Arnold Kling  

The Deeper Meaning of the Greek Crisis

Extra-curricular Signaling in ... Marginally Less Unreasonable...

We are going to argue about this one. Dani Rodrik writes,

The choice that the EU faces is the same in other parts of the world: either integrate politically, or ease up on economic unification.

I read his essay as saying that what Europe needs is stronger central government. And, ultimately, we will need strong central world government. [Note: I misread the essay. See this update.]

My reading of recent events is the opposite. The point of the widely-unread Unchecked and Unbalanced is that knowledge has become dispersed, making central government less and less effective. The model of Big Finance working with Big Government has produced catastrophic results. Of course, no one in Washington or Brussels can imagine anything other than Big Finance plus Big Government. What they call "financial reform" is an exercise in blame deflection. The goal for the past two years has been to get back to where we were in 2006, with a promise to regulate more cleverly next time.

This project requires massive transfers of wealth to the undeserving. Some of the transfer goes to undeserving borrowers. Most of it goes to undeserving lenders. The ruling class is certain that this is the right thing to do, and the challenge is to keep democracy from getting in the way. I continue to believe that we live in a time like World War I or Vietnam, where the ruling class is so off the rails that you can only find sanity on the outer fringes of society.

COMMENTS (6 to date)
fundamentalist writes:

"...knowledge has become dispersed, making central government less and less effective."

That is not the lesson that most of the world has learned. They learned that capitalism is even more evil than they thought and needs greater restraints placed on it. Those of us who think like Kling are dinosaurs, destined for the same fate.

Richard writes:

For all its high-theory atmospherics, Rodrik's article is essentially incoherent. The problem with Greece is that the Greeks have been living beyond their means. No amount of "political integration" with other European countries could have solved that problem.

The 2008 financial crisis bailout and the 2010 Euro crisis bailout have one key feature in common: transfers of wealth from people who live within their means to people who don't. Why do politicians transfer money from the frugal to the profligate? Because it's not their money! And the politicians know that voters will punish them for the recession that often occurs when the profligate default. So the politicians bail out the profligate, thereby kicking the problem down the road. But hey, "down the road" is somebody else's problem. That's how the politicians see it.

Rodrik does not even come close to grappling with this fundamental issue. His column appears to be an example of identifying the preferred solution first -- in his case, world government -- and then trying to fit the facts to match it.

JPIrving writes:


I agree, rather stronger centralization in the U.S. hasn't stopped California and Illinois from their predicaments.

The great thing about Europe from a decentralization perspective is the culture barriers. It is much harder to tell tax payers they must bail out country X when that country has a different language, values system ect. The man in the street is more likely to view citizens of other EU states as outsiders than, say residents of U.S. states are to each other. For example, if the referendum were held today, Sweden wouldn't even be in the EU. I am sure it is the case in many other countries.

The EU worked well enough keeping political science majors busy when times were ok in the 90s and early 00s, but if something if fragile, it will eventually break under the strain of hard times.

SydB writes:

"can only find sanity on the outer fringes of society."

Pure hyperbole. Completely undermines everything you write.

dben writes:

Amen Brother!

Instead of allowing Greece to rightfully enter bankruptcy, The EU and US has opted for a giant moral hazard problem.

Also, the lack of economic calculation is quite apparent.

George X writes:

Arnold wrote: "...The ruling class is so off the rails that you can only find sanity on the outer fringes of society."

To which SydB responded: "Pure hyperbole. Completely undermines everything you write."

Maybe this is like Bryan's problem with perceived certainty: I took Arnold's hyperbole to be humor, not a strictly defensible statement; we're not supposed to believe he actually literally believes that. Consider: a big chunk of the economics profession holds the same views as Arnold does on TARP and Greece; he obviously doesn't mean they're literally on the "outer fringes". Ditto for some of his other rhetorical flourishes through the years while in rant mode.

Arnold's words often seem perfectly blunt, but there's still some nuance there (as opposed to Bryan, who's just blunt; I appreciate reading both).

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