A Chicago Economist Who Should Thrill the RBC

James Heckman’s policy proposal offers the long term benefits of increased economic growth and reduced income inequality.  To misquote Meatloaf, “2 out of 3 ain’t bad”.  What do we do in the short term?   Europe’s Southern nations should sell some of their unique assets (such as their tourist sites) to China and Germany to raise cash to get their fiscal house in order.

Author: Matthew E. Kahn

Professor of Economics at UCLA.

24 thoughts on “A Chicago Economist Who Should Thrill the RBC”

    1. We really should have done this back in 2008-09, just set up guillotines on Wall St and run them 24/7.

  1. Heck, why stop there?
    There are plenty of hot women in Italy? Send then northward to work for a year in German brothels.
    And Greek organs are just like American organs — I recommend auctioning off the livers, kidneys, lungs etc of people in Greek prisons.

    If a county is worth exploiting, it is worth exploiting well.

  2. “Europe’s Southern nations should sell some of their unique assets (such as their tourist sites) to China and Germany to raise cash to get their fiscal house in order.”

    This is a joke, right?

    Did we ever send the Germans a bill for the Marshall Plan? If not, who are they to have an attitude?

    Not one of your better posts.

  3. You know what, even if we *did* send a bill afterward. We were much nicer than they had a right to expect.

  4. Wow, apparently the only guy in economics who has figured out that initial conditions matter has a Nobel Prize. Were the rest of you asleep during calculus? Also, your suggestion for the southern European countries to sell off their heritage sites is abominable.

  5. 1) If you want to misquote someone saying “two out of three aint bad”, the person you want is Jack Nicholson. After all, it isn’t a misquote of Meat Loaf. Or just link the TV Tropes page.

    2) Color me shocked that even the people from the Chicago School who are trying to be nice still perpetrate massive acts of dickery. I’m sure that once the Colliseum is owned by Pepsico and appropriately repainted, and every inch of the currently-government-owned Greek beaches has condos on it, everything will work out fine. Especially since Italy doesn’t even have a budget problem – it has an interest-rate problem, at least right now, and that’s one the ECB could fix in a heartbeat.

  6. I don’t understand why you are pitching early childhood programs in this locale. You will have to look very long and very hard to find a liberal who doesn’t already support these programs. If you are sincere, I encourage you to take up this argument in a more conservative venue. If you can get the folks at reason.com or Red State on board, more power to you!

    As for the second point, I assume it was offered to get a reaction from the comments section and not a serious proposal. If so, mission accomplished.

  7. NCG: “Did we ever send the Germans a bill for the Marshall Plan? If not, who are they to have an attitude?”

    First of all, yes, I think that was a joke (and not a particularly good one; if it isn’t, it’s not particularly good advice, more below).

    But secondly, the Marshall Plan questions is actually an interesting story. (Incidentally, as the daughter of an American father and a German mother, do I belong to “us” or “them”?)

    Initially, Marshall Plan payments for Germany were made as a loan that was to be fully repaid.

    The London Agreement of 1953 changed that up, however. Part of the post-war debt was forgiven, but Germany also agreed to pay part of the pre-war debt (which had been repudiated by the Third Reich).

    German pre-war debts were about 16.1 billion German Marks (2.6 billion of which were accumulated interest). Post-war debts amounted to about 16.2 billion Marks. The agreement reduced the total debts owed by Germany to about 14.5 billion Marks, 11 billion owed by the government, 3.5 billion by private debtors.

    This meant that a little more than half of Germany’s debt was forgiven; incidentally, the United States were willing to forgive all German debt (presumably because the Cold War had turned West Germany into a critical actor due to its geopolitical location). Conversely, one of Germany’s motivations was to show the world that it was a responsible and credit-worthy financial actor, so it actually wanted to pay as much of its debt and satisfy as many of its creditors as it could afford.

    Source: http://www.econ.yale.edu/growth_pdf/cdp880.pdf

    Marshall plan aid for Germany, by the way, was about $1.4 billion, at an exchange rate of 4.2 Marks for the dollar under Bretton-Woods, so slightly less than 6 billion Marks.

    Now, let’s turn to the situation in Greece (where, for what it’s worth, the current proposal involves forgiving 50% of Greece’s sovereign debt). The most recent proposal actually offered to forgive half of Greece’s debt. Let’s look at the numbers more closely: http://www.economist.com/blogs/freeexchange/2011/06/greek-debt has a breakdown of who Greece owes how much.

    If you look just at Germany, well, overall the German government and German banks have some EUR 20 billion in Greek debt. The biggest exposure is through HRE with about 6.3 billion (HRE was nationalized, so it’s the government’s problem for now), and there’s another 1.4 billion in debt owed to LB Baden-Württemberg (a public law bank under the oversight of German states). The three biggest private creditors are Commerzbank, Allianz, and Deutsche Bank. Having to write off those debts would cut into their profits, but would not even be remotely dangerous to them. If that was all that Angela Merkel had to do to on Germany’s part to permanently resolve the Greek debt crisis, she’d probably take it and say thank you.

    Unfortunately, it’s not really that easy.

    For starters, Greece (or more precisely, its public sector) is bleeding money hand over fist, and that needs to be fixed. If all of Greece’s debt were magically forgiven today and nothing else changed, Greece would be in the exact same situation again a few years down the road. That’s a multi-faceted problem: For starters, Greece enacted tax cuts that could have come out of Grover Norquist’s fever dreams; the low revenue from low taxes is further lowered by a high level of tax evasion; unions negotiated wages with the government that the government could ill afford; there’s been a consistent problem with corruption and, umm, creative accounting. But what it comes down to is that Greece is still spending a lot more money than it has in revenues, operating at a constantly growing deficit.

    There’s been much lamenting in the left-wing blogosphere that Greece can ill afford an austerity program now; that is true, but it also can’t afford to continue with a trickle of a revenue stream that does not come close to matching its expenses. Even if the rest of the Eurozone had an extraordinary willingness to pump money into Greece, that could not go on forever.

    And Greece is a relatively small country. Italy and Spain are much, much, bigger.

    Italy, or Berlusconiland, as a friend of mine likes to call it, is in principle in a better situation. It has a pretty good trade balance with exports nearly matching imports. It’s got solid economic fundamentals. Its main problem is that it has been governed by Silvio Berlusconi and his band of crooks for the past decade and that right now no-one is willing to buy Italian bonds at reasonable interest rates, making it hard for Italy to raise money in the short term in a way that would not make its debt situation explode. So, most proposed solutions involve (1) getting rid of Berlusconi and (2) having the ECB buy Italian bonds at less usurious interest rates. The problem with (2) is that the ECB technically does not have the authority to intervene in such a fashion.

    1. This “(Incidentally, as the daughter of an American father and a German mother, do I belong to “us” or “them”?)” makes you 100% *fabulous.* Viva immigration! Either or both, it’s up to you. Btw, you get to have EU citizenship too, right? Color me jealous.

      And I am not in any way anti-Germany. Mostly I think the post-war behavior has been pretty exemplary, certainly if you compare it to how Americans deal with our own tragic and very violent past. Which is mostly by not dealing with it, imho.

      It is one thing to be broke and say you can’t help someone else, and it’s also fine to say, well, I’ll help but down the line, there are some potential changes I’d like to discuss.

      But if one is able to help, and has been helped by others in the past, it doesn’t sit right to just refuse, or to act snotty about it even if help is given. Who among us really has the right to cop an attitude? Certainly not the U.S, but I would say also not Germany or France. It’s just a bit much, the smirking.

      We’re in the middle of this though, it is still happening, and I still think it may all come out right. I hope so.

    1. Do you think so? Greece is being pressured to sell off something like 20% of its coastline that’s currently property of the federal government, and also to sell off its profitable lottery (which is hardly a state treasure, but also is making money rather than adding to the state’s fiscal woes).

      I don’t know that they’ve been seriously pressured to sell the Acropolis, or to sell their claim to the Elgin Marbles. But they are definitely being pressured to make one-time cash by selling off valuable state assets and invaluable national treasures.

    2. … that being said, I clicked on the link, which I hadn’t before, and it’s a letter to the US deficit committee, not to a European agency, and is about increasing investment in the US. Nothing I spotted about selling the parks, or such. So I guess Kahn was joking. The problem with the joke is that Kahn has so often seriously made similarly asinine libertopian proposals, and proposals similar to those he apparently joked about are a serious possibility in Europe.

      1. He’s not attributing the short term plan to the letter. That’s his own unique contribution, and I can’t see any evidence from this or his previous posts that he’s joking.

  8. Matthew, I read Heckman’s article on this, and I kept thinking to Heckman the entire time, ‘F*ck you, Heckman, you Chicago f*ck. You and your f*cking policies put us in this predicament. Not only will we not do what you recommend, we’ll end up cutting this spending, due to what you and yours did to our country.’

  9. Everybody, it should be noted that Heckman did not get his doctorate at the University of Chicago. He’s a Princeton PhD, and thus carries very good salt-water credentials. Thus, although he is an economist from Chicago, he is not a Chicago Economist IMHO.

      1. Oh, UChicago PhD, to be sure. But if every Chicago Econ PhD were like Matt Kahn, this country (and the world) would be a MUCH better place.

        1. Jonathan, I’m confused. On this blog, Matthew has been disinguished by an intellectual level equal to the average MSM pundit. He’s a strawman of right-wing economics.

          So just how would we be better off?

          And please, don’t describe him as a ‘nice guy’.

  10. Real estate that is national heritage may be sold, but probably doesn’t stay sold. The buyers know it; it would be impounded in the price.
    It would be a bit more credible if you didn’t sell off something that you were likely to take back anyway, but instead just rented out a bit of the income stream.

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