Greece and the Eurozone

The street protests in Greece continue, as more and more Greeks figure out that they are being asked to transform themselves into citizens of a third-world country for a generation or so for the sake of minimizing losses by the banks of Europe. US exposure seems to exist mostly in the form of credit default swaps; how many, one wonders, were written by taxpayer owned AIG?

All in all, it looks like Greece, shortly followed by Portugal, Ireland, Spain, and Italy, soon will be forced to accept "bailouts" of the very rich by the middle classes and the poor.

Forced? Uh huh. If it turns out to be "politically impossible" to persuade ordinary outer-edge Europeans to vote for governments that will impose the requisite "austerity" measures needed to keep the super-rich fat and happy, the availability of governments (through coalitions and similar tricks) will be sharply reduced — leaving only those "democratically elected" governments willing to play along.

Can it be stopped? Can the megacorps be compelled to take "haircuts" for fear of far greater losses, perhaps to neck level? It may depend on the Greeks.

From my perspective, it would be better to take our chances on a Greek default — and see what shakes out — than to keep the bailouts going and spreading until the eventual default becomes devastating to the point of worldwide depression. The Greeks, of course, will not be letting me write their economic policy — but maybe somebody that somebody listens to will start the conversation, and quiet the whining of the Germans and the European Central Bank.

The Eurozone — like NATO, perhaps — just expanded too fast. Letting Greece in in the first place was a sure indication of poor oversight. Right now, Greece really needs the drachma, Portugal needs the escudo, and Ireland needs the Irish pound You can't have a unified monetary policy without a unified fiscal policy — and for the Eurozon, such a policy is far, far away.

Milton Friedman is dead...

...and it actually may be, at long last, time to bury him.

This recession will be around for a while. Badly burned by its criminally lax lending practices in recent years, the financial services industry is making credit hard to get, for both individuals and businesses. Giving investment banks access to the discount window may help a little, but the simple fact is that those who make policy for the industry have had a bad scare, and are likely to be overcautious for quite a while. Individual and institutional investors have seen their net worth nosedive, and some who might have been willing to take a few chances have their "liquid" assets tied up in auction-rate securities.

Consumer confidence has crashed, and shows no sign of picking up again. Combine that with the very high debt loads of so many families, and it becomes clear that America won't be spending itself out of recession any time soon. Small businesses that can't get the credit they need are failing, and larger businesses are cutting personnel. The picture is bleak.

I'm beginning to feel just a little bit optimistic.

Given the catastrophic consequences of the Bush binge of deregulation (and failure to exercise those regulatory powers that remain), the laissez-faire ideologues are struggling to hide the egg smeared all over their faces. Typically timid Democrats are starting to feel comfortable calling for government intervention in the economy -- an idea that would have brought waves of public mockery from all the "economic experts" just a year or two ago.

Treasury Secretary Henry Paulson has offered a plan for reforming our regulatory agencies. Needless to say, the plan of a Bush administration official and Wall Street insider wouldn't especially strengthen government's regulatory powers, but the very fact that he felt it was necessary to offer a plan is encouraging. The Paulson plan is recognition of the growing understanding that a failure to regulate was the cause of our current market failure.

Even though most Americans are economic illiterates, and have only the vaguest notion of what has gone wrong and what might be done about it, they know something is wrong. As the recession deepens, and the faces of TV commentators look more and more grim, America will become more and more receptive to populist appeals. If the Democrats have the guts to climb out from under the thumbs of their big contributors from the financial services industry (granted, a big if), they can start reconstructing the economic safeguards that were established during Roosevelt's New Deal and steadily eroded since the advent of "Reaganomics" in 1981.

It would help a lot, of course, if Clinton and Obama could start competing to see who can draw the most blood from John McCain rather than from each other. While a McCain presidency could make our economy so much worse that the eventual reaction to his neo-con policies would move America much further to the left, a genuine depression would be a heavy price to pay -- and we certainly can't afford to add any more rabid rightists to the Supreme Court.

Right now, we have the best opportunity in many years to restore the economic justice and stability we sacrificed for the sake of unrestricted economic growth. Now is the best time to begin narrowing the gap between the super-rich and the rest of us; create a climate favorable to organized labor; roll back the wave of overpriced, exploitative privatization.

Milton Friedman is dead, and now is our best chance to exorcise his ghost.