The worst thing that has happened to International finance in years is a silly mistake. A big mistake to be sure but one that in normal times would be used to produce a chuckle rather than treated as the defining answer to the global debt crisis. Imagine, a mistake proving anything; odd. But unfortunately, Reinhart and Rogoff, two pretty good economists (a relative phrase to be sure) were off trying to prove that if a nation's debt rose above 90% of it's GDP the end of the world would follow. Worked out nicely until some killjoy pointed out that there were a couple of input errors in the spreadsheet reaffirming the well know computer science truism of garbage in, garbage out.
Embarrassing yes, and a good chuckle was had by all except Little Paulie Krugman--he of perfection personified--who announced that this error proved beyond any doubt that he was correct in his assumption that massive governmental spending in our present sitution was the only way out and that he had been correct all along. Now I freely admit that there may be a few about smarter than me but I cannot figure what produced the Q.E.D. in that syllogism. The problem is too many people who had bought the R & R theory without rigorous investigation and were embarrassed because of it have turned-tail and run, he latest being Bill Gross, he of bond fame, who are now screaming, "growth, growth, growth from" on high. For the time being, Paulie has won--not on positive fact producing thinking--but because the opposition screwed up. Funny, if mistakes this silly can be made resulting in a large supporting believing the results, I begin to wonder about the other stuff out there like global warming on which enormous policy decisions are being made akin to those in the seventies about global cooling. the new ice age, and world wide famine. Then again, I'm a Luddite at heart so don't take me too seriously.
Oddly, the New Bill Gross is absolutely correct as is Krugman but blinded by previous errors on one hand and a blind adherence to The Leader and his policies on the other, they both stare at the forest looking for the trees as do most of our friends in Euroland and especially the increasingly ignorant and irrelevant IMF who before it gets too embarrassing should be told to shut up, go sit in a corner and when money is needed produce the same without too much fuss. Oh and by the by, continued criticism of the UK whilst giving France a pass as it slips deeper into an economic sludge pool is not particularly helpful either. We can argue all day long as to what the appropriate level of debt might be or whether new, massive government programs producing larger and larger governments (Government workers are workers too and that's growth!!) are right and proper but when the true cause of the malaise in which we find our selves is ignored it is mere a waste of time, and that of course is that we are not in a fiscal crisis--we faced that--we are in a structural crisis and that we will not even admit.
Euroland is easy to analyze. Within the Euro Zone there are 27 different banking systems, each regulated differently. The Euro Parliament regulates the size of a box of frozen Brussel Sprouts but cannot regulate a banking system. Germany has worked under labor reform for 20 years: in Italy you cannot fire a worker even if he doesn't come to work. France's mandates working hours and restricts overtime if if workers want it. Why? There is no consensus on taxation and never will be.
We could go on and on but underneath all of this is the fact that the people involved are trying to abandon a societal urge to kill each other that has been around for 1000 years. There is no trust.
Over Here, I shall point out a single example as to how we battle ourselves. The Clinton administration completed the effort begun by his predecessor and signed Nafta into law. Sure the political battle was fierce but Clinton did the right thing and Nafta has been an enormous success particularly for Mexico which might well have dissolved into a failed state without it. With an 1800 mile border with the U.S. that might well have been a bad thing. With the growth of technology it is now apparent that withing Nafta there sits the greatest source of energy in the world. Has The Leader and his band of Merry Men given a thought to a North American Energy Agreement? No, and why not? It's the wrong kind of energy according to a large body of his "base." Memo to the base: the world will not run without fossil fuels for a long, long time. In the mean time the value of the energy itself and the reduction of cost to industry represents the greatest growth engine the world will have ever seen. And not a word...not a word between three nations who are already partners This is one of the stupidest non-events I have ever witnessed.
To say it another way, as I have before, what are we doing trying to solve systemic problems with stupidity such as QE whatever, the proper level of debt to GDP or the size of a box of sprouts? If Cyprus needs to depart the EU let it do so, as well as Greece, as well as Spain for that matter (you see where I am going). Academic economic exercises and opinions are wonderful food for thought but economics is not a hard science despite all the posturings of economists. Real people in real life situations are. It would be interesting to see what would happen if, to a certain extent, government would just get the hell out of the way.
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