5 ms·

Given the title, it is not surprising that this analogy glosses over a key point. It only tangentially refers to the main problem, which is that currently Italy

by ubasu 15y ago

Given the title, it is not surprising that this analogy glosses over a key point. It only tangentially refers to the main problem, which is that currently Italy (and Greece and Spain) are tied to a single currency, and they do not have a currency of their own to devalue to deal with this crisis. e.g. see http://krugman.blogs.nytimes.com/2011/11/10/original-sin-and-the-euro-crisis/ http://krugman.blogs.nytimes.com/2011/11/10/original-sin-and... This seems to be the problem with the analogy of national finances=family or small business finances, i.e. that nations typically can control their money supply and value, and this is purely a macroeconomic hack, rather than a morality issue.

gpjt 15y ago
Surely that's what makes it a valid analogy? Countries that have their own currencies have an escape route from debt in the form of devaluation, which makes them unlike small businesses. Countries that use a shared currency (or issue debt denominated in another country's currency) don't have that escape route, which makes them much more similar to small businesses. OTOH it's hard to take an article seriously when it contains the phrase "way more than they ever should of". Perhaps the copy editor was having a bad day.
NikolaTesla 15y ago
It's shocking how cavalier economic folks like Krugman are when it comes to dismissing analogies between national finances and personal finances. Yes an individual does not have the ability to print their way out of debt, however, that doesn't diminish the fact that those doing the debasement are committing fraud against the people whose interests they claim to protect.
- nhaehnle 15y ago
  That's an overly simplistic view of what is going on. A modest (<15%) rate of inflation that is driven by wage increases is actually a Good Thing for the majority of the population, because their real standard of living depends much more on the real value of income than it does on savings. And don't forget the role that debt and nominally fixed contracts for rent or mortgage play, either. If real incomes rise during an inflationary period, the majority of the population will be better off afterwards. This is not an unrealistic scenario, by the way. It happened several time throughout the 20th century. It's just that most people confuse inflation with hyperinflation - the latter is not so much "inflation writ large"; instead it is an outright rejection of the old money system, which is a huge qualitative difference.
paganel 15y ago
> It only tangentially refers to the main problem, which is that currently Italy (and Greece and Spain) are tied to a single currency, and they do not have a currency of their own to devalue to deal with this crisis. e.g. see Honestly, having your own currency wouldn't help one bit when all the credits you've taken are in an another currency. Look at what happened to Argentina at the end of the '90s, no matter how much they devalued the Peso they still had to eventually default, because the credits they had were not in Peso. I cannot understand why people like Krugman and most of the other economists don't bring up this point when raising issues like "it would all have been fine if the Greeks had stick to using their own currency".
- rwmj 15y ago
  The UK devalued its currency by something like 30%. It seems this helped (although the UK is by no means out of the woods).
- roshanr 15y ago
  I thought pegging the Argentine peso to the dollar was what made the Argentine debt crisis worse.
- nhaehnle 15y ago
  > I cannot understand why people like Krugman and most of the other economists don't bring up this point when raising issues like "it would all have been fine if the Greeks had stick to using their own currency". I believe this is simply a case of omitting the obvious. The people who most emphasize the importance of a sovereign currency do point out the importance of not taking on debt that is denominated in a foreign currency. It's just that if you write all the little caveats and conditions in there all the time, the end result becomes unreadable.

by ubasu 15y ago

gpjt 15y ago

Surely that's what makes it a valid analogy? Countries that have their own currencies have an escape route from debt in the form of devaluation, which makes them unlike small businesses. Countries that use a shared currency (or issue debt denominated in another country's currency) don't have that escape route, which makes them much more similar to small businesses. OTOH it's hard to take an article seriously when it contains the phrase "way more than they ever should of". Perhaps the copy editor was having a bad day.

NikolaTesla 15y ago

It's shocking how cavalier economic folks like Krugman are when it comes to dismissing analogies between national finances and personal finances. Yes an individual does not have the ability to print their way out of debt, however, that doesn't diminish the fact that those doing the debasement are committing fraud against the people whose interests they claim to protect.

nhaehnle 15y ago
That's an overly simplistic view of what is going on. A modest (<15%) rate of inflation that is driven by wage increases is actually a Good Thing for the majority of the population, because their real standard of living depends much more on the real value of income than it does on savings. And don't forget the role that debt and nominally fixed contracts for rent or mortgage play, either. If real incomes rise during an inflationary period, the majority of the population will be better off afterwards. This is not an unrealistic scenario, by the way. It happened several time throughout the 20th century. It's just that most people confuse inflation with hyperinflation - the latter is not so much "inflation writ large"; instead it is an outright rejection of the old money system, which is a huge qualitative difference.

paganel 15y ago

> It only tangentially refers to the main problem, which is that currently Italy (and Greece and Spain) are tied to a single currency, and they do not have a currency of their own to devalue to deal with this crisis. e.g. see Honestly, having your own currency wouldn't help one bit when all the credits you've taken are in an another currency. Look at what happened to Argentina at the end of the '90s, no matter how much they devalued the Peso they still had to eventually default, because the credits they had were not in Peso. I cannot understand why people like Krugman and most of the other economists don't bring up this point when raising issues like "it would all have been fine if the Greeks had stick to using their own currency".

rwmj 15y ago
The UK devalued its currency by something like 30%. It seems this helped (although the UK is by no means out of the woods).
roshanr 15y ago
I thought pegging the Argentine peso to the dollar was what made the Argentine debt crisis worse.
nhaehnle 15y ago
> I cannot understand why people like Krugman and most of the other economists don't bring up this point when raising issues like "it would all have been fine if the Greeks had stick to using their own currency". I believe this is simply a case of omitting the obvious. The people who most emphasize the importance of a sovereign currency do point out the importance of not taking on debt that is denominated in a foreign currency. It's just that if you write all the little caveats and conditions in there all the time, the end result becomes unreadable.