09
Nov
11

Quote of the day, Charlton Heston in the Eurozone edition

This from Megan McArdle, in a piece (which you should read) on the impending collapse of the Eurozone:

Government, like soylent green, is people.

Oh, and more excerpts related to the four-letter friend getter (I speak of the eff-word “fair”):

The things that fix economic crises are not always intuitive.  As Brad De Long himself once remarked to me, it is nearly impossible to bail out the financial system without also bailing out people who are long assets–aka financiers and rich people.  But oh, how that flies in the face of our intuitions!

[…]

One can name dozens of examples of things that violate our sense of fairness and obligation, and thereby make us all richer, from limited liability to bankruptcy.  But people most won’t believe it.  Oh, they may believe the part of it that supports some larger “fairness” agenda they’re committed to.  But their support is almost always piecemeal: try getting a liberal who loves easy bankruptcy to give a second chance to bankers who made a few stupid money decisions, or convincing conservatives who are avid for tort reform that debtors who ran up credit cards with unwise investments in expensive but rapidly depreciating motor vehicles and consumer electronics might also need legal protection from the fullest extent of their past mistakes.

[…]
So it is in Europe.  The German people feel that it is not fair that they should be asked to pay for the bloated public sectors of nations where tax avoidance is an Olympic event.  The Greeks feel that they should not be asked to take a 40% paycut so that a bunch of rich Germans don’t have to bail out their banks.  Berlusconi no doubt feels that he is entitled to keep a job to which he was duly elected.

You can try to explain to all of them why their sense of outrage is rather beside the point in the face of a looming financial explosion which is going to make everyone much worse off if it reaches critical mass.  You can also go home and try to explain this to your microwave, for all the good it will do.  As anyone who has ever spoken to a five year old knows, the sense of fairness is one of the most primal and intractable cognitive instincts we have.

She concludes:

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.

Fuck.

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5 Responses to “Quote of the day, Charlton Heston in the Eurozone edition”


  1. November 11, 2011 at 22:12

    The Greeks feel that they should not be asked to take a 40% paycut so that a bunch of rich Germans don’t have to bail out their banks.

    It’s a true thing, worth thinking about.
    Do I already have the solution? (Even if I do, I’ll probably continue thinking.)
    Turns out I think so. Using McArdle’s frame, it wasn’t the German’s fault that the Greeks banked wrong. Just because it would hurt them less to take responsibility for it doesn’t mean they had even a smidgen of physical responsibility for the result. Punish the responsible unless you want to see it happen again.

    Of course this should make obvious that the Greek voters had very little to do with the banking fuck-up themselves.

    What’s really fair? Being held morally responsible for which you’re physically responsible. Voters, German or Greek, had nothing to do with this.

    As anyone who has ever spoken to a five year old knows, the sense of fairness is one of the most primal and intractable cognitive instincts we have.

    With you, I only have to say one thing here, don’t I? Hanson’s Razor. It would seem five year olds are the only ones who care.

    • November 11, 2011 at 22:50

      Voters, German or Greek, had nothing to do with this.

      My sense is that Greek voters have had a great deal to do with the fact that the Greek economy is foxtrot uniform — by which I mean the vastly generous entitlements, insane formal/informal jobs split, and general refusal to do anything about it until a year or two ago when it was too late. The issue McArdle’s writing about is the way Eurozone governments pushed their country’s banks to accept basically any Euro-denominated public debt as if it was, well, as good as German debt. Fundamentally this goes back to the formation of the Eurozone and the EU in the first place, which as you say was anything but democratic.

      The basic problem with Euro-debt — this is a new thing I learned, so I’m in “I have a hammer and look at all these nails” mode; take this with a grain of salt — is exposure to counterparty risk. If the Greek government can’t find anyone to buy its bonds when it has to roll over its debt and goes ‘splodey, I’m right there with you in “punish those responsible”. If the German banks that rolled over when their government said “go forth and load up on Euro-bonds” blow up because Greece’s debt becomes next to worthless, I’m still not all that annoyed.

      If a British pension fund goes bust because its (British) bank is exposed to risk from one of those German banks and suddenly finds a non-Greek position to be worthless, and the swaps that British bank bought to hedge against the German bank going bad also turn out to be worthless because they were issued by a Belgian bank which, while it isn’t exposed to Greek counterparty risk, is instead exposed to Italian Euro-bond risk and those bonds go into the shitter by association with Greek debt… then I think we might’ve reached the end of “so what, let them fail” as a practical political-economic axiom.

      With you, I only have to say one thing here, don’t I? Hanson’s Razor.

      That’s a little bit too cryptic for me at this time of night. Can you elaborate?

      • November 12, 2011 at 22:37

        by which I mean the vastly generous entitlements, insane formal/informal jobs split, and general refusal to do anything about it until a year or two ago when it was too late.

        And where did those entitlements come from? Of course the poorer are going to demand free money from the rich. They have nothing to lose.

        The issue McArdle’s writing about is the way Eurozone governments pushed their country’s banks to accept basically any Euro-denominated public debt as if it was, well, as good as German debt.

        Governments. Banks. Not voters.

        then I think we might’ve reached the end of “so what, let them fail” as a practical political-economic axiom.

        I can guarantee you this will happen again. Maybe not on so large a scale, but certainly numerous times. When will they learn to avoid it?
        If it can’t be avoided, who’s responsible for stopping them?
        If you bail them out now, all you do is make it happen more often.

        The idea here is (formalized most recently by Nassim Taleb) is to be robust, or even anti-fragile. Make it so your British bank failing isn’t a disaster, it’s just annoying. Then you don’t have to worry whether you’ve missed recursive counter-party risk.

        As anyone who has ever spoken to a five year old knows, the sense of fairness is one of the most primal and intractable cognitive instincts we have.

        People signal support of fairness. They don’t actually support fairness – they support fairness as a cover story to convince others to give them goodies.

  2. November 12, 2011 at 17:01

    Franz De Waal is a primate researcher who has done some really interesting work on proto ethics and morality in complex social animals, mostly apes and monkeys. He did an interesting series of simple experiments on monkeys and “inequity aversion”, behaviorspeak for a sense of fairness. These experiments involved having a pair of monkeys who could see each other perform the same task and sometimes giving one a better food reward than the other.

    De Waal astutely noted that it is only the monkey that is getting cucumbers instead of grapes who has a problem with the situation. He believes that our sense of “inequity aversion” or fairness, is actually an expression of envy or resentment – food for thought…


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