on borrowing binges, driven in particular by rising demands for new homes and consumer goods that, in several cases, turned into housing bubbles before going bust. Wages were pushed up, encouraging spending but soon making it all but impossible for their industries to compete with the thrifty Germans, Dutch and other Northern Europeans.
Most economists, beholden as they are to their “promiscuous but essentially useless” economic models, Mr. Hugh rails, missed what he considers an easily predictable outcome. And that, he adds, “is why we are in such a big mess now.”
Mr. Hugh’s demographic thesis is not airtight: in fact, it was Italy, not Greece, that attracted his early attacks.
But Italy, perhaps because its overall debt level was already so high and its population was older, pursued a policy of greater fiscal rectitude than its neighbors and avoided a real estate bubble.
The blessings of curiosity
And Mr. Hugh’s main policy proposal — that Germany leave the euro, which would almost immediately push the value of the currency down sharply, improving competitiveness for the weaker countries that remained behind — reads better as a provocative blog post than as a practical solution.
Still, the sudden vulnerability of the euro zone and the search far and wide for answers by policy makers, investors and economists have caused his once obscure ramblings to go viral.
“He is an information channel that I value a lot,” said Brad DeLong, an economist at the University of California, Berkeley, who was a United States Treasury official in the administration of President Bill Clinton and a prominent blogger in his own right.
Mr. Hugh has also attracted a cult following among financial analysts.
“Edward was writing very clearly about the imbalances in Europe and the likelihood of a crisis long before it was even on the radar screen of economists or analysts,” said Jonathan Tepper of Variant Perception, a London research firm that caters to hedge funds and wealthy investors. “He is a thinking machine.”
At the same time, Mr. Hugh is determined to resist some of the newfound temptations that have lately come his way. He said he had turned down lucrative offers from hedge funds to provide exclusive research because he did not want his views monopolized by any one entity — although he said he was considering an offer to join the stable of contributors who work for Mr. Roubini.
And when the Michael Milken Institute — financed by Mr. Milken, a felon who managed to hang on to a fortune even after having to pay a $550 million fine for his actions during the junk-bond boom of the 1980s — paid him $3,000 for a short report he did in a day on Eastern Europe, Mr. Hugh gave the money to a friend who was having trouble paying her mortgage, he said.
“I don’t want to take a check from Michael Milken, thank you very much,” he said.
Born in Liverpool, Mr. Hugh studied at the London School of Economics but was drawn more to philosophy, science, sociology and literature. His eclectic intellectual pursuits kept him not only from getting his doctorate but also prevented him from landing a full-time professor’s job.
“I was once described by my departmental professor as a ‘thief’ for accepting my doctoral grant while continuing to spend my time reading the books and attending the courses that I chose to read and that I chose to attend,” he said.
Seeing himself more as a European than an Englishman, he moved to Barcelona in 1990.
His blog posts reflect his varied interests, often citing Bob Dylan, Charles Bukowski, Jean-Paul Sartre, Friedrich Nietzsche and even the sociable behavior of his beloved bonobos, the primate species that is the closest relative to humans in the animal kingdom.
Mr. Hugh cultivates the pale and shabby look of someone who has spent 12 to 14 hours a day sitting in front of a computer for the last 10 years.
But he is no recluse. His merry, convivial spirit and his religious adherence to the principles of reciprocity and exchange have made him a social networker par excellence. His embrace of the mores of Barcelona (he speaks fluent Catalan) has given him his own support network of middle-aged housewives as well, some of whom have provided him a place to live as he moves from abode to abode.
He currently lives in a farmhouse in a village of 60 people in northern Spain, where he writes for a suite of blogs — including A Fistful of Euros, Global Economy Matters and a number of country-specific blogs that focus on the Japanese, Hungarian, Latvian and Greek economies. More than anything, though, he still mostly reads and thinks. He also maintains a vibrant Facebook page
“In the Middle Ages, curiosity in excess was regarded as a sin,” he said with yet another laugh. “But with the Internet, I feel that I can do what I like. This makes me feel that I can really do something.”