George Soros' Speech On The Future Of Eurozone

This speech (via Manan Shukla) by George Soros has been removed from his website.  It has been widely circulated on the Internet, however.  The speech begins with his critique of economic theory, which is not new, but he closes with a dire warning about what is happening in Europe.  He warns that the euro will fall within three months if major steps are not taken to reverse the trend towards disintegration that is underway.  He provides an analysis of the dangerous trends, and he recommends some of the steps that are needed to save the union.

The article below, on new rescue plans that are being floated, makes reference to this speech.

Europe May Be Headed Towards Greater Fiscal Integration

As the crisis in Europe deepens, stronger proposals to save the eurozone are being floated. One plan will deal with the sovereign debt problem in return for central control over government fiscal policies. That proposal would place around 3 trillion of debt into a common fund that would paid off over 25 years.  It would also include a plan for supervising large banks that represent a systemic risk to the financial system.

It will take some time and effort to make this happen, but there is greater recognition that the euro might collapse without stronger measures.

Larry Summers Wonders Why Governments Don't Take Advantage of Negative Interest Rates

Larry Summers shows that some governments (US, UK, Germany, Japan) can sell long term bonds that are close to negative real interest rates.  If they are worried about a future loss of investor confidence, that might cause interest rates to rise,  they should lock in the low rates now.  Its hard to imagine government investments in infrastructure and innovation that would not produce at least a 1% return on investment.

Economist's assume that investments that produce a rate of  return that is greater than the cost of borrowing are good investments.  There is no better time than the present for governments to invest in the future.  There is no need for central banks to lower interest rates even further with quantitative easing.  Its a good time for fiscal policy.

What Is A Just Society That Maximizes Liberty?

The principle of lassaiz-faire is advocated by many libertarians. They hold that freedom from government will maximize personal liberty.  Critics of lassaiz-faire argue for a welfare state that extends personal liberty to those who do not benefit from forms of capitalism that lead to a maldistribution of income.  This article suggests that neither of these systems produce the outcomes that are desired in a democratic state.  The goal of a democratic state is to maximize personal liberty and political liberty.  A capitalist economy is not consistent with the objective of democracy if it does not promote both forms of liberty.  (Liberty and Equality were two of the pillars of the French Revolution)

The basic problem of a capitalist economy, with extremely high income inequality, is that it produces political inequality.  Those with great wealth exert a disproportionate influence over government.  For example, they will oppose tax policies and welfare policies that redistribute income, or estate taxes that deter them from passing their accumulated wealth to their heirs. The concentration of wealth increases over time along with a decline in political liberty.  The welfare state cannot function under conditions of extreme political inequality.

An ownership society is proposed as an alternative to  laissez-faire and the welfare state. The ownership of income producing assets, and human capital (education), must be more equally distributed in order to satisfy the goals of a democratic state which maximizes personal liberty and political liberty.  The post war years in the US came close to satisfying this goal.  For example, the GI bill enabled returning veterans to obtain college educations.  This helped to grow the economy and to distribute the outputs of the economy more equally.  We have witnessed a gradual erosion of those gains in personal liberty and political liberty over the last 40 years.  It will take a long time to restore democracy, and a form of capitalism that is consistent with democracy, but the idea of an ownership society may provide the vision that is needed.

Paul Krugman Destroys Romney Defenders On Sunday Talk Show

This article contains a video clip from This Week, which is one of our Sunday talk shows that usually has a couple of conservatives lined up against a couple of liberals so that they can argue.  The moderator acts as the referee and tries to insure that they have an exciting fight.  This week's show pitted Paul Krugman against the Washington Post's George Will and some clown from the Romney Campaign.  They should have stopped the fight in the first round to avoid injury to Krugman's opponents.  Krugman came into the ring with facts which showed that government spending has actually fallen to historic lows during the Obama administration.  The decline in government spending is one of economic problems.  He then pointed out the flaws in Paul Ryan's budget that is supported by Romney.  The problem with their budgets, is that they are frauds.  Krugman showed that they actually increase US budget deficits because they extend the Bush tax cuts, but they do not contain numbers that show how spending cuts will pay for the tax cuts.

This was not a fair fight.  George Will and Romney's spokesperson came into the fight unarmed.  They did not anticipate a fight against an opponent armed with damaging facts.  They were totally unprepared to counter Krugman's facts, or his argument that our current economic problems are related to the decline in government  spending.  We are operating today with a Republican plan that is not working. Putting a Republican in place to continue with cuts in government spending will only make matters worse.

Romney Is More Competent Than Obama And Should Win Election

This article comes from the section of The Financial Times that focuses on political economy in the US.  It reminds me of a classic David Brooks op-ed.  Most of the article is about the mistaken use of the concept of "class warfare" by democrats and republicans.  Both sides are equally wrong.  The real message of the article is reserved for the last couple of paragraphs.  It concludes that Americans should desire an economy that works well, rather than a fair economy that provides a more equal distribution of income. In that case they should vote for Mitt Romney who has demonstrated "competence" and a better understanding of capitalism.  Obama, has a muddled view of economics.  He does not seem to understand that only profitable companies are able to survive and provide the badly needed jobs that will fuel economic growth.

In summary, most of the gibberish about class warfare is irrelevant to the real point of the article.  The conclusion that it reaches is a mirror image of the Romney campaign message.  That is, his record of creating jobs at Bain Capital makes him the better candidate than the current president who does not understand business or economics. A competent president should understand that fairness is not a relevant objective of an economy.

Europe Solutions and Roadblocks

Brad DeLong provides a good analysis of the issues. He believes that is it is everyone's interest to resolve the issues.  Failure to do so is more punishing that the remedy's.  On the other hand, each of the solutions is very difficult.  The good news is that there are solutions.  The bad news is that each dose of medicine is hard to swallow.