A Conservative View of Deficits

Europe in Crisis - Walter Russell Mead's Blog - The American Interest

Here is a nice bookend to yesterdays HuffPo post. Just give it a read and then decide if you are a liberal or a conservative thinker.

The Greek meltdown is on the surface just another financial crisis: yet another delusional country pursuing the path of least resistance has made promises it can’t keep to public and private sector workers.  Now the bill must be paid and the IMF called in to reorganize the national finances.

It is as if the rest of the world has failed to read HuffPo. Why would Greece not follow one of their many worthy "myth-busters" of why massive government deficit spending is never a problem? Could it be that it is actually the "economists" quoted by HuffPo that have no clue about reality?

The euro was a glorious fudge.  The Latin countries plus Greece could enjoy the benefits of German discipline and virtue while carrying on with traditionally unsustainable public and private sector policies.  In the old, pre-euro days, the southern economies had to pay high interest rates on their debt; wary investors knew that inflation and devaluation were likely and so demanded interest rates that would compensate them for the risk.  The lira, the drachma: everyone knew they would lose value over time against the Deutsche mark and even the dollar, and interest rates reflected this understanding.  But as the southern countries moved into the euro, calculations changed.  For the last twenty years, countries like Greece and Italy were able to borrow money at essentially the same rate that Germany could.

Think of sub-prime mortgages getting stirred into the credit markets of the world by freddie and fannie and all the crooked lenders of sub-primes in the same role as the PIGS (Portugal, Italy, Greece, Spain) and you get a good picture of how fallacy works. It doesn't take much rat feces to spoil a whole pot of soup -- especially once the clientele sees a video of the rat crapping in the pot.

Lousy leaders gave greedy civil servants fat raises; promises were cheap and the government scattered them far and wide.  In Italy as well, once the national debt was less painful to carry, there was less pressure to reduce the national debt.

Has anything ever sounded like current politics in America more? I actually think it does a disservice to lousy leaders to compare them with BO, but if the Gucci fits ...