MEGAN MCARDLE: The Financial Folly Of Fairness.
When I was a young and naive economics writer, I used to write about developing countries a fair amount. Time and again they would make these bizarre and pointless moves, like suddenly and for no apparent reason defaulting on a bunch of debt. They would engage in obviously, stupidly unsustainable fiscal practices that caused recurring crises. They would divert critical investment funds into social spending which was going to become unsustainable when underinvestment reduced government revenue. And the other journalists and I would cluck our tongues and say “Why can’t they do the right thing when it’s so . . . bleeding . . . obvious?”
Then we had our own financial crisis and it became suddenly, vividly clear: democratic governments cannot do even obvious right things if the public will not tolerate it. Even dictators have interest groups whose support they must buy.
This has come home to me forcefully several times over the last few years, but never more than now. . . . I am very much afraid that the euro zone is about to plunge us into phase two of the global financial crisis–and that as with the Great Depression, phase two may be even worse than the dismal years we’ve just endured. In search of fairness, we may all get a lot more justice than any of us really wants.
Read the whole thing. And beware those who talk of “fairness,” but evade justice.
UPDATE: Reader Clark Van Meter writes:
Implicit in Mrs. McArdle’s analysis is that there is some magic wand that can be waived to simply stop wealth from being destroyed. Your clue that she’s off the topic of economics is that she’s quoting Brad DeLong.
This situation is very simple- its the end of a credit boom. You go through a bust, you inflate or do some combination of both. The is no difference in the change in wealth under any of these choices, just how the pain is distributed and how long it takes to reset the system to where the price level, cash flow and debt load are in a manageable arrangement.
The idea that following the path Andrew Mellon suggested is somehow more destructive of wealth than sending the price of gold even higher just doesn’t pass the laugh test.
Ask a German.
It’s too bad Hoover pursued policies closer to Obama’s than to Andrew Mellon’s. It’s also too bad that Obama has pursued policies closer to Hoover’s than to Andrew Mellon’s . . . .