Mutualize European Debt: Round 10 – Time to Grow Up Dick

tom hanks in Big
Just like Tom Hanks, you’re a 10-year boy trapped in a man’s body

It’s cute that you think Europe will mutualize its debt next month, it really is. You probably also think Palestine will have its own territory by December, Iran will ally with the United States to bring peace in Syria, and that J.K. Rowling is secretly writing another Harry Potter book. Face it Dick, none of that is going to happen.

I standby my statement on scale, but I also agree that economics is a social science. not a natural science. The biggest difference between the two, in my mind, is the lack of predictability in social sciences. (Scientific formulas are wonderful because, regardless of scale, the outcome is always predictable. I will put money on your search to find otherwise). Take, for instance, my latest series on Austerity or Stimulus and which works better in a financial crisis. There is very strong evidence for both theories being the “right” method in fixing a broken economy, and there are both success and failure instances in execution in just the last 5 years. The fact that there are both real-life failure and success examples with each method proves that there are a lot of hole’s in current economic models. So I will not only go as far as to say that economics is an unpredictable bitch, but that even after a model has been chosen for execution, it is nearly impossible to prove its success/failure over the opposing model.

You say “now more than ever our Economic system is interconnected with our financial system” and the fact that you are correct in saying so should scare the shit out of you. Bankers are not civil servants, yet their actions have just as big an impact on our society as any other paid government official. That’s a huge problem in my mind. And I’m not saying the competency of a banker versus the competency of a government official is worse, in fact it’s probably not in a lot of cases. But the underlying goal of each profession is vastly different.

You also mention the Fed’s function of lowering the unemployment rate, and I know that this is a typical function of a central bank, however I fail to see how it can realistically accomplish this in a capitalistic economy. Perhaps you can enlighten me on how the Fed will create jobs for its citizens that are unemployed? It’s funny because the Fed blames Congress for not doing enough to lower unemployment and A LOT of pundits are blaming the Fed for not doing enough. I can’t see how the government could possibly be responsible for creating jobs, that’s the free markets role. I would simply say it’s the government’s responsibility to take care of people who are unemployed.

Mutualize European Debt: Round 9 “To crush your enemies, see them driven before you, and to hear the lamentations of their women!”

“I have the Power!”

I am glad to see you are finally agreeing with me, good for you. Next month we will see how mutualizing Europe’s Debt will not only save the Euro but also make all of Europe more economically sound and competitive. Now to what you’re still wrong about, I didn’t say that people wouldn’t balk at merging Mexico in to the US. What I was saying is; if it had to happen it would. Since there is no foreseeable reason why this would take place I am willing to drop it.

The point you made about how scientific formulas don’t change when you change the scale of the equation, intrigued me. I was in the midst of a Google search for cases in which this is not true (I really think there are, by the way.) when I stopped myself. Economics is not a natural science, it is a social science, and there is a big difference between the two. Natural science, Physics, Chemistry, Biology, are all based on the use of scientific methodology and use hard facts. Economics is a social science that is based on human behavior using previous lessons to explain the present and predict the future through statistical pontification.  The 2007 crash has shown us that now more than ever our Economic system is interconnected with our financial system. This is to the point where the central bank or the US Federal Reserve is unable to control the few simple things it was supposed to have on lockdown, inflation and unemployment. I actually anticipate your reaction this statement more than random 80’s movie you’re going to use in the title.

Kiss My Ass, Europe

” And all you A-Rabs can gargal my ballbag!”

Here’s a rundown of what happened on Mitten’s European Adventure:

First, in London he suggested there were some disconcerting developments leading up to the Olympics, which pissed of the London press.

Second, in Israel he nearly started a war with Iran.

Third, again in Israel, Mittens suggested that it was the Arabic culture of the Palestinians that left them impoverished while the Israelis prospered in the same country.

Finaly, he only took three questions from his traveling press core during the entire trip. The same press core revolted in Poland hurling questions at him during his visit to Warsaw’s Tomb of the Unknown Soldier. This prompted Romney’s Press Secretary to tell the press core to “kiss my ass.” His reason was that this is a holy Polish site; political questioning and democratic process is disrespectful to the dead Pollock in the tomb.

Mutualize European Debt: Round 8 “Do not feed after midnight”

Gizmo as Rambo
This is what happens when you push a Mogwai too far

Sorry, but you’re insane/unrealistic if you think the only thing keeping the US from merging as one with Canada and Mexico is the lack of economic necessity. Even if the economic necessity did exist, it wouldn’t happen with today’s culture’s. Country’s are far too nationalistic and full of over-embellished nationalistic pride to even consider a drastic move like such. Can you imagine the backlash from US citizens if a proposal to merge with Mexico came about? Hell, we can’t even get Puerto Rico to join the States. We can’t even keep Texas from wanting to succeed! I know I’m an idealistic when it comes to things like this, and I do agree it’d be better for the world, but you’re simply not being realistic. You’re a couple hundred, maybe a thousand, years ahead of your time.

I actually don’t see how the recent crisis has rewritten economic theories as you say. You mention scale, but scale doesn’t change theory in most sciences actually. It’s the same old formulas with bigger numbers, that’s it. So yes, the world is “flatter” and the markets are more inter-connected, but I don’t see what economic principle’s this changes (and I can’t think of the economic principle you are disagreeing with me about). You are right about how firms can lose money ten times faster today than 100 years ago, and you can thank derivatives for that. If anything, this proves more than anything that Glass-Steagall needs to be re-implemented so the banks holding our loans and savings can’t use it as leverage against these risky investments. Dodd-Frank does an okay job at this by limiting the amount a firm can leverage, and that regulation actually has the biggest banks thinking about splitting themselves. Ironically, the Citigroup CEO (the reason Glass-Stegall was repealed) recently mentioned that big banks should break up for a more efficient financial sector. Perhaps the Volcker Rule is more powerful than I originally thought.

My rant on capitalism is largely unfounded and shortsighted: it’s simply very easy to see the problems during hard times, and right now is hard times. While I’m not convinced capitalism is the best model for an idealistic economy, I cannot think of a better solution myself. I agree, and strong mix of socialism and capitalism would do society good right now, especially in the United States. The problem with that solution is how much both systems contradict each other, just like in physics with particle randomness and relativity (I know, I always bring this up but it’s pretty applicable here). For the better part of the last century, the world’s brightest physicists having been searching for a unified theory that combines both, and they have failed. I’m not even sure the brightest economists are even looking for a better solution to a world economy, but a unified economic theory could be an interesting start.

As for our argument to Mutualize European Debt, I’d say we largely agree on an idealistic solution but disagree on the timing. As for Spain and the rest of the fledgling EU, they will be bailed out with “short-term” repayment programs, but they will not unite as one this time around.

Mutualize European Debt: Round 7 “Too close for missles, switching to guns”

“That’s right I am dangerous, Iceman”

Like I said, we are starting to agree on things. Now if you could just stop being so short-sighted and wrong about everything else. I don’t believe for a second that cultural barriers prevent any sort of unity in the modern economy. If anything, the European Union and United States has proven that multiculturalism is the new norm in building modern states. Furthermore, why exactly is it that Mexico and Canada can’t unify with the US under one government? I think the only reason this hasn’t happened yet has nothing to do with the culture and everything to do with economic necessity. In Europe there is a growing economic necessity, that is why this is not only a possibility but frankly inevitable. The EU has already proven that these diverse cultures, which in terms of the rest of the world share a long history of cohabitation, can work together for economic progress. The EU financial determinism created the strongest trading block in the world. That block has enriched the cultures of Europe and provided the economic stability to allow politically social- fiscally capitalist governments to prosper. Your rather naive to think this isn’t going to happen, with Spain’s bond yields soaring eventually the European Central bank is going to perform some sort bailout that would put the strong economies on the hook for the weak. I can’t see how this can end without mutualization, dissolving unification in Europe is just such a backwards move. The world always moves forward not backwards.

I’m sorry once again to stress the point that the recent global crisis has rewritten some, not all, of the economic theories. There are major differences between the national markets 100 years ago and global markets of today. One: scale; as you mentioned, we’re dealing in trillions now. Second, the world is getting flatter every day. You can lose ten times as much ten times as fast, exponentially. Furthermore on the flat world, employees around the world now compete on the global market; the ability to move jobs is just as easy as shipping goods across borders. Third, the cash nexus has essentially created, and with good economic sense in mind, a price for everything. Now people invest in nearly everything in an economy. This is similar to placing bets on everyday occurrences such as how much orange juice Florida will produce this quarter or will Jersey Shore’s ratings improve next week. These things combined means that the global economy is interconnected in a way that not even nations were interconnected 100 years ago. Nations and regulatory agencies need the same kind of interconnection to survive as well, this crisis if it continues long enough could create the need for a whole new era of Federalism.

You’re right about my statement on markets that create nations, it is a chicken-or-egg question, but that doesn’t mean I’m wrong. I can probably name a few examples either way. The US was a market that became a nation. As a colony of Great Britain we produced raw materials to feed their industrialization, and when business men realized that we were being fucked twice in this deal through taxes and the suppression of our industrialization potential we rebelled. However, I must keep refraining that we are moving into a new epoch of world history where giant super governments will one day exist.

I don’t understand your rant on capitalism; it’s as if you blame the boat for hitting the iceberg and not the captain or crew. I give you that capitalism is flawed, but only when you think of it as a governing force and not a fiscal system. There is no reason to think that Capitalism and Socialism can’t exist in the same market, it’s successful all over Europe, despite recent events. I believe there is a proper mix of free market capitalism and with strong government oversight and social programs that can create a model society. No one can ever get it perfect, but that is why we are always trying. I also refuse to continue to entertain your nuclear approach to the pitfalls of capitalism until you give me an alternate system, and not that fiction Star Trek Egalitarian Society crap. Also tell me how you would solve the problem in Spain’s solvency?

“Greetings, asshole!”

Stimulus or Austerity in a Crisis? You Decide

economic stimulus
US Economic Recovery

It’s the old economic adage: what works better in a crisis – stimulus or austerity? For most of the world in 2007, the latter was the answer. For a few countries though, austerity was the road they chose. For example, Estonia, a small Eastern European nation once defined by the Soviet Union’s reign over the Baltic’s is most known for its… well, I don’t know what the hell they are known for. However, just like most country’s in the world, the financial crisis of the decade hit them hard as they experienced typical over-leveraging in a real estate bubble. Their solution? Cutting state salaries by 10%, raising state taxes by 2%, cutting pension plans for state workers while unemployment soared to 16%. The result? In terms of GDP, they’re in the same boat as us, about 10% shy of 2007 levels. On the other hand, their GDP-to-debt ratio is almost untouched.

The amusing part of the story comes from a small blog post by New York Times columnist and Nobel Laureate Paul Krugman called Estonian Rhapsody. In it, just like a lot of respected modern economists, Krugman denounces the Estonia austerity measures by saying things like “this is what passes for economic triumph?” Surely, some Estonians would be upset by remarks like this, like the President of Estonia Toomas Hendrik Ilves for instance. After seeing the short blog post, Ilves tweeted some brilliant rhetoric defending the economic measures and its success for the small Baltic country. Also amusing is Ilves’s English, which is spot on due to the fact that he grew up in New Jersey (go figure). Krugman replies by saying that he is not attacking Estonia personally as much as he is attacking the idea of austerity over stimulus.

How can it be that austerity worked here when plans of such during a crisis are mostly lauded with disgust? Well, for one, Estonia cannot exactly be compared to a lot of the world’s big economies. After all, it is a country of 1.2 million people, or in another words, about the size of Rhode Island. Still, its success cannot be overlooked. The unemployment rate continues to slowly decrease, albeit still at 10%. The big piece here though is the lack of debt – which is something country’s like the United States wish they were looking it.

economic austerity
Estonia Economic Recovery

Bloomberg Article on Stimulus vs. Austerity

Mutualize European Debt: Round 6 “I let him go”

I eat Green Berets for breakfast. And right now, I'm very hungry
“I eat Green Berets for breakfast. And right now, I’m very hungry”

I can’t disagree with the argument that a unified Europe is better for the world (like I’ve been saying, a unified world would be better for the world, but we have to start small). And I can’t disagree with Merkel either that a unified financial governing system must be in place before they start pooling debt, in fact I think I said this in my first post. I just don’t think Europe will be able to do this – the cultures of the country’s involved vary too greatly. It’d be like asking the United States, Canada, and Mexico to form a central governing body, or in other words, not going to happen.

I’m not wrong – there is really no difference between economics today and economics 100 years ago, other than scale. Yes, it’s a global economy, but it doesn’t change basic economic principles. What’s the difference between nation states trading in global markets versus European States trading with the Americas or even American states trading in a national market? It’s still capitalism, same rules apply. If one piece of the puzzle goes bust, you bail it out.

I love your statement “it’s the market that creates the future of nation”  – how so? This is a “chicken or egg” type statement really (egg came first by the way), how come it’s not the nation that dictates the market? Nations ARE the market, so to say the market creates the future of a nation cannot be entirely accurate. I believe it’s more of a well balanced mix of markets creating nations and nations creating markets.

I think the lack of accountability is going to kill global capitalism one day (hey look, I’ve said so before!). It’s not as simple as “this time California screwed up, but some other states can pull it’s weight for awhile” – because what happens when every state does poor? What happens when every country screws up and there is no one left to turn to? It’s happened before, and it will happen again. The larger the world market gets, the harder it will fall, and it’s only a matter of time before it falls really hard. It may not be in our lifetime, but it will happen. If 2007 has taught us anything, it is that “too big to fail” does exist, and the world is embracing the get-big-or-die strategy more than ever.

Capitalism is great for innovation, but it’s a shitty quality of life and a low-consistency game.

Mutualize European Debt: Round 4 “Cut Me Mick”

Stay Down, Dick! Stay Down!

I agree with the Keynesian thinking, particularly when it comes to short-term disasters. But I’m pretty that thinking mostly results with governments giving lots of money to the weak to ride out the storm, and then worry about those consequences later. I don’t think it was to make big banks bigger and smaller countries into one enormous clusterfuck. I have no problem with Germany bailing out Greece and their ilk, but to combine all countries into one just for the sake of riding out this particular storm would be disastrous in the long term. I too would love to see a unified Europe, hell I’d love to see a unified world – but to do so in the midst of shittiness will only lead to a long term crap-storm.

You’re probably right about the slave thing – I’m not up to snuff on my early American history as much as I am up to American financial history, and in all the books I’ve read on financial history they’re probably dramatizing Hamilton’s disruption of the states versus the fed. That being said, it at least must be up there in terms of one of the first divides of the country.

To comment on your California-Texas argument – how do we as a country punish California for the mistakes they made? If the fed will always bail out a state in need (as it should), how will they learn from their mistakes? If the federal government cannot be allowed to regulate states to prevent themselves from failing, we should they have to bail them out? The point I am getting at here is the lack of accountability. If states don’t have to be accountable for poor decisions, whats to stop them from making poor decisions up to the point when they need a bailout?

Finally, no, I don’t actually think Greece defaulting to the world is good for anybody. Thats why I am strongly for a bailout from the stronger country, with no long term strings attached (other than re-payments). Then after the bailout, either get the smaller non-tax-paying countries off the Euro or let the EU harshly enforce tax audits, because we well know Greece cannot audit themselves.

Mutualize European Debt: Round 3 “Sweep the leg!”

sweep the leg

You’re right about the Keynes quote, however his way of thinking in a crisis was to act by not thinking long term. It is government’s responsibility to do whatever is in their power to get the economy moving again. Doing nothing or even worse engaging in contractual austerity plans, uhh Germany, is sacrificing the short term for the long term. Your advice to allow Greece and others to go tits up is not without its own set of long-term risks of wars, famine, and poverty as while as the short term systemic risks, like if the Greek default triggers Italy and France to follow with it. That would spell doom for the global economy and they would still probably end up mutualizing debt in a panic rather than a calm planned environment.

To defend Hamilton, although he was a failed dueler, he was a great political thinker. I am not so sure he was the first to divide the nation on states’ rights issue; I think slavery was the bigger issue there and also one of economic importance because a slave based labor pool later impeded the industrial revolution. For our argument take the case of California, basically the state is bankrupt because there are no property taxes and it was balls deep in the real estate market. Because California is backed by their good old Uncle Sam and shares the credit rating of the United States it can still guarantee protection and social services to its population. This is because while California is having a rough economic turn Texas is still producing growth. Three things are gained in uniting multiple regions and multiple markets under one finical system, you lower risk on default, create a more sustainable business cycle, and you diversify your economy to maximize growth potential.

I know that to the strong European countries this might seem like a bad idea, but if they did it now under calmer conditions they can bargain for more power and say in the governing body then if they did it under break-the-glass-in-case-of-emergency conditions. I am curious, what do you think will happen if the EU allows a default or kicks out a defaulter?

Mutualize European Debt? I Don’t Think So: Round Two

round two
I found this image on a church website – no joke

Dick, you sound like a man who has truly given up on a global economy. First off, your quote of Keynes, while accurate, is a bit out of context. I’m pretty sure he was referring to long term inflation due to government intervention not being an accurate statement.

Second, Alexander Hamilton. Yeah, he got it right in the short term but he most likely set the country up for failure (still to be seen, but we’re arguably closer than ever.) Hamilton was the first person to truly divide the country’s thinking when it comes to state’s rights versus federal regulation. To this day, it’s still one of the biggest arguments in the United States political theater. It’s interesting that you choose this as a foundation for your argument since its still a major issue today.

Now to the core of the issue – Europe is one of the biggest clusterfucks of differing ideologies in the world. They couldn’t handle a unified currency, what makes you think they could handle each others debt? Greece is not going to change overnight and it’s citizens are not going to decide to start paying taxes just because their country’s debt obligations have been mutualized with its neighbors. A plan like this hurts Germany in the short term by increasing their debt and risk for what reward? A slightly healthier global economy that is setup for failure. A bailout would be just as effective without the long term complications, but the world cannot even agree on bailout terms!

The only way they could make this work is if they unified around a central European government, and that simply will not happen. Mutualizing debt in an effort to form said government could possibly start a war. True, it could be argued that such a war could ultimately lead to a unified government, but is that the way we want to accomplish this goal?