12
What would Plato say?
The Greek philosopher Plato believed that those who are extraordinarily intelligent, virtuous and brave are best suited to run government. What would he say about how Greece is being run now? Or Europe? Or the United States?
On the Marketplace Morning Report, we reported on the European Union's decision to rescue Greece from the distinct possibility of defaulting. Greece faces a proverbial mountain of debt from bailing out banks and showing little to no fiscal restraint. Stop me if this sounds familiar. Our European Correspondent Stephen Beard on the EU's sketchy plans:
What we know is it involves loans to the Greek government guaranteed by other Eurozone members and requiring the Greek government to make a cast-iron commitment to cut its budget deficit. The Germans are stressing this is not a subsidy or a blank check; the Greeks are going to have their feet held to the fire, they're going to get extra top supervision.
Greek workers don't like the sound of that. They're striking because they're worried the government will have to brutalize its own economy in exchange for the EU bailout. Greece will have to show real, extreme fiscal restraint. Let's check in with Plato on that:
PLATO: "Excess generally causes reaction, and produces a change in the opposite direction, whether it be in the seasons, or in individuals, or in governments."
The EU may feel it has little choice but to save Greece. If Greece were abandoned, it may well cause panic not only there, but in other highly indebted EU countries like Portugal, Spain, Ireland and Italy. But Bloomberg London bureau chief Mark Gilbert argues that it's time that economic failure finally be punished:
Let Greece go bust if it can't pay its own way. Sure, it will be messy and scary. A lot of banks will realize they still don't focus enough on the credit quality of the firms they do business with. The euro project will suffer a crisis of confidence.
The lesson from the credit crisis, though, is that the alternative of helping Greece off a hook of its own making is far, far worse.
All of the "PIGS" -- Portugal, Ireland, Greece and Spain (and maybe Italy, if you're feeling particularly uncharitable or skeptical) -- have been living beyond their means, much like the investment banks did in the credit boom.
A bailout of one will produce the same outcome as the rescue of Bear Stearns did; moral hazard will kick in, and instead of allowing economic Darwinism to cleanse the gene pool, the weaker nations will lose any incentive to cut spending and trim their swollen deficits.
The Too Big to Fail paradigm has now shifted from the banks to the governments, thanks to government's attitude of TBTF toward the banks. Should we be worried that the Greek tragedy will play out next in the United States? [In the Financial Times](http://www.ft.com/cms/s/0/f90bca10-1679-11df
bf44-00144feab49a.html?nclick_check=1) historian Niall Ferguson says yes:
For the world's biggest economy, the US, the day of reckoning still seems reassuringly remote. The worse things get in the eurozone, the more the US dollar rallies as nervous investors park their cash in the "safe haven" of American government debt. This effect may persist for some months, just as the dollar and Treasuries rallied in the depths of the banking panic in late 2008.
Yet even a casual look at the fiscal position of the federal government (not to mention the states) makes a nonsense of the phrase "safe haven". US government debt is a safe haven the way Pearl Harbor was a safe haven in 1941.
Never once in its history has the United States failed to pay off a debt. But our current level of debt is pretty extraordinary. Take a look:
Greece has very few (if any) options compared to the United States. But the US is in its own unique, unprecedented situation -- unfettered military spending, massive looming problems with the entitlement programs, not to mention all the economic rescue spending.
Plato said "a good decision is based on knowledge and not on numbers." I don't know. The numbers are pretty scary.
Do you think the EU should bail out Greece? Are you worried the US will face a similar conundrum down the road?
Pages
The structure of Plato's republic was always somewhere between unimplementable and delusional. The intelligent, virtuous and brave are never going to run a human society. The intelligent are too aware of all the things they don't know, and the virtuous are too reluctant to stick their noses in other people's affairs. The brave get killed while the cowards hang around in the rear and slap medals on one another.
Funny we are talking about Greece when we have bigger problems at home!
When Henry Paulson wanted 700 billion dollars to bail out his friends at GoldmanSachs (his former employer) he told congress that it was none of their business what he did with the money. Eventually he had to explain just a little bit, but in the end Henry Paulso, Ben Bernanke and GoldmanSachs decided where our 700 billion went (compare that to 8 billion could come up with the high speed rail... yes you get the idea).
So, it is fair to say Ben Bernanke, Henry Paulson and GoldmanSachs runs the USA :)
While these people are not wise, they are obviously very good at deception and theft. And they run our country.
Instead of wasting time writing about Greece, how about talking about our own country!!!
New rap videos will think I'm a fool, but the debt and deficit to GDP charts should not frighten us into austerity before recovery takes hold. 1943 saw U.S. debt to GDP at ~120% and deficit to GDP at 30%. Certainly scarier than the chart posted above.
The challenges are, of course different. And the pig-in-the-python medicare payouts coming up are tremendously unsettling, but this is simply not unprecedented in our history.
After 1946, Europe was in shambles. English, French, Japanese, and German factories were dust from the extensive bombing. The US economy profited from providing arms to the allied nations, then helped the world get back on its feet. I can't point to any other industry, market, economy, that would give us or the world such a boost in demand.
I've never read anywhere that arms support of our allies was all that profitable to the US recovery. Additionally, the Marshall Plan ran from 48-52 when our debt/deficit ratios were already dropping.
I agree, consumer exports will be difficult to fuel our recovery, but next-gen infrastructural updates could certainly generate demand.
"The U.S. played an important role in providing valuable industrial production to support the Allied war effort. After the war, the United States retained military commitments to European security while providing economic investment to rebuild nations suffering devastation during the war."
<a href="http://en.wikipedia.org/wiki/Participants_in_World_War_II#United_States_... target="_blank">Link</a>
Which then led to the 1947 Truman Doctrine (allocation of $400 million to intervene in the war)and then the Marshall Plan. Yes, we did pour money into these countries, but we also made the weapons they needed. The U.S. was a manufacturing beast at the end of WWII which also helped when the U.S. became a consumer driven society due to the soldiers return. Factories could be returned to the car plants that they were once before, so I think it was two pronged. After the war, there was not a total collapse because of lacking demand, and there was some transfer from military to consumer products.
Oh sorry, I meant to add this. I do agree with you that US infrastructure is in a horrible state and that it needs better funding. I am suspect that increasing infrastructure would supply a source of long-term ample demand. I don't necessarily agree with the number posted below, but it does show that our exponential growth in U.S. population as well as world population might not be able to equal out ability to create jobs.
"If population growth were limited to 1% that would be 3.25 million new citizens each year. 3.25 million divided by 12 months is over 270,000 new mouths to feed every month. The 150,000 new jobs necessary to maintain a stable employment"
<a href="http://ezinearticles.com/?Population-Growth-and-the-True-Unemployment-Nu... target="_blank">Link</a>
I suppose I am more optimistic about the effects infrastructural enhancements would have to increase long-term demand, but (I hope) prove their worth as an investment to universally cut costs. High speed rail should be utilized not just by commuters, but to slash costs for shippers. Increased domestic production of energy (prefereably renewable) will aid in stopping the wealth transfer to the OPEC nations (I hate that I just agreed with Pickens). And hoping for the Buffet mantra to be accurate, this recession puts America in a position to be the leader in not just design but production of high-end electronic manufacturing.
<a href="http://www.teddersrandomnotes.com/blog/2009/10/24/the-globalfoundries-ch...
<a href="http://www.axionintl.com/">These guys are pretty exciting, too</a> No, I'm not a shareholder in either firm.
Widgets, I'm afraid, are gone forever. But with Obama appearing to take on China's mercantilist policies, the auto bailouts and inclusion for green-tech in the stimulus, it should be clear that Obama hopes to restore industry (to whatever degree is realistic) to our economy.
That's where he and Keynes win me.
Afghanistan? Lost me again.
Pages
