Maastricht Treaty revisions needed?

[kandrathe]

With the impending potential implosion of one after another of EU countries, following Greece's lead, is it time to revisit the Maastricht Treaty to plug the holes, or rethink how common currency works? For how long will the more productive nations be able or willing to carry the ones that spend more than they produce? What happens in Spain, Portugal, and Ireland now? Germany and Italy are facing recession, and others will follow (including the US getting their double dip).

According to CNN, "Greece is already in major breach of eurozone rules on deficit management and with the financial markets betting the country will default on its debts, this reflects badly on the credibility of the euro. There are also fears that financial doubts will infect other nations at the low end of Europe's economic scale, with Portugal and the Republic of Ireland coming under scrutiny. If Europe needs to resort to rescue packages involving bodies such as the International Monetary Fund, this would further damage the euro's reputation and could lead to a substantial fall against other key currencies."

Can you share a common currency without having common practices in how other countries run their finances? What penalties should exist for a nation like Greece who breaks the rules, and juggles the books to hide their cheating or mismanagement? Nay sayers, like Ambrose Evans-Pritchard, look pretty prescient about now.

[--Pete]

Hi,

Can you share a common currency without having common practices . . .

Just another example of an imbalance of responsibility and authority. As the UN and our own history show, a governing body must have the power to enforce its policies. The EU must become either more or less powerful. It needs to move toward becoming a federal government for Europe or towards becoming nothing more than an advisory body.

I know which way I would like to see it go, but I think it will go the other. It is hard, maybe even impossible, to overcome thousands of years of suspicion, rivalry, prejudice, and hate.

--Pete

[kandrathe]

I know which way I would like to see it go, but I think it will go the other. It is hard, maybe even impossible, to overcome thousands of years of suspicion, rivalry, prejudice, and hate.

I'm probably on the other side, desiring the EU to be less powerful, and more of a coalition, but my reasons are not in your list.

I'm just very nostalgic, and I believe that smaller is better (and more manageable). I have visited most of the European nations, and I just love the uniqueness of each one. It's hard for me to reconcile having spent drachmae, a currency in use from 1100 BC, to stand in Agamemnon's tomb with it just being a geography within the EU zone. Then again, I'm not much of a fan of US federal power either.

Things may be theoretically more efficient when massed up, but I'm not sure that this could not be done with better economic treaties, open border, and free trade agreements.

[--Pete]

Hi,

I'm probably on the other side, desiring the EU to be less powerful, and more of a coalition, but my reasons are not in your list.

I'm sure that's true. And yet, what does drive a spirit of independence? What is it that generates the feeling that one's neighbors are more trustworthy and competent then those 'political pukes' half a continent away? Perhaps, on deeper analysis, the reasons for your reasons might well be on my list.

I'm just very nostalgic, and I believe that smaller is better (and more manageable). I have visited most of the European nations, and I just love the uniqueness of each one. It's hard for me to reconcile having spent drachmae, a currency in use from 1100 BC, to stand in Agamemnon's tomb with it just being a geography within the EU zone.

I've stood on the edge of the Grand Canyon. If it being just a geography within the USA detracted at all from its majesty as part of the State of Arizona, I, for one, did not notice. BTW, where is Agamemnon's tomb? Since Agamemnon was most likely a fictional character (possibly based on an actual person), I would suspect his tomb to be a modern attribution to draw tourists.

Then again, I'm not much of a fan of US federal power either.

I never would have guessed.

Things may be theoretically more efficient when massed up, but I'm not sure that this could not be done with better economic treaties, open border, and free trade agreements.

Because NAFTA has worked out so well? The only guide we have is history. I'm not sure what the antecedent to your 'this' is, but if it is along the lines of peace, prosperity, and freedom, then I believe you are mistaken. I can think of no place or time when "economic treaties, open border, and free trade agreements" accomplished this for long.

--Pete

[Jester]

Because NAFTA has worked out so well?

Pete,

What's wrong with NAFTA? I think it's been a net positive for all involved, although the US has perhaps gained less than its neighbours. Nationalists on all sides naturally argue that somehow their country has got the short end of the stick, but I think that's mostly just posturing.

Now, whether this has solved the comparably minor issues of US-Canada relations or Canada-Mexico relations, let alone the gigantic cluster of fun that is US-Mexico relations, is another matter. But that's probably too much to ask of a free trade agreement.

-Jester

---

Kandrathe,

We'll see. On one hand, I'm a big internationalist, and I like the EU as an example of cooperation on a large scale. If it succeeded, I think it would be fantastic. I also think Pete is right - it's at an awkward size, and there are solutions going either way: either to become larger, eliminating the sovereignty that causes the problems, or to become smaller, eliminating the common currency and economic management.

Currency management is one of those crazy issues that we just don't understand well enough, despite the enormous amounts of ink (and blood, and sweat, and tears) spilled over it. In theory, a stable international currency is awesome. In practice, it leads to deflation, or at least prevents inflation, and the effects of that restriction are often so crippling that it might not be worth trying in the first place.

-Jester

[--Pete]

Hi,

What's wrong with NAFTA? . . .

Now, whether this has solved . . . the gigantic cluster of fun that is US-Mexico relations, is another matter. But that's probably too much to ask of a free trade agreement.

My point, exactly. NAFTA has contributed some to prosperity, but not to freedom. And as to peace, it may even have added to the tension.

--Pete

[kandrathe]

Currency management is one of those crazy issues that we just don't understand well enough, despite the enormous amounts of ink (and blood, and sweat, and tears) spilled over it. In theory, a stable international currency is awesome. In practice, it leads to deflation, or at least prevents inflation, and the effects of that restriction are often so crippling that it might not be worth trying in the first place.

We sort of have an international currency, or two. A barrel of crude oil, and an ounce of gold. Everyone knows what their currency or commodity is worth in relation to those two prime commodities.

[Jester]

We sort of have an international currency, or two. A barrel of crude oil, and an ounce of gold. Everyone knows what their currency or commodity is worth in relation to those two prime commodities.

We have internationally traded commodities. But those do not function in the same ways, either positive or negative. Nobody denominates their national debt in barrels of oil, nor do they set domestic wages in grams of gold.* So, if Greece needed to devalue in the pre-euro days, they might not have been able to buy as much oil or gold, but they could at least kickstart their economy and avoid a deflationary spiral. Now, profligate Greece is locked into the same currency as wealthy Germany, and there's no policy they can pursue that makes them both happy.

The policy that avoids crisis is to keep Greece solvent, and they're trying their best at that. But that's a heavy price to pay for having overextended the Euro.

-Jester

*They used to do that. It was called the classical gold standard - and while its success was an era of tremendous prosperity, its failure is in the encyclopaedia under "Depression, Great".

[Lissa]

Because NAFTA has worked out so well?

Pete,

What's wrong with NAFTA? I think it's been a net positive for all involved, although the US has perhaps gained less than its neighbours. Nationalists on all sides naturally argue that somehow their country has got the short end of the stick, but I think that's mostly just posturing.

Actually, NAFTA has hurt some areas. Case in point, where myself, Voiceman and his brothers grew up, the main industry (Logging) has been severally hurt. The logging plant in Omak has teetered on closing down since NAFTA went into effect (where as it was a reliable employer prior to NAFTA). So while things may have been prosperous for the countries involved, regions within those countries have see a loss of prosperity due to it while others have seen a gain.

[Jester]

Actually, NAFTA has hurt some areas. Case in point, where myself, Voiceman and his brothers grew up, the main industry (Logging) has been severally hurt. The logging plant in Omak has teetered on closing down since NAFTA went into effect (where as it was a reliable employer prior to NAFTA). So while things may have been prosperous for the countries involved, regions within those countries have see a loss of prosperity due to it while others have seen a gain.

There are always winners and losers from reorganizing the economy. Lumber is one area where, under free trade, Canada has an advantage. Thus, the disputes over the imposition of tariffs, which should be impossible given a free trade agreement. Not that this has stopped the bickering, at all.

However, as with any such change, the damage is easy to see, manifesting viscerally in lost jobs and closing plants. The benefits are not - it's tough to see small reductions in prices, small increases in investment, small efficiencies in other industries due to reallocated labour. But they exist, and they add up. This is why the correct policy is almost always to use government power to help adapt to the marketplace, rather than to thwart it.

-Jester

[kandrathe]

This is why the correct policy is almost always to use government power to help adapt to the marketplace, rather than to thwart it.

Unfortunately, government almost always chooses the wrong way to help. Usually, they offer subsidies, impose tariffs, or attempt to shore up the failing industry through tax incentives, rather than allowing the marketplace to operate unhindered. A thoughtful approach by government to Lissa's loss of logging industry would be to reconsider the potential of such an area, and offer incentives for new ventures to diversify that economic space, and to offer stipends for the education of the workers into a new line of work. Better yet; if both governments would quit meddling with the industry, it would equalize both in terms of product price, and the cost of labor regardless of position relative to the border. Northern Minnesota has the same issue with iron mines. Our solution has been to do just what I suggested, diversify the regions economy. They have developed tourism, converted to taconite technology, and recruited new industries appropriate to our area (hockey equipment, snowmobiles, and triple glazed window makers).

Thoughtful, painless change can occur. For example, in a manufacturing plant where I worked, we purchased about 10 very cool welding robots that were very, very good at long straight (and tedious back breaking) welds. But, there was still need for some welders to do the tricky (and more fun) welding. This is progress, however, we slimmed down the welding crew by about 6 welders, retraining some into other equivalent jobs, and some were offered an early retirement package. The money that used to pay the 6 welders, was not saved however, it went to pay for people who encode and service the robots. The advantage was in reducing the time for the product assembly on the line, the ability to reduce standing inventory (due to the increased speed), the quality of the product, and to remove the back breaking labor resulting in a hazard for workers. Everyone wins, except perhaps if a few welders, really, really wanted to remain welders, and so, when ready to change companies, could opt to work as a welder in some other company.

In other cases, such as the makers of buggy whips, you might just need to get a different profession. Government usually is not pro-active, resulting in years or decades of suffering until enough changes to revitalize an area.

Another issue I have is that some places are just not very good places for people to live, and so the misery expressed by the destitute who choose to live in a desolate, or wilderness area is a natural result of their choice. But, somehow they are convinced the world owes them a standard of living commensurate with others living in productive areas. If you find life is crap, maybe the first step is to get out of the toilet.

[Lissa]

This is why the correct policy is almost always to use government power to help adapt to the marketplace, rather than to thwart it.

Unfortunately, government almost always chooses the wrong way to help. Usually, they offer subsidies, impose tariffs, or attempt to shore up the failing industry through tax incentives, rather than allowing the marketplace to operate unhindered. A thoughtful approach by government to Lissa's loss of logging industry would be to reconsider the potential of such an area, and offer incentives for new ventures to diversify that economic space, and to offer stipends for the education of the workers into a new line of work. Better yet; if both governments would quit meddling with the industry, it would equalize both in terms of product price, and the cost of labor regardless of position relative to the border. Northern Minnesota has the same issue with iron mines. Our solution has been to do just what I suggested, diversify the regions economy. They have developed tourism, converted to taconite technology, and recruited new industries appropriate to our area (hockey equipment, snowmobiles, and triple glazed window makers).

Thoughtful, painless change can occur. For example, in a manufacturing plant where I worked, we purchased about 10 very cool welding robots that were very, very good at long straight (and tedious back breaking) welds. But, there was still need for some welders to do the tricky (and more fun) welding. This is progress, however, we slimmed down the welding crew by about 6 welders, retraining some into other equivalent jobs, and some were offered an early retirement package. The money that used to pay the 6 welders, was not saved however, it went to pay for people who encode and service the robots. The advantage was in reducing the time for the product assembly on the line, the ability to reduce standing inventory (due to the increased speed), the quality of the product, and to remove the back breaking labor resulting in a hazard for workers. Everyone wins, except perhaps if a few welders, really, really wanted to remain welders, and so, when ready to change companies, could opt to work as a welder in some other company.

In other cases, such as the makers of buggy whips, you might just need to get a different profession. Government usually is not pro-active, resulting in years or decades of suffering until enough changes to revitalize an area.

Another issue I have is that some places are just not very good places for people to live, and so the misery expressed by the destitute who choose to live in a desolate, or wilderness area is a natural result of their choice. But, somehow they are convinced the world owes them a standard of living commensurate with others living in productive areas. If you find life is crap, maybe the first step is to get out of the toilet.

It would be nice, but I'm not sure how well Okanogan County could switch to other industries. Okanogan County is the largest county by area in Washington state, however, 75% of the county's land area is natrional forest. Of the remaining 25% of the county's land area, half (12.5% absolute) is Coville Indian reservation. This means only 12.5% of the county is useable for other things which is mostly agricultural (Orchardists mainly, but also processors of Gypsophilia, aka Baby's Breath, used in floral arrangements and only grows in Okanogan county and Israel which is considered a noxious weed, yet florists love the stuff) and cattle (a fair number of ranches in the area). So while other industries my try to come in, the county is not well suited due to the geography (valley carved by the Okanogan river which is a tributary of the Columbia and also the eastern foothills of the Cascades). About the only industry suited to Okanogan couty would be snow skiing tourism, but due to Okanogan county being high desert, the snow fall during the winter isn't that great (I think the greatest amount of snow we ever saw while I was growing up there was maybe 4 feet of snow over the course of a winter, so great for kids to sled on, not so much for skiing).

[Jester]

It would be nice, but I'm not sure how well Okanogan County could switch to other industries.

According to the US census, only about 15% of employed persons in Okanogan County are in agriculture, forestry, mining, fishing and hunting, combined.

So, while it's hardly an industrial heartland, it's not like there isn't any other potential source of employment.

-Jester

[--Pete]

Hi,

According to the US census, only about 15% of employed persons in Okanogan County are in agriculture, forestry, mining, fishing and hunting, combined.

While you are right, a closer look at those numbers reveals something interesting. There are no other base level occupations. All the other occupations are support and service. With 500 people in finance, etc., I doubt it is a commercial center. So, it looks to be about seven to one in support. Which means that, for each job lost in the base economy, eight jobs are lost in total.


--Pete

[Jester]

So, it looks to be about seven to one in support. Which means that, for each job lost in the base economy, eight jobs are lost in total.

Those numbers would be close, if Okanogan County was an autarky. The 4.2% in manufacturing presumably also counts, which would make the number more like 4 to 1.

While you're right that it's not quite as easy as looking at the raw %, it's also not quite as easy as assuming the entire economy is based 100% on its primary industries.

Given its relative isolation, low population density, and low average incomes, I can only imagine it is the recipient of substantial government largesse, at least per capita. Quite a lot of the US (and of most first world countries with hinterlands) is primarily employed in simply existing - despite the incredibly low population density of, say, the Northwest Territories, without government subsidy, people would be moving out, not in. Given a ruthlessly operating free market inhabited by homo economicus with no attachment to its hometown, these areas would be essentially abandoned.

That then raises the question of why 40,000 people live there in the first place, if the predominant occupations are economically unfeasible given free trade with what amounts to the very same region across the border.

-Jester

[--Pete]

Hi,

Those numbers would be close, if Okanogan County was an autarky. The 4.2% in manufacturing presumably also counts, which would make the number more like 4 to 1.

OK, we split this one. The manufacturing takes it up to 18.8%, slightly more than 5 to 1. The nearly 8% in public administration is what perplexes me. Maybe it's related to your next point.

While you're right that it's not quite as easy as looking at the raw %, it's also not quite as easy as assuming the entire economy is based 100% on its primary industries.

Given its relative isolation, low population density, and low average incomes, I can only imagine it is the recipient of substantial government largesse, at least per capita.

And that would explain the large percentage of public administrators (probably following the model of the bridge and night watchman ).

Quite a lot of the US (and of most first world countries with hinterlands) is primarily employed in simply existing - despite the incredibly low population density of, say, the Northwest Territories, without government subsidy, people would be moving out, not in. Given a ruthlessly operating free market inhabited by homo economicus with no attachment to its hometown, these areas would be essentially abandoned.

Really, do you think people move to or stay in a region because of government support? I'd suppose that it might influence some not to move away, but even that would probably marginal in an area where there are few other services for the indigent.

That then raises the question of why 40,000 people live there in the first place, if the predominant occupations are economically unfeasible given free trade with what amounts to the very same region across the border.

I suspect a number of reasons. First, logging is only one of the base occupations. And logging was hurt, not destroyed; the logging plant was hurt, but not shut down. So, there are a lot of reasons to stay, hope being one of them.

Another, of course, is inertia. Combined with denial, it keeps people from moving on to new professions and new areas. In the rational sense, the choice between staying while hoping that the old ways will return and leaving to face the uncertain unknown is quite simple. Emotionally, it is not. The question is not why so many Irish moved to the USA (and elsewhere) during the potato famine. The question is, why did so many stay.

--Pete

[Lissa]

Hi,

Those numbers would be close, if Okanogan County was an autarky. The 4.2% in manufacturing presumably also counts, which would make the number more like 4 to 1.

OK, we split this one. The manufacturing takes it up to 18.8%, slightly more than 5 to 1. The nearly 8% in public administration is what perplexes me. Maybe it's related to your next point.

While you're right that it's not quite as easy as looking at the raw %, it's also not quite as easy as assuming the entire economy is based 100% on its primary industries.

Given its relative isolation, low population density, and low average incomes, I can only imagine it is the recipient of substantial government largesse, at least per capita.

And that would explain the large percentage of public administrators (probably following the model of the bridge and night watchman ).

Remember, 12.5% of the county is Coville Indian reservation. BIA along with the tribe's own government make up a good amount of the administration. Then you have Interior department as well through the Forest Service and Game and Fish. So, there's a fair amount of your administrative folks.

Quite a lot of the US (and of most first world countries with hinterlands) is primarily employed in simply existing - despite the incredibly low population density of, say, the Northwest Territories, without government subsidy, people would be moving out, not in. Given a ruthlessly operating free market inhabited by homo economicus with no attachment to its hometown, these areas would be essentially abandoned.

Really, do you think people move to or stay in a region because of government support? I'd suppose that it might influence some not to move away, but even that would probably marginal in an area where there are few other services for the indigent.

No, a lot of people have been living there for generations. So, some of the people don't want to move away. Of my Mother's family, only we (my Parents and myself) have moved out of the area and one of my cousins moved out of the area, the rest are still in Okanogan county. So, a lot of people don't move away because you have many generations staying there. There has been more people moving away with the last couple generations, but that's new in the grand scheme of things.

That then raises the question of why 40,000 people live there in the first place, if the predominant occupations are economically unfeasible given free trade with what amounts to the very same region across the border.

I suspect a number of reasons. First, logging is only one of the base occupations. And logging was hurt, not destroyed; the logging plant was hurt, but not shut down. So, there are a lot of reasons to stay, hope being one of them.

Another, of course, is inertia. Combined with denial, it keeps people from moving on to new professions and new areas. In the rational sense, the choice between staying while hoping that the old ways will return and leaving to face the uncertain unknown is quite simple. Emotionally, it is not. The question is not why so many Irish moved to the USA (and elsewhere) during the potato famine. The question is, why did so many stay.

--Pete

It's not just industry, as I noted above, it's also familial ties.

[Jester]

OK, we split this one. The manufacturing takes it up to 18.8%, slightly more than 5 to 1.

I guess, yeah, 5 jobs lost for every one in the "base" economy. I was counting "other jobs" lost, but that's not the right number to count.

Really, do you think people move to or stay in a region because of government support? I'd suppose that it might influence some not to move away, but even that would probably marginal in an area where there are few other services for the indigent.

"Marginal" is exactly right. The question is the marginal effect - when do all the factors attracting people to the region attract one more person to live there, and when do all the detracting factors cause one more person to move out? Obviously not everyone in the region lives there exclusively for one reason. But government cash makes life more liveable, it injects money into the economy, it creates jobs. So more people live there, even if you can't pin down precisely who.

I suspect a number of reasons. First, logging is only one of the base occupations. And logging was hurt, not destroyed; the logging plant was hurt, but not shut down. So, there are a lot of reasons to stay, hope being one of them.

Also, if it's anything like the Okanagan in Canada, there are a lot of intangibles. It's a nice area. But yes, I'm not suggesting the area should be a ghost town. Only that, if people are desperately worried about keeping an uncompetitive business afloat so that they have jobs, it just naturally leads to the question as to whether there should be that many people there at all. Canada could run a manufacturing town on Baffin Island if we paid people enough to live there, and threw up super-high tariff walls - but what would be the point?

In the rational sense, the choice between staying while hoping that the old ways will return and leaving to face the uncertain unknown is quite simple. Emotionally, it is not. The question is not why so many Irish moved to the USA (and elsewhere) during the potato famine. The question is, why did so many stay.

In a word? Money. 1840 is pretty early in the history of mass migration. Moving to the new world was always something that a middling slice of the working population did, not the poorest of the poor subsistence farmers. To move, you had to have enough money to leave - to buy a trip, to feed yourself in the meantime. Even knowing your options in the world beyond your county was connected to being a certain class of worker. Those who were relatively richer had better connections in the new world (those who were able to leave even earlier), and could make a better start of it. The rest stayed, and a lot of them starved.

-Jester

[kandrathe]

"Marginal" is exactly right. The question is the marginal effect - when do all the factors attracting people to the region attract one more person to live there, and when do all the detracting factors cause one more person to move out?

The owners can stay as long as they can continue to own their property. If taxes are low enough, or zero for low income people, then a person can live on very low income, relatively.

Obviously not everyone in the region lives there exclusively for one reason. But government cash makes life more liveable, it injects money into the economy, it creates jobs. So more people live there, even if you can't pin down precisely who.

I know you believe this. But, I believe it is a myth. The government only creates jobs for itself, while siphoning money from the economy to do so (e.g. a variation on Bastiat's broken window fallacy). If the government is so good at creating jobs, and focusing our wealth on entrepreneurship, then we should definitely keep tax rates as high as is possible. Even my friends working in government recognize and joke about "another hog feeding at the public trough".

I think most people would agree that entrepreneurs create jobs, not governments. More decidedly, I believe the size of government is a better indication of the size of debt, rather than being an engine of economic growth. Were it so, Greece would be thriving, rather than bankrupt. Politicians are not wise stewards of our money, which is verified by the increasing amounts spent on foreign wars, pork projects, and other unproductive purposes. The wealth of individuals, and nations is governed by two fundamentals; 1) expend as little as is possible while maintaining a frugal lifestyle, and 2) be as productive as is possible. At least recent US fiscal policy for the past few decades has been one of greater, and greater control by a central federal government on dictating how money is to be spent by states, local governments, corporations, and by individuals. Not only for those of us living now, but also for the next 30 or 40 years. The question on the table, for Greece, Spain, Portugal, Ireland, possibly the UK and the US; Do you think we are in this jam because of government fiscal policies, or is it a catastrophe of the free market? I would answer the former. Promises are made by people who base their spending on unrealistic fake scenarios, and now we have riots because those promises are broken. We are the grasshoppers who did not set aside stores for the winter, and who are now starving, begging the industrious little ants to toss us morsels. But, we are running out of ants to go begging to, and morsels.

Also, if you are looking at recent statistics remember that governments have been extending out unemployment benefits for about 24 months now.

[Jester]

I know you believe this. But, I believe it is a myth.

You believe it is a myth that the Government of a very large nation can spend public money to stimulate the economy in one tiny part of that nation by taking money from elsewhere? Because that's all I'm suggesting.

-Jester