A Greek Crisis Should NOT be A Euro Crisis

After the American Century

When my neighbor down the street goes on a spending spree, no one thinks all the neighbors should chip in and pay for his extravagance. The neighbor has to learn to live within his means. The same applies to nations. Greece has for years been living far beyond its means. It has allowed people to go on pensions at an earlier age than they can in other nations. It has not collected taxes from some of its citizens. It has allowed its public sector to grow and grow. It has routinely had much larger deficits than are allowed in the European Union.

Now the bill is coming due, and suddenly the world's stock markets see this as a crisis of the Euro. It is not. There is no reason for Germans to work a year longer before retirement so that Greeks can retire early. There is no reason why British home owners should pay higher interest rates because the Greeks have not lived within their means. There is no logic to the idea that the Euro will be stronger if other countries pay Greece's bills. Rather, it is logical that the Euro will be stronger if its nations enforce fiscal responsibility and prudence.

It sounds harsh but it is only fair that, if the Greeks cannot pay their bills, they must find their own solution to the problem. Greece is not a poor nation. It has many wealthy people. It has not suffered an earthquake or some other unforeseeable natural disaster. Greeks saw the problem for years and failed to deal with it. Greeks have to take responsibility for their own fate, rather than expect the International Monetary Fund or the other EU counties to pay their bills. Loans to Greece are fine, but only if they are going to be paid back.

People seem to think it terrible to contemplate Greece defaulting on their national debt. Yes, it is terrible, but it is even more terrible if other countries pay their bills. The Germans are quite right to resist loaning the Greek government money before they demonstrate that they can bring their economy into balance. The banks should have been equally hard on Greece years ago. International investors have over-extended credit to profligate nations, and they want others to pick up the tab. Sorry, but that is not how things are supposed to work.

Ah, but we are told, the poor Greeks will suffer under the austerity of budget cuts. Indeed, they will. That is the logical consequence of fiscal irresponsibility.  The Greeks as a whole are not poor,  and if they really want to they can invest their considerable wealth in government bonds, and then, as voters, make sure they get their money back. The Greek pension funds could be heavily invested in the Greek national bonds.  Or the Greek's could hold a massive telethon and get their own citizens to buy ten year government bonds at 5%. That would inject some reality into the situation. If Greeks don't want to buy their own debt, then why should anyone else?

Beware of Greeks demanding gifts. Beware of investment banks wringing their hands and saying the Euro is at risk, when it is their  poor judgement that led them to keep loaning money to Greece. And stop this nonsense of thinking that if Greece goes bankrupt due to a lack of political integrity and national will, somehow that means that the Euro itself is weak or that Germany or France or Sweden suddenly are not good places to do business. It should be just the opposite situation. The reluctance to pay the Greek bills should signal that the EU nations as a whole are sensible, that they will not be stampeded by incautious bankers into paying someone else's bills.

If all this seems a rather harsh argument, consider that other common market, the United States. The 50 individual states each has its own budget, and some of them at times get into trouble. California has overspent and under taxed itself into a corner at the moment. But that is California's problem, and it does not mean that the dollar is suddenly a bad currency.

California's economy is larger than that of Greece. Time to get some perspective on this issue.

British Electoral Crisis

After the American Century

The British election signals many things. One is that governments in power during the financial crisis will have a hard time winning re-election. Labour has been trailing in the polls throughout the campaign, and seems unable to crack 30% support.

But much of the British election is not about international finance or foreign affairs, even if the British participation in the Iraq War was vastly unpopular. No, the election is also about corruption in the Labour and Conservative Parties, about generations of their dominance, and about the clear injustice of keeping the Liberal-Democrats on the sidelines. Electoral reform is needed, as the old "first-past-the-post" system no longer works for Britain. This is a major change, and yet not as foreign to the UK as one might think. Proportional voting is already in use there for the European Parliament elections. So it is hardly unknown to vote that way.

However, even if such a system were implemented - magically - between now and the election on May 6, one would still get a hung parliament. Because the three main parties are running in a virtual dead-heat, with so little separating them in the polls that the magin of error is greater than the supposed gaps between them. In other words, with either the old or a new electorcal system, Britain could not produce a majority.

This is a real crisis for the old order of things, and will not easily be solved. Both Labour and the Conservatives are trying to panic the voters, telling them that a hung Parliament will be bad for the economy and national stability. But as Nick Clegg, the Lib-Dem leader has said, it will be very hard to put this particular genie back in the bottle.

The real problem for Britain is that no party is even close to commanding majority support. It must find a way forward through a coalition, but does not seem to know now to do this. The British are famously adept at "muddling through" and perhaps that will happen this time. But alternately, we may be about to watch a slow-motion train wreck, in which the political system simply cannot function. The populace is divided, and the only person who looks able to deal with this crisis intelligently seems to be Nick Clegg. He has served in the European Parliament and speaks five languages. That makes him a very rare sort of British politician - one who actually understands alternative systems.

Yet it is hard to imagine an outcome that would put Clegg in charge. As for coalitions, the British are not keen about them, but there seems little choice this time around. With one party or the other, the Liberal Democrats are about to come into an uneasy power-sharing arrangement.

[This prediction proved correct on May 11, when the LibDems and the Tories formed a coalition.]

The Ipad Commeth

After the American Century

Apple announced that it has sold 300,000 Ipads in the first two days. Toss in some accessories, and this works out to be roughly  $200 million in sales. Not at all bad for a new item that does nothing you cannot do with Apple's previous products.

Is it an Iphone on steroids? Or a mouseless computer that cannot multitask? Or truly a new category? The answer to this question is probably up to Apple. I assume that after selling these models for a bit less than a year, the new and improved versions will appear, including much of what is not there now. This would include a USB connection, now notably absent, and presumably the ability to have more than one application open at the same time.

Another guess: Apple eventually will have so many applications and peripherals for the Ipad that it will replace the low-end computer and the portable DVD player and the Ipod. If Apple also decides to integrate the Iphone into it, this device would become a portable television/phone/computer/music player. In other words, it has the potential to become a universal device that contains everything the modern nomad needs.

It is also possible, of course, that the Ipad will end up a commercial disaster, like Apple's earlier product, The Newton. That was a sort of Ipad, and it worked well enough, but no one bought it.

This time, however, the new tablet may be the portal to the electronic future. If it sells extremely well, its price may come down to just slightly over cost, because Apple will really make money selling all the apps, songs, television programs, and peripherals. Kodak did that with cameras for years, selling them cheaply to make money on the film, processing, and specialized paper.

Whatever happens, this will be fun to watch. When the Ipad eventually gets to Europe, it will be time to decide whether to buy this first version or wait a little longer for the successor which is sure to be packed with more things, cost no more, and have any bugs eliminated.

Obama's Pragmatic Oil on the Political Waters

After the American Century

The announcement that the Obama Administration is willing to allow oil exploration along the eastern coast of the United States from Delaware to Florida exemplifies his centrist, pragmatic approach to politics. It does so on a number of quite different levels.

1. By opening up exploration only south of Delaware, he pleases the more conservative states of the southeast, while avoiding direct confrontations with the more ecologically-minded public of the northeast, particularly Massachusetts. 

2. Obama kept this plan completely out of sight until the health care legislation was passed. This was pragmatic because his allies to the left in many cases would have been angered and distracted by the decision to drill for oil in areas that have been off limits for generations.

3. This is also a pragmatic decision that blunts the criticism from the Right, which has been calling him a socialist. Well, socialists do not grant oil drilling rights to the giant oil corporations. Suddenly, Big Oil has a friend in the White House, one that might change his mind if enormous contributions went to his Republican opposition in the midterm election. Indeed, this new friend might even be willing to open up other areas to drilling, if his gesture is appreciated. Think of Alaska, the Florida Gulf Coast. and portions of the California coast.

4. This decision also signals to the general public that while President Obama wants to increase the use of green energy, he is a pragmatist about oil, and by no means an enemy of big business.  The all important swing voters will on the whole be happy with this decision, which puts Obama clearly to right of the Clinton Administration on this particular issue.

5. The deicsion can be seen as an effort to create jobs and reduce imports of foreign oil, both popular goals among all parts of the electorate.

Taken all around, this decision shows that President Obama continues to seek the middle ground. If the debate on health care seems to place him on the left, this decision moves him firmly into an area that the Republicans thought was theirs. His supporters to the Left may not be happy, but they have no where else to go. His opponents to the Right, on the other hand, will have to admit that this is one policy they support. However, he did not need, nor did he ask for, their support in making the decision.

I would expect to see at least one more centrist move in the coming months, so that Obama can position the Democrats as the party of the center, marginalizing the Republicans as much as possible.

Meanwhile, note that no one knows if there is very much oil out there on the Atlantic shelf, and the exploration will take several years. Even if oil is found and drilling rights granted, no oil is likely to be flowing from this possible new source until a possible Obama second term. In short, Obama gets immediate credit in all sorts of ways, while any possible oil spills or environmental problems will not appear until after 2012. Pragmatic.

Meanwhile, whatever the long-term effects, Obama has reduced polarization, and spread a bit of calming oil on the political waters to his right. The Left may not like it, but they have the health care bill to celebrate, and, of course, no where else to go.