fiscal disaster at home and abroad

[Dave Backus @ NYU]

I spent this afternoon in a meeting run by colleagues Matt Richardson
and Kim Schoenholtz, where we discussed whether to write a book
explaining what’s going on in Europe. Comments welcome on how to do
that. One thought was to compare the US to the EU, with the US being
an example of a strong central government and the EU strong regional
(national) governments.

The history of the US is fascinating in this respect. If I recall
Dick Sylla’s summary, it would include (i) a strong central tax and
monetary authority established in the Constitution, (ii) the principle
that states will not be bailed out (1840s), and (iii) a 1930s Supreme
Court case involving Arkansas, saying that bond holders get paid
first. Lurking behind the scenes right now are large pension
liabilities to government employees, which led to bankruptcy in
Harrisburg PA and Central City RI, with others likely to follow.
That’s a little terse, but more will follow as we proceed.

The question is where that leaves us. As always, Michael Lewis gives
us some compelling stories about disaster in the making, in this case
closer to home. (Where’s Pogo when we need him?) Here’s the link:

http://www.vanityfair.com/business/features/2011/11/michael-lewis-201111