The Rain in Spain

A steady refrain on this blog is a kind of Protestant guilt trip about deficit spending (see Boomergeddon). We are supposedly responsible for our own lives and destinies and we have failed miserably because we listened to irresponsible liberal dogma from the likes of Barack Obama and we are so covered with government debt that our lives and futures are ruined. Can we be redeemed? Can we be washed in the blood of the lamb?
At least that’s the dogma du jour and it is all over the place from the Teabaggers to the “fair and balanced” coverage of Fox News to, of course, “Boomergeddon” on Bacon’s Rebellion.
Problem is, dogma du jour is often not only wrong, it is short-lived. Consider my experience in 1989. I had been elevated to a middle-level editor at BusinessWeek (back when it was a real magazine) after a tour in the Soviet Union. One of my more droll colleagues took me aside and explained to me: “Look, we cover basically three types of stories here — the Yellow Peril,. Europe 92 and the Death of Communism.”
That summed things up rather neatly. The ruling brass on the 39th floor of the midtown Manhattan skyscraper liked stories shilling that the Japanese were overtaking us, Europeans were right to unify in 1992 and how the USSR and China were doddering. Another dogma we were supposed to follow was cheerleading for the Thatcher-Reagan concepts of globalization which, in their view, was a triumph of muscular Anglo-American decency, capitalism and democracy.
Of course, a lot of this was bunk. The Yellow Peril quickly slunk away after Japan entered a decade of disastrous economic deflation. The Soviet Union did implode but Chinese Communism appears to be stronger than ever. By backing the New York City and academic elites in their globalization theories, we sold out millions of American workers from Danville, Va. to Kannapolis, N.C. to Detroit.
And now, there’s lots of criticism that our feeble economic recovery is endangered by those free-spending Euroweenies who, of course, deserve what they get because they are arrogant socialists!
Maybe but maybe not. Paul Krugman has an interesting column in this morning’s New York Times suggesting that things are a bit more complicated. The problem now is that some of the weaker European economies, notably Spain’s and Greece’s, are tottering and they could drag down the struggling European Union which would put the qui-bosh on our own recovery. That’s one reason the stock market has been jittery recently after a health, nearly-year-long run up.
The Boomergeddon types will, of course, trot out their Sunday church sermons about deficit spending. But Krugman says it’s a bit more complicated than that. His argument? The pressures result from pushing Europe into the 1992 unification and single, Euro currency before it was really ready.
Take Spain. The nation was actually a healthy spender (debt was about 43 percent of GDP) and was chugging along nicely. Then the single currency made it easier for bigger economies such as Germany’s, to take advantage of the sunny, Spanish beaches and invest lots of bubble money into resorts and tapas bars. So, when Germany’s economy hit the wall, it took down Spain’s.
In earlier years, had it been a truly independent country, Spain could have wiggled out of the mess by devaluing its currency. But it can’t set things right because it is tied to the Euro. It can’t affect a change in the Euro’s value as a sovereign nation. Deficits, Krugman argues, have little to do with it.
Bacon and his Baconauts, of course, will retort that Greece, the other villain in this picture, does have a big deficit problem and they are right. But my point is that things are more complicated and simply trotting out that Old Time Deficit Religion has limits. Besides, when you are in the economic dumps, you spend, which is another thing the Baconauts do not understand, but that’s fodder for another post.
Peter Galuszka

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15 responses to “The Rain in Spain”

  1. Anonymous Avatar

    Government spending in tough times probably isn't the worse thing in the world, but it needs to effective. I had an early morning conference with the CEO of a tech company who will be submitting a proposal to one of my clients this week. He was bemoaning the fact that the Recovery Act broadband program has been an anti-stimulus because it has been so slow to make any decisions. It's tied up the capital market. I've heard that from others as well.

    So far, the program has been a big failure.


  2. Gooze Views Avatar
    Gooze Views

    Thanks. Have heard similar things about the stimulus as a confused mess.

  3. James A. Bacon Avatar
    James A. Bacon

    Peter, you and Krugman may be right about the European Union — I suspect you are — but you're in total denial about the budget deficits. I guess I'll have to start posting more on the topic. Within 20 years, the whole concept of the democratic-capitalist welfare state will collapse on a scale as cataclysmic as the collapse of Soviet communism. I fear what will replace it.

  4. James A. Bacon Avatar
    James A. Bacon

    As for deficit spending, you are quite correct. Deficit spending by government can counteract the contraction in spending by business and consumers. But you and the Krugmanites seem to forget the other side of the coin: that governments should run surpluses during the good years to balance out the deficit spending in the bad years. Oops. Since 2000, we have forgotten to do that. Indeed, with entitlements swelling, we won't see another budget surplus again in our lifestimes.

  5. E M Risse Avatar


    Interesting observations.

    Krugman is right that forcing every nation-state into unified Euro but he is off by a few scale increments.

    Spain was NOT chugging right along, some Regions in Spain were doing well, others were not.

    Think Regional Banks and Regional Economies.

    Think SubRegion Banks and SubRegional Economies.

    Think Community Banks and Community Economies.

    Think barter currency at the Village and Neighborhood scale.

    Think sweat equity barter at the Cluster and Dooryard scale, just as happens in many Households (the Unit scale.)

    The settlement pattern, the governance structure and the economy must reflect the organic structure and scale of human civilization.

    Globalization, nation-state Uber Alles and the Commonwealth’s ‘the state knows best’ widens the wealth gap and thus distorts true market economics and welcomes in dictatorships from the right and from the left.

    Did you spend too much time in MainStream Media looking for villains? Jim Bacon has a sound argument. EMR has a different perspective. So do you. We do not know who is more right at this point.

    The tragic possibility is that we are all right: The end of civilization as we know it unless there are Fundamental Transformations.


  6. Anonymous Avatar

    But you and the Krugmanites seem to forget the other side of the coin: that governments should run surpluses during the good years to balance out the deficit spending …


    Yea, right. How are they supposed to do THAT?

    If government actually had a surplus there would e a steady drumbeatof calls to reduce taxes. There is no legal way for the governmet to set aside surpluses in a rainy day fund except for the most conservative investments.

    Therefore surpluses are the worst kind of drag on the economy: no capital gain from havng spent the money on infrastructure, and no ROI from the investment either. Plus you have taken investable money out of the hands of the private side.

    The only thing you can do with a "surplus" is spend down previous debt, which means that it isn't a surplus at all, and besides if you followed the Bacon Rx for government there would be no debt to begin with.

    I can't beleive I'm hearing you make such a claim, because it is so discordat with everything else you preach.


  7. Anonymous Avatar

    The end of civilization as we know it unless there are Fundamental Transformations.


    It could be worse: we might get EMR style fundamental transformtion AND the end of civilizationn as we know it. They might even be the same thing.


  8. Gooze Views Avatar
    Gooze Views

    Jim Bacon,
    Oh no! You're going to post more about deficits? talk about unitended consequences!

  9. Paul Krugman stopped being an economist years ago. He's a professional politician and Obama apologist now. Very little of what he says can be taken seriously (for the record, I feel the same way about Newt Gingrich). These guys have stopped being serious and have become entertainers. You might as well ask Geraldo Rivera what he thinks.

    Deficits are more of a symptom than the disease itself. The disease is a societal lack of personal accountability. Decades of no exercise and lots of cigarettes and now you feel sick? Big government will bail you out. Forgot to save any money during the years you worked and now you're broke? Big government will pay for your retirement. Unemployed, unwilling to work the jobs available in your hometown and unwilling to go where the jobs exist? Big government will take care of you. Can't make your farm profitable so you'll have to sell and do something else? Big government will subsidize you. Spend way beyond your means and run up a small fortune in debt? Big governemnt will let you walk away from the debt. Kids failing out of school but you can't be bothered to meet with the teachers or attend the PTA meetings? Big government will pay you to take care of the kids then pay to incacerate them.

    I watched a show on television last night – prison wives. One woman met a convicted murderer (life, no parole) through a pen pal program. Married the guy. She and her 3 kids from a prior marriage move from town to town as the guy gets transferred from prison to prison. Welfare, food stamps and Section 8 housing. She has a hard time keeping a job because she moves so much.

    PIIIGS = Portugal, Iceland, Ireland, Italy, Greece and Spain. If you reads this whole article, you'll see that Germany is slipping back into recession too. Meanwhile, one the biggest banks in France consideres the collapse of the Euro inevitable.

    Obama's philosophy is the European model. High taxes, big deficits, high unemployment, lots of entitlements. Only one problem – the European model doesn't work. It's more complicated than deficits but it's simple to see it doesn't work.

    Peter's point on globalization is right. Good to see Peter in such tight agreement with Pat Buchanan. But where is Obama on that …. ?

  10. Speaking of broken governance …

    Good to see that the dysfunctional behavior is widespread. I was living in Charlottesville in the run up to this revenue sharing agreement. The city was going to annex parts of the county in some kind of bizarre game of Risk played by the equivalent of drunken 12 year olds.

    Now it's almost 30 years later and the city and county are fighting with a bill in … the General Assembly. I sincerely hope that all of the NoVa politicans will abstain from voting on the grounds that local issues should be solved locally.

  11. Anonymous Avatar

    Can't make your farm profitable so you'll have to sell and do something else? Big government won't let you.


  12. Anonymous Avatar

    Sissy Spacek claims Virginia as home, pushes film industry

    Today's WAPO

    Another happy camper.


  13. Gooze Views Avatar
    Gooze Views

    To be fair, Texan Spacek has lived in the Charlottesville area for a long time. One of her children went to VCU. SHe tries to help the state.
    Peter Galuszka

  14. Anonymous Avatar

    Sorry. That was poste in the wrong spot anyway.

    I didn;t know that she had "adopted" Virginia.


  15. Gooze Views Avatar
    Gooze Views

    Hey RH,
    Sort of like me. I am obviously not a "Virginian" but I have sort of adopted it. Like Bacon. No Virginian. Born in Connecticiut.Navy Brat. Like me.

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