Greece, Debt, Capital, And The Whiskey Rebellion

European finance ministers are meeting today to craft a solution to the Greek debt crisis.

The more I read about the so-called Greek sovereign debt crisis, the more I am convinced that the Eurozone as currently structured has been a vast mistake. Of course, the powers that be in Europe will never admit this. They will figure out a way to blame and punish the present victim (Greece) and possible future victims (Italy and Spain), and to avoid placing any significant burden on the real perpetrators, German banks. Well, not only German banks, but also French, Benelux and Finnish banks.

As for Greece, the beatings will continue until morale (or the economy) improves. The beatings themselves will make it impossible for the economy to improve.

How did Greece get in this pickle? Private capital movements over which Greece had no control, and which were the prime motivation for creating the Euro in the first place. In short, wealthy owners of capital in the heart of Europe wanted more freedom to invest in the periphery at higher interest rates.

The economist Kash Mansori has an excellent explanation of the process in a recent edition of The New Republic.

Some of the "blame Greece" rhetoric reminds me of accusations bandied about concerning balance of payments issues (current accounts) back when the world operated with fixed exchange rates. Under the Bretton Woods system established under the guidance of John Maynard Keynes at the end of World War II, persistent balance of payments imbalances were expected to be addressed by exchange rate adjustments by both the country in deficit and the country in surplus. That never happened. The country in surplus always blamed the country in deficit and the latter had to devalue its own currency. Surplus countries never adjusted.

When Greece joined the Eurozone, they adopted a currency with the most fixed exchange rate of all. No adjustments possible. Therefore, instead of simply devaluing their own currency, Greece must increase taxes (in a depressed economy) and reduce expenditures (including social benefits which are already below much of the rest of Europe).

What else can Greece do? Induce a greater recession than the rest of Europe. Drive down wages and prices which, by the way, depresses government revenue and worsens the deficit. The Greek economy just isn't big enough to accomplish all that by growth.

What does this have to do with the Whiskey Rebellion?

In 1790, the newly-established US Congress agreed to consolidate federal and state debts, principally for revolutionary war expenses. Anticipating this, wealthy Eastern capitalists bought up largely valueless state revolutionary war bonds at pennies on the dollar (or pence to the pound as the case may be). The 1790 agreement, which made sense from the standpoint of establishing the "full faith and credit" of the United States, resulted in a windfall for the speculators who had bought state bonds. But how to repay the debt?

Alexander Hamilton pushed a whiskey tax. It passed the Congress in 1791 and ran into immediate opposition.

The problem? The tax burden fell most heavily on small western yeoman farmers beyond the Appalachians, many of whom paid debts in whiskey, due to a regional shortage of money. Collecting the tax would contract an already marginal regional economy. There were uprisings in the west, mainly in Pennsylvania, but also in Maryland, Virginia and North Carolina. President Washington led forces against the rebels, the rebellion was put down, and federal authority established.

Many westerners continued to evade the tax, and it was repealed after Thomas Jefferson became president.

At this remove, it seems fair to see the tax as a measure to redistribute wealth from the poor to the wealthy.

Were there other commodities Hamilton could have taxed? Tobacco comes immediately to mind. But he would have to have dealt with wealthy and powerful tobacco interests instead of corn farmers.

Power to the powerful - wealth to the wealthy!

Annual Migration

Sat on the porch of the Village Gallery yesterday afternoon overlooking Oriental harbor. A steady stream of boats, some sporting Canadian ensigns, but all with northern hailing ports, entered the harbor for the night.

The annual migration of those seeking warmer climes has begun.

Welcome to Oriental.

On Economics And Writing

I have mentioned before that Paul Krugman is my favorite economist.

He is my favorite not only because I admire his analysis and find his insights insightful. He is my favorite because his writing is clear and usually to the point. Sometimes I think he misses a point or overemphasizes one issue over another, but usually find him not only on target, but illuminating.

How does he do it?

One of today's blog posts explains:

Paul Krugman

October 22, 2011, 3:02 pm

But, And, Why

Every once in a while I get correspondence from someone chiding me for the way I write — in particular the informality. I received one the other day complaining about sentences that begin with “but” or “and”. There is, however, a reason I write this way.

You see, the things I write about are very important; they affect lives and the destiny of nations. But despite that, economics can all too easily become dry and boring; it’s just the nature of the subject. And I have to find, every time I write, a way to get past that problem.

One thing that helps, I’ve found, is to give the writing a bit of a forward rush, with a kind of sprung or syncopated rhythm, which often involves sentences that are deliberately off center.
More broadly, the inherent stuffiness of the subject demands, almost as compensation, as conversational a tone as I can manage.

My bible in all this is George Orwell’s Politics and the English Language. I recommend, in particular, reading his translation of good English, from the King James Bible, into bad modern English. The original:

I returned and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all.

The translation:

Objective considerations of contemporary phenomena compel the conclusion that success or failure in competitive activities exhibits no tendency to be commensurate with innate capacity, but that a considerable element of the unpredictable must invariably be taken into account.

Economics writing can all too easily end up sounding like the second version. You might even say that it wants to sound like that. So you have to make a real effort to ensure that it doesn’t.

On Wall Street and Bailouts (Calvin And Hobbes)

Economist Antonio Fatas brings us to an old Calvin and Hobbes cartoon strip illustrating the thinking of Wall Street titans:
 

 Image from http://3.bp.blogspot.com/-EkIzFqdRPBs/TqFbBQXFnXI/AAAAAAA...

Early Voting

One-stop/early voting opened yesterday at the Pamlico County Board of Elections office for the towns of Alliance, Bayboro and Oriental. Ten voters cast their ballots - eight from Oriental and two from Bayboro.

Hurricane Volunteers

Last night we met a very fine group of young Lutheran students from UNC who have come to Oriental to help in hurricane recovery. We're fortunate to have high quality volunteers like these. They wasted no time getting to work and accomplished a lot. They are staying at the Methodist recreation hall and will be going out to work at Goose Creek Island tomorrow.

Voting Starts Today

Voting in municipal elections starts today at one-stop for towns that have authorized absentee balloting. In Pamlico County, the towns are Alliance, Bayboro and Oriental. Pamlico County's one-stop location is the Board of Elections office at the court house annex in Bayboro.

Oriental's Mayors Race Forum

Last night's forum of Oriental's mayoral candidates proved quite interesting.

I won't comment on the performance of individual candidates. As a member of Pamlico County's Board of Elections, I am prohibited from publicly supporting or opposing the election of any particular candidate. I want to avoid even the appearance of support or opposition. Even with that limitation, I think there are useful observations to make.

Interest in the election seems higher than any of us expected. Eighty-eight interested citizens attended the forum. That represents about a third of the expected turnout for a municipal election in Oriental. That's a lot.

A number of the questions from the audience concerned preparation for and recovery from hurricanes. That was to be expected, as recovery from hurricane Irene dominates every resident's daily life and will continue to do so for months.

What was unexpected was a large number of questions on past issues that had been settled or seemed to have been settled. Among the themes:

1. What are the plans for Oriental's police force?;
2. The firing of town manager Randy Cahoon and the disposition of the report that cost the town $21,000;
3. Should the town have zoning? (All three candidates supported the need for zoning);
4. Do the candidates support outdoor amplified music?;
5. What about pool halls?;
6. Closed meetings;
7. Circumstances of the town's non-renewal of flood insurance (I was one of the deciders, and after Irene, I posted a comment on the decision).

All three candidates emphasized that we have a council-manager form of government, meaning that the board hires the town manager. The manager, in turn, is in charge of managing, hiring and firing staff, including police officers.

I think everyone who attended learned a lot about the candidates and about town government.