Rick Perry’s fascination with a model of strong states and a weak, mostly coordinating, centre could have as its model, the European Union. Even the hard money advocates, like Perry and Boehner, could be interpreted as saying “we want the Fed to be more like the ECB”.

I have to conclude that there is an undercurrent of closet europhilia in the Republican Party.

It will be a great party and for a great cause.

If you happen to live in Pittsburgh, be sure to stop by. Of course, you can always just donate online.

Hope to see you all there next week.

I bet that most business schools have some ethics guidelines and lectures. I also bet that most of them teach basic econ and that incentives matter. They either don’t believe the incentive theory or the ethics statements, because they then refrain from properly punishing cheaters.

1. It’s obviously true.
2. It’s obviously false.

People that claim (1) mean that markets are the best predictors of the future. People that claim (2) mean that markets are not perfect predictors; they are often wrong. The two are not incompatible and are in fact both obviously true.

As a general rule, you cannot beat markets as they make the very best prediction that is humanly possible with current knowledge and technology; still, the very best prediction is still often wrong.

If this is theatre, it’s bad theatre; in good theatre, the actors at least pretend to care for the enterprise.

There is a bit of a teenage girl feel to this. You know, the bitchy girl with an attitude throws a party, nobody cares to come because they are doing something better and she spends a month arguing that everyone ganged up on her.

I wonder whether people’s views would be different if the phrasing was more along the lines of “nobody is buying Italian sovereign debt.” “Italy throws an auction and nobody shows up.”

(Yes, I know you can often bet on the other side, actively shorting a bond; but it still wouldn’t matter if people showed up at your auction.)

Yet, I have yet to find a single American states-rights advocate point in the direction of the EU as a model. Even to discuss its flaws (there are actually a bunch of rights that American states have that EU states no longer do).

There is one important factor that is not mentioned (actually I do not know if this important in Greece, but it is in Portugal). We start with a thought experiment:

Imagine that there was a new political group in the US, the We Keep Our Taxes League. Not necessarily small-government conservatives (it would actually include many public union employees), but a group of people who earned high incomes and did not want them taxed to provide services and welfare to lower-income groups. It’s fine to spend on roads or the military, just not on the low-income groups. The League was very popular, with millions of active members and its president would say things like “if people want to make as much as we do [on average, League members would earn around 70k/year], then they should work more instead of playing so many video games.” There would be other similar groups, such as the Keep Poor People Out of Our Neighborhood action committee.

I can tell you that some people would be pretty at these groups (as it is, many liberals think that small government conservatives are just a We Keep Our Taxes League hypocritically claiming that it would be good for the economy).

Now, imagine that instead of League and such, we call these groups Germany (the most vocal), Holland, France…

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Many people in Portugal support the notion that, in a time of crisis, the most well-off should bear a bigger burden than the least well-off (how many people would argue the opposite?). Who is vocally well-off and telling them they should work more? Well, Germany.

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There is currently enough feeling of Europeaness that Portuguese compare themselves to German living standards and feel poor, but not enough that Germans accept large, permanent, transfer payments on those grounds. Maybe the Germans (and the other richer member-states) should accept these transfer payments as just. Some economists have made exactly this argument, which isn’t much of a stretch if you accept redistribution in general on justice grounds and avoid introducing blood-rights into the discussion. Still, there is no way that that will actually happen. Blood-right feeling is too strong (if generally unacknowledged).

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A related, but different issue, is whether the European Central Bank should kowtow to the German line as it has been doing. It is the European Central Bank, not the German Central Bank. They had a loose policy when Germany needed it lose even if Ireland and Spain were in a bubble, and are tightening now when Germany wants it tight even if other countries need it looser. This argument gets too technical really fast for the general public, though.

But how? Other countries have broken currency pegs (most famously Argentina, but they managed to do it in one of the most stupid ways possible). Here’s how you, if you were the highly placed government official, would do that:

1. You announce that the peg will no longer be maintained.

There. Then you might have to ride out the storm that ensues, but you are done.

Why can’t the Greek government do the same?

Because it doesn’t have a peg to the Deutsche Mark, it has the same currency as Germany.

Which contracts would be in Euro and which would be converted to the New Drachma? I assume that all of the bonds would, but what about private contracts? Particularly those between Greek citizens and companies and citizens and companies from other EU countries. What are the rules? As far as I know, this is a breach of international treaties.

Argentina confiscated all the dollars in its banks, but Greece is not as sovereign as Argentina as it is bound by EU law (would it be allowed to confiscate all Euros in local branches of foreign banks)? Confiscation of foreigner’s property is the sort of thing that used to get your country invaded by Britain. I don’t think that that will happen (at least not officially, but Germans might start playing a long-term role in Greece’s government), but it does raise the question: would Germany agree to let its banks and firms lose a lot of money on Greek public and private bonds? Wouldn’t those private investors sue Greece? Could they win?

Another question is where would the coinage and paper currency come from? Tyler Cowen proposed stamping Euro notes. This would actually be the easy part, it’s sorting out the legal implications that would be tricky.

I have yet heard anyone even attempt to address this issue: which contracts would be honored in Euro, which would be forced into New Drachma? Would Germany acquiesce?

In the end, I don’t think that Greece can do anything that really, really upsets the EU or its most powerful countries. They are already not the most beloved member (and were not before the crisis, fruits of years of playing hardball on the Cyprus and other issues). A war or invasion is out of the question, but economic payback is not.