Note (added 04JUN2012): Yesterday and today, Greece. Tomorrow, Cyprus. The day after, Spain. The financial contagion spreads. Is there a remedy . . . other than paying back the debts, of course? The answer is no, of course.
Does the answer stop various “experts” from expelling copious amounts of verbal fertilizer to nourish varied crops of toxic, hair-brained schemes? The answer again is no. One of the latest is simply to cancel the debts that governments owe themselves as if there are no consequences to having issued the debased currencies therefrom.(A)
With all respect due the late Mr. Keynes and his zombie-like acolytes, this posting offers an analysis and resolution based more on documented science than on political polemic.
A. Johnson, S: “Talk of debt cancellation gets a little louder.” Financial Times (FTfm), 04JUN2012, page 3.
“Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall.
All the king’s horses and all the king’s men
Couldn’t put Humpty together again.”
Can the politicians and bureaucrats in the European Union put “The Eurozone” together again? Some economists say yes; others say no.
Those who say yes offer several options. Perhaps, the most obvious involves indemnifying sovereign bonds. Moral hazard be damned, they would have the European Central Bank indemnify those bonds in an attempt to avoid the inescapable consequences of previous ill-conceived, governmental concepts and poorly-implemented, governmental policies. Who and what would indemnify the indemnifications they neglect to specify. Ah, the joy of generalities.
A second commonly-offered option is the issuance of so-called Eurobonds backed by all members of the Eurozone; i.e., actually only the solvent members, mainly Germany. The inescapable consequences seem obvious . . . namely, such bonds would become a license for future borrowing by members proven irresponsible using the good credit of the members deemed responsible. The consequence? Greater debt leading either to more massive defaults or disastrous inflation . . . in the end, probably both.
Austerity? Consider it a sickening joke. Only politicians, bureaucrats, and economists would characterize living within one’s means as “austerity”. Meanwhile, the so-called austerity in Greece is mainly within the private sector; the public sector actually continues growing as a percentage of Gross Domestic Product.(1)
Whatever the particular option promoted, the foundation of most is issuing, one way or another, an increasing amount of money of decreasing value. Such options seem poorly suited to put Humpty together again; yet, they all raise a basic question . . . What is money, anyway?
Money: something generally accepted as a medium of exchange, a measure of value, or a means of payment.
- Webster’s Collegiate Dictionary
As stated, money is merely a means of exchange that allows producers and consumers, sellers and buyers, and lenders and borrowers to enact transactions more efficiently. Generally, efficiency is good. In fact, from a cosmic perspective, efficiency is a primary virtue (See “Science and Human Purpose and Meaning” herein under “Uncategorized”.).
Scientifically, money is a secondary reinforcer; it itself has no intrinsic value. Its value derives from the primary reinforcers, the province of fiscal policies not monetary, to which it is attached; reinforcers such as housing, food, clothing, and medical care.
Accordingly, monetary policy cannot make a nation rich although it can make it poor. Only fiscal policy can make a nation rich, depending upon context . . . primarily the national culture. Example? Greek idleness versus Germanic industriousness.
The inescapable consequences of the current, successive, monetary devaluations? Debt, degradation, and despair. A telling signal thereof is the loss of respect for national currencies themselves . . . consider the demise of the Canadian penny (See “Pity The Poor Penny” herein under “Economy”.).
Fortunately, even the Southern Europeans have a choice, as do we Americans. The choice? Prosperity through science or perdition through politics. The choice is theirs . . . and ours. Accordingly, let’s analyze the situation in the Eurozone from the orientation of biobehavioral science.
Context: A group of seventeen, heterogeneous nations, the peoples of which for centuries periodically have massacred one another, aggregated quasi-politically into a single entity with a common currency operating within an ill-defined, fluid, unelected, multi-national bureaucracy.
Antecedent: Increasing debt among the less productive members to the point of impending, national insolvencies and sovereign, contractual defaults.
Behavior: Creation of enormous amounts of currency both with candor and with stealth; e.g., €100 billion secretly lent to Greece by the ECB.
Consequences: Increasing debt with increasing economic, political, and social instability.
Problem: An excess of non-productive governmental spending and a deficit in productive commercial effort.
Goal: To have a stable and respected currency and an optimal standard of living long-term, given the respective national cultures.
Plan: To issue a currency reflecting primarily the economically-sound, politically-disadvantageous, constructive but demandingly-unappealing requirements of the productive not the economically-unsound, politically advantageous but socio-economically destructive demands of the unproductive.
Measurement: Gross Domestic Product [unlike current governmental measurements, calculated by 1) subtracting debits from credits and 2) subtracting costs incurred by unproductive government from profits generated by productive commerce].
The devil, however, always is in the details, rarely specified by politicians. Simplistic slogans are so much more appealing. Unfortunately, they may sound sweetly satisfying but, ultimately, ring hollow unless filled by bitter detail. Fortunately, dispassionate biobehavioral science can provide that which is lacking in the political polemic currently being served.
Politicians and bureaucrats, however, tend to follow the road of least resistance paved with the lowest response-cost. Accordingly, the likelihood is greater that, despite current protestations to the contrary, whatever the outcome of the Greek vote next month, they will continue paying Greek debts in the short-term, thereby, gaining time to allow Greece to print new currency then default in the long-term. As usual, they will try to save the bureaucracy of the European Union, including the ECB, at the expense of creditors and taxpayers.
Yet, who knows? Perhaps, where all the king’s horses and all the king’s men have failed, the politicians and bureaucrats will do the right thing by treading the long and difficult path paved by science (www.inescapableconsequences.com). Not likely? Let hope, nevertheless, continue to spring eternal in the human breast.
1. Malpass, D: “Greece’s False Austerity”. The Wall Street Journal, 24 May 2012, page A17.