The draft Eurozone plan
It is here (and further detail here), via Paul Krugman, who rightly slams it. Matt offers comment, so does Wolfgang, many more details and updates here. If you had told me it was an Onion-like satire of all the previous plans, and not an actual serious plan at all, I would have believed you. Here is one of the stranger, funnier, sadder, and more Straussian paragraphs:
6. All other Euro countries solemnly reaffirm their inflexible determination to honour fully their own individual sovereign signature and all their commitments to sustainable fiscal conditions and structural reforms. The Euro area Heads of States or Government fully support this determination as the credibility of all their sovereign signatures is a decisive element for ensuring financial stability in the Euro area as a whole.
In other words: “We know you are worried about Italy and Spain so we promise you that they are fine.” There is a good deal of ah, optimism about the real side of these economies:
9. All euro area Member States will adhere strictly to the agreed fiscal targets, improve competitiveness and address macro-economic imbalances. Deficits in all countries except those under a programme will be brought below 3% by 2013 at the latest…
Here’s an important sentence, and I view the exclusive reference to “Member States” as throwing in the towel:
As a follow up to the results of bank stress tests, Member States will provide backstops to banks as appropriate.
It is also promised that the bailout model for Greece won’t be used again.
Time to blast the Brahms! In all fairness to the plan, maybe that’s the only disc in anyone’s collection these days.
Addendum: “The proposed expansion of the EFSF’s role would have to be ratified by national parliaments, and could fall foul of critics in Germany, the Netherlands and Finland.”
When the UK took over Newfoundland
In large part it was because of a debt crisis:
In 1933 the Newfoundland legislature voted itself temporarily out of existence, ending 79 years of responsible government. The following year, Newfoundland accepted a constitution similar to those in place in the directly-controlled Crown colonies. A country voluntarily giving up self-government is highly unusual, yet many other societies also experienced a loss of faith in democratic institutions during the Great Depression of 1929-39. The roots of the fiscal and political crisis that led to the collapse of responsible government can be traced to the First World War.
Here is much more. Don’t expect this model to be repeated anytime soon.
Hat tip goes to Joseph Cotterill.
Facts about Panama
…from 2005 to 2010 its economy expanded by more than 8% a year, the fastest rate in the Americas. The IMF expects it to grow by over 6% a year during the next five years. Panama will soon overtake Costa Rica and Venezuela in GDP per head. Accounting for purchasing power, it is one of the five richest countries in mainland Latin America.
Here is more.
*Stealth of Nations*
The author is Robert Neuwirth and the subtitle is The Global Rise of the Informal Economy. Excerpt:
The merchants here are Chinese. But most of the customers, like Chief Arthur, are from Africa. The trade is generally brisk — on Fridays it can be overwhelming — and it’s accompanied by what seems like a permanent sound track: the rasp of unspooling packing tape and the whir of currency counters. Each box that leaves the market is heavily sheathed in plastic tape — to ensure a secure seal and to make it hard to tamper with. And the economy here, as in almost all haphazard markets around the world, is cash-only. All payments are made in yuan, and, as the largest denomination in Chinese currency is one hundred yuan — worth about $14 — people making big deals carry massive bundles of cash. Chief Arthur, for instance, who was carrying a wad of four hundred hundred-dollar bills, had to convert them into almost three thousand hundred-yuan notes — a stack of bills large enough that he needed a briefcase or duffel bag to carry it around.
Much of this book draws from Nigeria, China, and Ciudad del Este in Paraguay. Black markets are a well-worn topic, but I found a lot of the material here to be fresh and vital. The book is due out in October.
Assorted links
1. How to maximize the value of Larry Summers, and the interview is here.
2. This superhero cartoon spans many excellent themes.
3. The Age of the Infovore is now out in a Penguin India edition.
4. A crude look at some mortgage agency cumulative default rates.
5. Markets in everything, invisible art.
IHS does Liberty Academy
Welcome to Liberty Academy! We’ve created learning paths to help you navigate the ideas of liberty through specific disciplines. Each path contains several lessons. The lessons are ordered to improve the learning process but you can skip around if you prefer.
Each lesson contains the following elements:
- A LearnLiberty short video explaining the concept
- Suggested resources for delving deeper into the topic
- Questions to enhance your understanding
- A discussion area to share your insights and ask questions
Sentence fragments to ponder
The Brussels summit – the 10th time in 18 months that European leaders will have tried to save the euro and Greece from collapse…
Do you need to read further? In my view, taxing the banks is not close to enough and the market will realize this quickly.
From the comments
This is from Mark, the caps are his:
We had these big interconnected undercapitalized things that were mandated by federal policy to keep expanding the amount of paper they bought or backed, which meant inevitably they were going to reach the point where the paper they were backing was too risky, and the GSE’s mandated growth necessarily called for them to issue more paper of their own to do that..And then you had Basel II and its US application that made GSE paper Tier I capital to support maximum loan growth in private sector banks. No wonder credit dried up when the GSEs were taken over in Sept 08. But you never see the Rortys and Mins speak to this perspective. THE GSE’S WERE PROCYCLICAL VECTORS THAT TRANSFORMED HOUSING DEMAND TRENDS INTO CREDIT MARKET TRENDS AND VICE VERSA, FREQUENTLY AMPLIFYING THEM, BUT THEY WERE NOT STRONGLY CAPITALIZED ENOUGH TO ABSORB A TREND REVERSAL.
Sentences which are sometimes forgotten
All else being the same, the market tends to create and allocate jobs for those people who are most interested in working.
That is from Casey Mulligan. I do not always accept Mulligan’s arguments, but he raises the interesting question of why, during the last recession, employment rates for the elderly did not in general fall.
Assorted links
What kinds of economics will intelligent aliens have?
Ahmet, a loyal MR reader, asks:
What aspects of a functional economy would you expect to find in a developed extraterrestrial civilization? Barter, money, interest, financial derivatives, options?
Adam Smith and Murray Rothbard and Olaf Stapledon spring to mind as sources. Reciprocal barter most likely, and that means implicit interest rates at the very least. But do dolphins have money? Not obviously. I can imagine a dolphin-like civilization which lacks money. Dolphins seem to have relatively few goods of value, yet they are highly intelligent and have well-developed emotional lives, or at least they could be so even if you are for some reason skeptical about current-day dolphins.
Current dolphin goods seem to be food, sex, kids, and conversation, with a fairly tight PPF. They don’t buy lampshades. Most of “dolphin economic growth” seems to come from finding more and better food, getting more and better sex, finding safer environments for the children, and learning to enjoy other dolphins more. It’s hard to store dolphin goods and thus it is hard for the Mengerian origin of money story to get underway.
The opposable thumb and life on land, combined with some very particular and indeed contingent signaling tendencies, gives greater scope to heterogeneous durable goods and thus eventually money. You can think of “dolphin water” as a high tax on lots of potential inputs, though it serves as a large implicit subsidy to the fishing sector.
Without money financial derivatives are unlikely, though be careful because alien intelligence is likely to surprise us.
Bird-like creatures, which fly through the air, might have a greater chance than dolphins of developing money as a medium of exchange, in part because they avoid the water tax on durable assets. It seems possible to handle worms and songs and sex with direct barter, so what would smarter crows (or would they be smarter?) want to trade? What kinds of heterogeneities might they crave and toward what end?
Bee-like creatures are a different story altogether, because of their homogeneity (for the drones at least) and high level of genetically-induced cooperation. The “economics of communication” is especially important for them.
This entire question points me back to wondering why the diversity of human preferences evolved to the extent it did. Why don’t we just want a few things?
“Pick Your Poison: Do Politicians Regulate When They Canʼt Spend?”
From Noel Johnson, Matthew Mitchell, and Steven Yamarik:
We investigate whether laws restricting fiscal policies across U.S. states lead politicians to regulate more instead. We first show that partisan policy outcomes do exist across U.S. states, with Republicans cutting taxes and spending and Democrats raising them. We then demonstrate that these partisan policy outcomes are moderated in states with no-carry restrictions on public deficits. Lastly, we test whether unified Republican or Democratic state governments regulate more when constrained by no-carry restrictions. We find no-carry laws restrict partisan fiscal outcomes but tend to lead to more-partisan regulatory outcomes.
The presentation slides are here. In my view this is one reason of many why a balanced budget amendment is not a workable path toward fiscal conservatism.
The Gang of Six plan
Ezra Klein links to a founding document. David Wessel summarizes some of it. It’s complicated and a lot of it will be re-legislated. We still have an OK path forward. It seemed to me that gdp+1 for Medicare does lot of the medium-term work. The entire tax discussion was unclear and I feared that some revenue losses were perhaps not acknowledged. At this point the real questions are about public perceptions, not the principles of public finance as they might be debated by Musgrave and Buchanan. The estimated level of social capital in the U.S. political system will very shortly be revalued, one way or the other.
Here is Dan Mitchell on the plan. Here is a Hayekian argument on the debt ceiling. Here is Peter Leeson on the history of “God Damn!”
On Europe, it’s as simple as that. The Greek bond yield topped 39 percent. As I said to a reporter today, France gave birth to it (the euro), faltered and left it on the doorstop of some distant, passive-aggressive German parents, and they are willing to feed the thing but not to pay the bill at Harvard.
Addendum: Ezra has a lengthy summary and analysis. Blog-lengthy, that is. Chait doesn’t think it can pass.
Assorted links
2. Krugman can’t bring himself to present the figures on government spending. Herbert Hoover raised spending and raised taxes too, in a slightly expansionary combination. It is incorrect to take, say, a state governor who is pursuing a contractionary fiscal policy and liken that person to Hoover. Krugman would do better to simply cede this historical point, which need not infringe upon his more general critique of contractionary policy.
3. What is a high mortgage default rate?, from Arnold Kling. And Rortybomb, with links to Min, responds on GSEs, a useful post.
4. Are all non-Africans part Neanderthal?
5. A sign that “the Left” is falling apart too; how many hackneyed or false memes or misguided examples of us. vs. them thinking or mistakes of mood affiliation are in this blog post? It is a veritable feast of fallacy and it should be studied by future historians. (If you are looking for balance, try David Brooks on the contemporary right.)
A realistic portrait of Argentina
…beyond the stellar growth numbers, the picture is mixed. To start with, the boom owes much to global factors. Amid a surge in global prices, Argentina is a leading food commodities producer, with agriculture making up 35 per cent of foreign sales. Furthermore, not only is China clamouring for Argentina’s natural resources, but the middle class in neighbouring Brazil – its main trading partner – are also avidly buying cars, its biggest manufacturing export.
“The terms of trade are now at a historic high. This is the best possible world for Argentina,” says Lucio Castro of Cippec, a Buenos Aires-based think-tank. “But take out the natural-resource intensive sectors and productivity in the rest of the economy is bad and informality extremely high.”
Unemployment, at 7.4 per cent in the first quarter, is low, but investment is lacklustre – 19.4 cent of gross domestic product. Meanwhile, productivity is “not bad, it’s dismal”, says Mr Castro.
Moreover, following years of underfunding, the country’s once admired education system is a shadow of its former self.
Repeat after me three times: real shocks really, really matter. That adds up to six “reallys.” The link is here.