Seamanship Quotation

“In political activity, then, men sail a boundless and bottomless sea; there is neither harbour for shelter nor floor for anchorage, neither starting-place nor appointed destination.”
— from Michael Oakeshott's
Political Education” (1951)

Wednesday, June 20, 2012

Larry Summers compares Europe’s credit problem with the US

The crisis of confidence in Europe’s political machinery relates to the magnitude of its financial and economic challenges. Winners and losers are easier to manage in boom economies, and small losses easier to forgive than great ones.

Larry Summers offers a neat description of the scale of the euro zone’s credit problem—the amount of money that must be raised and, somehow, someday repaid.

“The second problem is the magnitude of the transfers that could be involved. During the U.S. savings-and-loan crisis, the Southwest received a transfer from the rest of the country equal to at least 20 percent of the region’s GDP. Is there a real willingness to commit to potential transfers of this scale in Europe? Maybe all of this can be resolved, but surely it will not happen quickly.”

So, the problem is big, but not unprecedented.

Why is it taking Europe’s leaders longer to resolve this problem? Surely, they are just as smart with money as Americans.

Northern Europe today is as financially strong as Washington was during the S & L crisis. Washington, however, not only had the regulatory authority to protect its long-term interests, its president and congress owed much of their political powerand future political successto voters in the Southwest. Washington had a common motive as well as the means.

In a crisis, Washington politicians can’t as easily stand back and worry about “moral hazard” and scold those looking for help. (The virtues of “creative destruction” are undeniable and must be mastered if you want to earn a Harvard MBA. But, they are best not raised in Detroit.)

Spaniards don’t vote in German elections. However, Nevadans and New Mexicans help elect US presidents and can decide who has the next majority in the US Senate.

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