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Sixty years ago today, an agreement was reached in London to cancel half of postwar Germany's debt. That cancellation, and the way it was done, was vital to the reconstruction of Europe from war. It stands in marked contrast to the suffering being inflicted on European people today in the name of debt....Amazing, isn't it: 20th-century history gives us such a completely worked out experiment in the economics of moral hazard. Step 1 (1919): Punish the Germans for starting the worst war ever by putting them in permanent debt. Result, a new worst war ever. Step 2 (1953): Don't punish the Germans for attempting to establish themselves as the Master Race and enslave the rest of the world; instead, give them a chance to make some serious money. Result, serious money. For everybody.
Perhaps the most innovative feature of the London agreement was a clause that said West Germany should only pay for debts out of its trade surplus, and any repayments were limited to 3% of exports earnings every year. This meant those countries that were owed debt had to buy West German exports in order to be paid. It meant West Germany would only pay from genuine earnings, without recourse to new loans. And it meant Germany's creditors had an interest in the country growing and its economy thriving.
Following the London deal, West Germany experienced an "economic miracle", with the debt problem resolved and years of economic growth.
And now Germany wants to punish Greece and Spain (who incidentally contributed to Germany's debt relief 60 years ago), not for starting wars, but for taking out loans they couldn't quite afford. It's as if the financial Powers were saying to themselves, "I say, Greece and Spain haven't gone Fascist for a good long while, have they? Shall we give them a little nudge?"
I understand that the study of economics is considered a science, which would, I think, mean that when people think about economics, they derive their ideas about what should work from what has worked in the past. The livelihoods of people, their access to essential supplies like food and water and medicines, and the like would prevent all but true sociopaths, from actually seeing one's fellow humans as economic experimental subjects, and yet history provides great examples from which one could, of one chose, garner a pretty good idea of what does and doesn't work.
ReplyDeleteWhich is why I am sometimes alarmed that economics in practice is more like a freshman creative writing course than anything like a science. Maybe a remedial freshman creative writing course. Populated by very uncreative students.
It's so hard for me to tell with economics when it's them selling bullshit and when it's me being not smart enough to get it. I think the official line about the rational selfish subject means they can't appeal to history directly, because that's where social science keeps all its irrationality. And unselfishness for that matter. Which to me would mean it's not about human beings at all and therefore its conclusions are irrelevant to us, but I know that can't be entirely fair. And then there are economists like Krugman whose academic work is as abstract and meaningless-looking as anybody else's but who are led by it to political positions that are not that different from ours.
ReplyDeleteBut when it comes to what "works", that's not science any more but applied science, with a value system plugged into it, and we who care a lot about values are entitled to speak. And those Moral Hazard people really are sociopaths, I think, and fools too. And have all the power. Sigh!