Sunday, December 11, 2011

Angela Merkel is a Conservative and President Obama is a Liberal

A major rift has opened between Germany and the US on how to address the crisis now threatening the existence of the European Union.  President Obama wants the European Central Bank to print money to buy debt from indebted countries (the PIIGS) to prevent them, and the banks that lent money to them, from going broke.

On the other side of the Atlantic, Chancellor Merkel is concerned about the incentives that bailing out profligate borrowers creates:
Mrs. Merkel views the financial industry with profound skepticism and argues, in almost moralistic fashion, that real change is impossible unless lenders and borrowers pay a high price for their mistakes.

Althought the NY Times suspects a political motive:
President Obama, of course, faces re-election and sees the crisis in Europe as one of the biggest threats to his chances, as it could tip the American economy back into recession if austerity worsens the slump there. German officials are well aware of that and complain privately that electoral results are Mr. Obama’s chief concern

I think the two positions are emblematic of the deeper philosophical difference:
Charles L. Schultze, chief economist for former President Jimmy Carter, once proposed a simple test for telling a conservative economist from a liberal one. Ask each to fill in the blanks in this sentence with the words “long” and “short”: “Take care of the ____ run and the ____ run will take care of itself.”

Liberals, Mr. Schultze suggested, tend to worry most about short run, while conservatives are more concerned with the long run. Here Chancellor Merkel seems as if she has just read chapter 20, and is worried that unless we punish profligate borrowers, and those who lend to them, we will get more of both.

1 comment:

  1. One of the causes of the Great Depression was that banks were allowed to fail. Were profligate borrowers and those who lent to them, punished? Well, thousands of banks failed, unemployment reached 25% and a second world war followed. Conservatives concerened themselves with the long run, but at the greatest expense in human history. How did the long run turn out? Well, not even 80 years later we had a financial crisis that was larger than the Great Depression.

    Punish the stewards of law who set the stage for the stewards of finance to take excessive risk at the expense of their institution.