"The high degree of economic integration implies strong incentives to free-ride. "

What's going on in Europe in regards to a stimulus plan. From the FT:

"The Group of 20 communiqué calls for “fiscal measures to stimulate domestic demand to rapid effect” and underlines the needs to maintain “a policy framework conducive to fiscal sustainability”. The European Union should heed the G20’s advice. Without a budgetary stimulus the recession will lead to a second round of credit stress. However, structural deficits in many EU member states were high even in good times, so fiscal sustainability is also a concern.

But can Europe deliver? The obstacles are daunting. The fiscal room for manoeuvre varies greatly among the member states. The political weights attached to a fiscal stimulus and to fiscal sustainability clearly differ among the core countries, France and Germany in particular. The high degree of economic integration implies strong incentives to free-ride. Reaching a differentiated agreement on who does what could take months if not years, while the urgency is to act now. We therefore propose a three-part European recovery programme."

They propose:

1) All spend the same percent of GDP

2) Fudge on deficit requirements, with understanding that the issue must be addressed later ( Pension Reform? )

3) Don't borrow above a certain rate of interest

Read the whole post. Here's what interested me:

"The high degree of economic integration implies strong incentives to free-ride. Reaching a differentiated agreement on who does what could take months if not years, while the urgency is to act now."

The maneuvering among the various countries is complicating an agreement. It's a bit like OPEC, in that, even in this crisis, it is hard to get coordinated action among different countries.

And Iceland Mr. Brown? Was That Cricket?

I mentioned Brown's response to Iceland, and how in England I keep reading about beggaring your neighbor when it comes to the U.S. I didn't know that I'd get immediate confirmation from The Times:

"In a veiled warning to the next American President, Gordon Brown described protectionism as the “road to ruin” yesterday as international tensions surfaced at the start of the G20 summit in Washington. "

"Mr Brown was already risking confrontation with the President-elect in barely coded criticism of a planned measure to bail out America’s ailing carmakers, a plan Mr Obama supports. “I do think it is really important that we send out a signal today that protectionism would be the road to ruin,” the Prime Minister said, in a speech to the Council of Foreign Relations in New York.

“If we get into a situation where countries made decisions irrespective of what happened anywhere else, then we will see the same problems of other times. The dividing line here is between an open society capable of trading round the world, against a protectionist response that happened in the 1930s and is totally unacceptable.”

The EU said that it was ready to take action against the US at the World Trade Organisation if aid for the stricken US car industry was judged by the European Commission as illegal under international rules. The US Congress approved a $25 billion (£17 billion) aid package for American carmakers in September, although no timetable was fixed for payments to be made."

Sorry old chap. Need to invoke terrorism laws which say that we need to make our own cars. That's cricket.

NB: About Competetion In Crisis:Previous Post:

Situation

1) Investors love public debt in countries with central banks that can print money

Problem

1) Europe doesn't

Solution

1) European bonds backed by national banks jointly ( By the way, I love the phrase "practically riskless)

"The resources available to the EFSF would be used mainly for bank recapitalisation, especially for those banks which rather ‘gamble for resurrection’ than accept the presence of heavy handed interference of national governments. Moreover, the EFSF could also beef up the funding of existing EU instruments for balance of payments assistance to the European neighbourhood. But a key consideration in setting up such an emergency fund should not be the problems that are already known. Given the unpredictable nature of this crisis, a key consideration should be for the EU to prepare for the ‘unknown unknowns’ that are certain to arrive sooner rather than later."

Did they really say 'unknown unknowns'?

"“It simply beggars belief that the car lobbyists now come cap in hand "

This is getting hilarious. Check this out, from the FT:

"European carmakers could get up to €40bn ($52bn, £31bn) in “soft loans” from the European Investment Bank to the industry to help develop more fuel-efficient technologies, a top EU official said on Wednesday.

Günter Verheugen, industry commissioner, said that loan subsidies could be provided through the EIB in an effort to develop greener cars and meet EU environmental targets, although he pointed out that it was ultimately a matter for the bloc’s member states and the EIB to decide."

Car makers asking for cushy government loans because of problems complying with environmental standards. Did we export this too?

"The €40bn low-interest loan package is one of a number of measures being pushed for by European carmakers, who claim to be facing a particularly challenging environment in the wake of the credit crunch and economic downturn."

Hey, did you know that's happening in the U.S. as well?

"Several environmental groups blasted the automakers on Wednesday, accusing them of seeking subsidies to comply with measures they have repeatedly resisted. “It simply beggars belief that the car lobbyists now come cap in hand to the European Union asking for handouts to develop the fuel efficient cars they should have built long ago,” said Jos Dings, directors of Transport & Environment, a pressure group.

But industry officials argue that they have already been making substantial investments to improve their fleets, and will need assistance to continue them at a time when their market is collapsing."

What do you know? Where have I heard this before?

Thursday, September 25, 2008

Auto Makers Deserve Loans From Government. Not!

Today, I did a Diary on the proposed auto bailout on the Daily Kos. It didn't go well. The responses I got illustrated to me differences between liberal Democrats and libertarian Democrats.

Here are some of the arguments I got in favor of the bailout:

1) It was passed by congress. Of course, the Paulson Plan is before Congress as well. Also, I questioned whether it was passed in the light of day or slipped into larger legislation.

2) It's a loan, not a bailout. Of course, the AIG bailout is also a loan. And, according to William Gross, the Paulson plan is an excellent investment. I tell you what, I respect William Gross of Pimco more than auto executives about the financial viablity of their plans. Also, given that they've been losing money for years, one wonders why they would be smart enough to start making money now.

3) It will employ people. You've heard of too large to fail. Now we have too many jobs to lose. Of course, there's no guarantee these auto makers will deal fairly with their employees.

4) It's hard to get credit now. Of course, then maybe you should favor the Paulson Plan, and deal with the credit crisis first.

5) It will help the environment. This is rich. The auto makers have made a point of not preparing for more energy efficient cars, and they are now being rewarded by, in essence, blackmailing the taxpayers by saying we're not ready.

This is a bailout, pure and simple, for businesses that have thumbed their noses at energy efficiency, government, their employees, all the while being unable to turn a profit.

If liberals are for that, count me out

Guns And The Libertarian Democrat

Weigel also mentions in his column the fact that "Montana Gov. Brian Schweitzer is a loud-mouthed gun owner. Wayne La Pierre himself once flew to Montana to hand Schweitzer a National Rifle Association endorsement."

On the second amendment, a libertarian Democrat position would certainly hold that there is an individual right in the constitution to own a gun. However, it is also a perfectly reasonable position to hold that restrictions can be placed on that right, as long as the right is not restricted so much that it is no longer meaningful.

In this sense, a libertarian Democrat can sound very much like a moderate, being for the ownership of guns but with restrictions. But there is a difference between the two positions. A moderate may well believe that guns can and should be outlawed, but agree on a moderate position as a political compromise. A libertarian Democrat, on the other hand, will be against outlawing guns both for constitutional and libertarian reasons, no matter what he might believe about guns and gun ownership himself. The idea of personal liberty is key to understanding the libertarian Democrat position, while the moderate can certainly avoid any such commitment to personal liberty.

That is why the agenda of the libertarian Democrat is so important, because it introduces the notion of liberty into all policy debates, even those on the Democratic side. Such principled reasoning, even if not adhering completely to libertarian ideas, can be very important in framing the debate and implementing policy.

Consider the following two quotes from liberal writers:

"As I said before, I don't have very strong feelings on gun control, largely because I've not dug deeply enough into the evidence on efficacy. But insofar as the political conversation is around gun control and regulation rather than actual gun bans, this seems to leave a lot of room to maneuver."

Ezra Klein June 26, 2008

"I'd like to be able to thunder about the injustice committed by an activist, archconservative Supreme Court that seeks to return our jurisprudence to the 18th century. I will, almost certainly, about some future outrage. But this time, I can't.

The big problem, for me, is the clarity of the Second Amendment's guarantee of the "right of the people to keep and bear arms." The traditional argument in favor of gun control has been that this is a collective right, accorded to state militias. This has always struck me as a real stretch, if not a total dodge.

I've never been able to understand why the Founders would stick a collective right into the middle of the greatest charter of individual rights and freedoms ever written -- and give it such pride of place -- the No. 2 position, right behind such bedrock freedoms as speech and religion. Even Barack Obama, a longtime advocate of gun control -- but also a one-time professor of constitutional law -- has said he believes the amendment confers an individual right to gun ownership.

And even if the Second Amendment was meant to refer to state militias, where did the Founders intend for the militias' weapons to be stored? In the homes of the volunteers is my guess.

More broadly, I've always had trouble believing that a bunch of radicals who had just overthrown their British oppressors would tolerate any arrangement in which government had a monopoly on the instruments of deadly force. I don't mean to sound like some kind of backwoods survivalist, but I think the revolutionaries who founded this nation believed in guns."

Eugene Robinson June 27, 2008

This is a case where liberals are advancing a moderate position, and where libertarian thought, brought forward in a principled way in the Democratic party, could help frame and decide an issue in a more libertarian manner.

Of course, the libertarian Democrat might also disagree with the classic libertarian position advanced so well by Cato and Reason, but it is surely still a movement guided by the concerns of personal liberty.