Great Eurozone Analogy and American Thinker Post

From LvMIC:

Not only does this apply to the Eurozone but  government in general.  Via George Mason economics professor Tyler Cowen at his very popular blog Marginal Revolution:

Put Reason Aside, How Would You Feel

You meet an employed professional with a $300,000 house, $100,000 in the bank, a nice car, a few (illiquid) Renaissance paintings, and very nice shoes.  His name is Fabio.

He is $60,000 in debt, which is about equal to his yearly income.  An unanticipated ARM reset requires him to pay off that debt at a faster pace than expected, which means he must restrict his consumption.

He threatens to mistreat his longstanding girlfriend Angela, unless she works harder to maintain his previous level of consumption.  Angela refuses to help much, citing a false economic theory in defense of her position.

Fabio’s brother relentlessly attacks Angela’s false theory.  His cousin in Naples claims that Angela is obliged to help because she has benefited from being in the relationship.

Not to state the obvious as my European cultural history isn’t too great but it would seem that Cowen is referring to the EZ crisis in terms of Fabio representing Italy and Angela being Germany.  Now that Italy is in trouble (in actuality, it’s French banks that are in trouble due to their exposure to Italian debt), Germany is looked to as the bailout queen since only her approval of ECB monetization will get the euro printing press to run full force.  Not sure what Cowen means when he refers to “false” economic theory though.  Either it’s tongue-in-cheek or the fear of inflation has somehow lost its legitimacy among more mainstream oriented economists.  Cowen could be referring to the recent Euro summit which outlined an accord between the 17 EZ countries which would enforce deficit and debt rules with automatic sanctions.  Dubbed the “stability union,” German Prime Minister Angela Merkel is in full approval.  It’s too bad the market isn’t buying the deal.

Enough people have finally realized that governments promising austerity is the equivalent of a well known alcoholic promising to ween himself off the bottle.  If this is the case Cowen is making, then he is absolutely correct.  Believing that 17 countries would all get on board to effectively give up their sovereignty, let alone follow through on cost cutting, is a true fairly tale-like delusion.

While the analogy is great for the EZ crisis, it’s very applicable to the ideological debate going on in the U.S.  Just replace Fabio with President Obama and Angela with the wealthy and you get the same kind of dynamic.  With Obama and many of his cheerleaders (including many prominent economists) whining for tax increases to fund extra stimulative measures, terms like “social contract” get thrown around to rationalize their quest for more thievery.  You’ve heard such reasoning before: because you live in country X, you automatically benefit from government provided services like roads, public schooling, food inspection, national defense, etc.  Therefore you are automatically obliged to hand over a few more bushels of corn when the king comes a calling.  By protesting, your self preservation is equated to heartlessness as society would crumble without maintaining the current amount of government spending no matter how unsustainable.  The fact that all such services have and can be provided in the private sector is irrelevant.

However you want to look at it, Cowen’s analogy is both apt and humorous.  Commentor “Chad” provides the perfect rebuttal:

“Maybe Angela and Fabio should have gotten married before they decided to co-mingle their finances.”

I also had a post at the American Thinker today that was a reiteration of a previous post of mine.  Entitled "Is Job Loss Economically Destructive," here is an excerpt:

Krugman, like many ideological followers of Keynes, sees job creation as the ultimate goal for raising the standard of living.  As long as we are all employed, then somehow goods and services will continue to be produced and sold.  It doesn't matter how unproductive some jobs are (think digging ditches); resources have to be fully utilized and wages must be paid to get those animal spirits spending again.

But simple reasoning assumes jobs are ends in themselves when, in reality, they are means used to acquire wealth.  The same concept applies to money which is just a medium to enable commercial exchange.  At best, jobs are a mere impediment we must endure to pursue those activities which we find pleasurable.

Since jobs in themselves aren't the pathway to prosperity, Krugman's assertion about the leverage buyout industry rests on faulty, elementary logic.  While it's true that firms such as Bain Capital assist others in downsizing, it's only a function of increasing long term sustainability and profitability.

Arguably the most profound lesson in economics was highlighted by French political philosopher Frédéric Bastiat.  In his classic essay, "That Which Is Seen, and That Which Is Not Seen," Bastiat stresses the importance of analyzing opportunity costs beyond easily recognizable effects.  Using the example of a shopkeeper's window being smashed in an act of delinquency, the classical liberal theorist explains that while the window-pane producer sees an increase in demand, such shallow observations don't consider what the shopkeeper's money had the potential to be spent on.  Perhaps the baker or tailor would have been patronized in lieu of the window not being broken.

When Krugman claims that leverage buyout firms are job destroyers, he too misses the unseen.