There have been two great recent editorials in The Wall Street Journal.
The first (“A Grecian Formula for Ruin”) harkens back to a point I made in “Furor Teutonicus” and which is so often forgotten in the “austerity” debate: groups within the peripheral countries, including Syriza in Greece but also parties like Podemos in Spain and Five Star in Italy, want to run expansionary fiscal policies and they blame Germany for not allowing them to do this. There is only one problem with this logic, as I pointed out in my earlier blog: If they want to spend more on social benefits, pensions and other government programs than they receive in taxes, where are they going to get the money?
For example, in the creditor proposal to Greece that was rejected in the referendum, the Greeks were allowed to run a primary deficit of 3% in the first year. As a reminder, a primary deficit means that the Greek government cannot cover its current expenses with its current taxes, excluding any payments of interest and principal on its debts. It is like a household that has a huge credit card balance on which it is not paying the interest or reducing the principal, but is still buying flat screen TVs and eating out at Red Lobster. Combine this with the usual EU “structural” and “cohesion” transfers to low-income countries of about 2% of Greece’s GDP, and the “austere” demands of the EU amount to a 5% boost to the Greek economy in loans and transfers.
So, while the Greeks complain about the austerity imposed on them by their creditors, they never acknowledge that without the rest of Europe, they would have to be 5% more austere. Because the simple reality is that no one else is going to lend them or give them the money, not even Russia, with whom Tsipras occasionally flirts in yet another attempt to blackmail the EU (and, indirectly, the USA). But not even Tsipras is stupid and desperate enough to borrow from Tony Soprano. And Tony is flat broke in any case.
So, as I pointed out earlier, all of this anti-austerity bleating is really nothing but a cry for an open-ended raid on the wallets of the other countries of Europe, to which they are rightfully responding “αρκετά” and “suficiente” and “basta.”
The second editorial is entitled “Rick Perry’s Race Talk” which describes a recent speech from the governor of Texas and Republican presidential candidate. In my earlier blog “In a Hole with a Shovel,” I suggested libertarian policies that would allow the Republicans to reach out to groups – the young, women and Hispanics – where they are currently getting trounced at the polls. But there is another group where I was silently despairing: African-Americans.
Perry, to his credit, points out ways that the Republicans can reach out even to this group without compromising principles. This includes regulatory reform that will reduce the cost of living; overly restrictive housing development rules which massively increase the cost of housing, typically a family’s greatest expense, are an excellent example here (as I pointed out in “Wrong Way Krugman”). Another way is through reform of drug laws, which have a devastating impact on the African-American community (as I pointed out in “Short Takes: The End of Prohibition“). Last, and probably most importantly, is in reform of the school system and increasing school choice through things like voucher programs and charter schools (as I pointed out in “Condi Rocks the House”). This last point is the best example where the Democratic Party and its parasitical supporters in the public unions are flagrantly failing an African-American community that is trapped in a public school system they refuse to improve or replace.
(There is also a very interesting interaction between restrictive housing development rules and the absence of effective school choice, both the result of Democratic policies, and growing income and wealth inequality. But this is a subject for my omnibus response to Thomas Piketty which one day I will find the time to write.)
It would be great if the Republican Party pushes these policies more strongly to reach out to African-Americans. It would be even greater if the African-American community can overcome “identity politics” long enough to listen.
Roger Barris, London
I’d be interested to hear you explain the difference between the 1953 German debt forgiveness, about 50%, and this one. Or for that matter the German debt forgiveness/defaults after WWI.
Hi David and thanks for the question. I couldn’t have put it better than Leonid Bershidsky did in an earlier piece, so I will just give you the link: http://www.bloombergview.com/articles/2015-01-27/germany-deserved-debt-relief-greece-doesn-t-i5fdca2y. In any event, if we are keeping score and looking back through history, even if Germany was guilty in these earlier episodes, they are still way behind the serial-defaulting Greeks.