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« What Did You Learn In Business School? | Main | A Moral Case Against D.C. »


mike shupp

You might be wrong, I gotta suggest. The example you cite showed creditors (European governments) making threats aimed at a debtor which was also a government. Whether the Venezuelan government produced the money by methods compatible with democratic or legal means was of no interest to anyone.

Is it the Greek (or Italian or Spanish or Irish or Icelandic) government that is actually defaulting in today's crises? Is it the British or French or German governments which are the aggreived creditors? Do we expect Greece or Spain or whomever to arbitrarily seize assets of their citizens willy nilly, without regard for law, to pay these creditors?

And if so, should not the US government impose a hefty tax on all our citizens to pay off our large trade imbalances? (I concede, if we started doing this, in a few years the structure of the US economy would probably be changed considerably. Walmart might vanish, outsourcing might be viewed as unpatriotic, etc., and these changes might be viewed as desirable in some sense, even if economists disagreed.)

All that said, I rather agree with Paul Krugman. We have comparable trade imbalances in the US between different states, but they don't matter to us because we have a common currency, and a common commercial culture, and common laws, etc. We also have a federal government which routinely grants large sums to the individual states to cure some types of imbalances, so that say medical care for the indigent in Louisiana isn't that far apart from say Kentucky or Iowa or Maine. Europe is not so homogenized; its peoples do not want to be so homogenized. Europeans want the benefits of this sort of commonality but are trying to maintain strong state boundaries, and that isn't working. The available cures would seem to be abandoning the Euro (and other institutions) or increasing the degree of federalization, and Europeans are reluctant to adopt either policy.

David Tufte

I am not suggesting that this is a solution.

I am suggesting that a credible threat of doing this might improve the second best (or worse) solution that we keep seeing.

Back in the day ... lending from government to government was not as common as today. They didn't have the cash flows or liquid wealth. It was more common to have loans from the rich to governments.

I do think the whole situation is stupid, so no I don't think those governments should go about seizing private assets. What amazes me is that individuals loaned money across borders without a credible plan to suppress bad behavior.

BTW: Most of the problems are for loans that were received by the governments you mentioned. Private borrowing was also up, but those repayments are flowing normally.

OK. So now I have to "pull rank". Everything above this was an informed, but off-the-cuff opinion. What's below this is more informed.

1) The situation with our trade "imbalance" is not the same. Further, it is a big problem that it is repeatedly presented as if it is. We have already paid for our current account deficit with a capital account surplus because we have flexible exchange. Members of the Eurozone do not benefit from this feature because they have fixed exchange with their creditors within the Eurozone: so they can both be borrowing and losing the ability to repay at the same time.

2) I agree with Krugman too. Back in the pre-social-media dark ages of the early 90's, those in my academic circle knew that I didn't think much if the whole united Europe idea for just this reason. To me, at least, it was very clear that the drivers of this nonsense were blinkered bureaucrats and that special sort of idealist that has trouble juggling too many ideas at the same time and so shuts down in the face of cognitive dissonance.*

* Gosh. I gotta' come up with a nickname for those idealists-who-can't-juggle-ideas.

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