Alternatives to Austerity

European austerity is not causing renewed growth and it may not even be lowering debt ratios. Other than that, I guess it's going pretty well.

It's fun to rail against the dummies who thought austerity would work, but really, what else could the affected countries do? They can't use monetary policy because they don't have a currency and further fiscal expansion would cause the bond vigilantes to draw and quarter them.

Paul Krugman presents a complicated scenario where the ECB creates higher inflation and Germany runs a budget deficit to compensate for the austerity in Spain and Italy.

But Spain and Italy do NOT run the ECB or the German finance ministry!

The only alternative to austerity that the PIIGS have, that they can actually implement is to exit the Euro, devalue like crazy and hope for the best.  They are choosing austerity over this step.  I truly don't understand why, unemployment in Spain is well over 20% and climbing. It's hard to see how a Euro exit could make things worse.

In the West, we have spent decades getting conservative central bankers to be seen as the only proper type of central bankers, taking the Rogoff solution to the "inflation bias" problem highlighted by Barro & Gordon. But now we pretend to be shocked when these conservative bankers won't produce higher inflation.

Of course they won't, that's why they got the jobs to begin with!! If there was any chance they'd run higher inflation they'd never have been appointed.

Krugman almost backs down on US "austerity"

Amazing.

The whole article is big fun, but I got a meeting with the dean this morning (I'm in TROUBLE!!!!!) so let's just focus on one bit:

"Meanwhile, countries that didn’t jump on the austerity train — most notably, Japan and the United States — continue to have very low borrowing costs.... "

But then he said this:

"That’s true even in America, which has avoided full-fledged austerity at the federal level but has seen big spending and employment cuts at the state and local level."

So close, Paul, so close. Just take out "full-fledged" and "big" and add "over the last 18 months" at the end.

Augustine lives!

In today's NY Times, Christy Romer opines on "What Obama Should Say about the Deficit". Her idea is along the lines of "Lord, grant me chastity, but not yet".

Here's the exact quote:

"He should make clear that the issue is spending and taxes over the coming decades, not spending in 2011"

Wow, "the coming decades". So spending will become an issue in 2021? Good to know.

I actually hope Obama does NOT follow her advice, as the current pool of Republican candidates is so mutant that I am hoping President O can get hisself re-elected.

Telling America that spending won't be an issue for the rest of his first term and all of his second term is not a path to electoral success.

Hot Links!

1. Mary Anastasia O'crazy is starting to make sense to me.

2. Why Albert Pujols should own a piece of the Cards.

3. Hayek uber alles.

4. Tyler revises his views on the progress of Obamacare.

5. Alan Garcia explains his unpopularity.

It's not just me anymore

The latest progressive meme is that the government should run like a business and any business in the government's situation would rationally and profitably borrow a lot of money and invest it right now. Mark Thoma and P. Krugman have made arguments like this and Ezra K. has a recent plaintive one in the WaPo.

The problems with this line of reasoning are many. For example, (1) the government ISN'T a business. Profit (or even ROI) is not its bottom line. (2) If the government were a business, its shareholders (i.e. us) wouldn't have to wait til November to boot our current management team. (3) In most businesses that I am aware of, management cannot vote to help themselves to more money from their shareholders.

People, it's not just me anymore; the "American street" simply doesn't trust the government to do things right.

At least Ezra does recognize that our government doesn't "do" infrastructure in a business-like manner:

The problem is that the way we choose our infrastructure projects is an embarrassment. About 10 percent of infrastructure spending comes from politicians securing earmarks. Most of the rest depends on a formula in which the government just hands money over to the states. There's no requirement for cost-benefit analysis or rate-of-return calculations. The decisions are horribly politicized.

Nice, but then he just hand-waves it away by saying we need to tie further massive borrowing to vague "reforms".

Good luck on that one, EK!

What really happened in Ecuador?

A coup, sez Correa (people, what the heck do they teach folks in Illiniois' econ PhD program?)!

A US backed coup, sez Hugo and Evo (still waiting to hear from Oliver Stone on this).

But it actually doesn't appear to have been anything so grand. Correa and his congress passed a law cutting police bonuses. He then went to a police barracks to "address" them. Apparently he taunted some of them saying stuff along the lines of "Kill me if you're so brave". They didn't kill him but they did tear gas him and "pelt him with water" (people, does this mean shoot him with a water cannon? or just dump a bottle of Perrier on his person?), and then hold him hostage in a hospital for a while.

No evidence of a pre-meditated plot, no evidence of a plotter who planned to take over post coup. Just a hot-headed econ PhD president and a shockingly undisciplined, unprofessional, and disrespectful group of cops.

(not) Taking the piss

I didn't know that Irish were such wimps:

Motorists using Ireland's new motorway network can expect to find themselves thirsty or bursting for the lavatory because the government hasn't any money left to build roadside service stations.
The government body in charge of roads has begun erecting signs warning drivers not to expect any rest stops along a network that stretches from the Irish Sea to the Atlantic.

Struggling to plug Europe's biggest budget deficit and to kickstart the ailing economy simultaneously, Ireland set aside scarce funds to revamp a road network still reminiscent of its past as one of Europe's poorest countries.

As money ran out the National Roads Authority (NRA) had to scrap plans to build service stations in most places. It is now putting up signs warning of no "online" services ahead and pointing motorists toward petrol stations in nearby towns.

"It's as important to let people know what's there as what is not there," a spokesman for the NRA told the Irish Independent newspaper.

The AA motoring group said it was unacceptable for drivers not to have anywhere stop for the toilet or a coffee for the entire 250 km (155 mile) journey between Ireland's two biggest cities Dublin and Cork for example, even from a purely safety perspective.

People, 155 miles is NOTHING. You can drive from OKC to Santa Fe and easily go that far without a gas station or rest stop. That's what, 2 hours of driving if you have a real car?

I guess maybe the typical Irish bladder on the highway is a tad fuller than the typical American bladder?