Monday, June 30, 2003

What does it take to define a nation?

My inexperience in matters European is criticized by correspondent "Paul." Informed by the history of New Europe, he writes my faith in the falling dollar's restorative powers is completely misplaced:

...I do not believe in the benefit of weak currencies. History shows that weak currencies have been associated with weak countries, and that this combination rarely resulted in anything good. I am for a strong dollar. As an alternative, we could consider adopting the Euro. (If nobody has yet advanced this idea, remember you heard it first from me.) This would eliminate any exchange advantages or disadvantages when trading with the EU, and we could then measure the results in purely competitive terms (price, quality, and service).

Frankly, I laughed this off. "Clearly the guy doesn't understand export prices," I thought dismissively.

But monetary union is an old idea that just won't die. It may be the next big thing. Consider what Bartley is saying in today's WSJ:

...if the euro can replace the franc, mark and lira, why can't a new world currency merge the dollar, euro and yen? The euro's recent recovery against the dollar almost certainly establishes its credibility as a permanent currency. While major eurozone economies remain troubled, practically no one so far is blaming the European Central Bank.

This suggests success for the grandest reform of all, a supra-national central bank. The ECB Executive Board and Governing Council could yet become political targets, of course, especially if much-discussed deflation actually sets in. But even with strikes in Germany and France, few politicians seek a way out in a little more inflation or currency depreciation; few complain about the loss of "monetary sovereignty."

World money, with a world central bank, seems a next logical step.

How are we to think about this? Try this approach. What is the essence the concept "nation?" If we had to list all the features of "nation," what would be left if we discarded everything that could be taken away?

Culture, language, history, all that stuff can get thrown out -- just two and only two features remain on the list.

The first is simple border -- an enforcible physical boundary. The second is currency -- an enforcible economic border.

So what must be discussed, it seems to me, is whether monetary union is genuinely "rational" or part of the irrational and highly suspect elitist European political movement that's come to be called transnational progressivism. If this makes me sound like the old wacko John Birch Society guys who ranted against the U.N. and the dangers of upcoming world government -- well, I guess I'll just have to live with it.

Thursday, June 26, 2003

And the significance is?

Those who know tell me the Boskin Report  is not as new as I seem to think.

To most of us the Report's conclusions are extremely surprising, however, so one can't help but wonder what this particular report says to current policy.

First, judging from various blogosphere discussions nobody is going to yield anything on Social Security/Medicare, and rightly so in my opinion. Face it -- discovering an unexpected bonus doesn't tell you what to do with it, nor does it change yours or others' definitions/preferences.

Second the Boskin/Bush surplus -- or discovery, or whatever you call it -- cannot help but be a victory for American capitalism's supporters and a defeat for its critics. For half a century boomers' relationship to Social Security has weighed like an incubus on economic policy discussions. Critics debited neither Security's Ponzi structure nor the population bulge for the upcoming "crisis." Rather, they placed direct or indirect blame on American market capitalism itself.

The system caused us to spend too much and save too little. Or we were selfish, unwilling to devote sufficent resources to future eldercare. And of course we listened not to the wise advocates of government, of centralized organization and planning, but to the false prophets on the side of irrational markets and greedy corporatism.

And there was an even more esoteric plane of criticism, the neo-Marxist critique. This school told us "the system," never able to generate enough economic "surplus" for us to buy back what we have produced, must ultimately fail -- as evidenced for example by the upcoming, obvious, and widely known internal contradiction of the Social Security crunch, which will leave our future elders homeless and starving in the street.

And now we learn these critics warned of yet another false quagmire. American capitalism, we now know, has already produced the "economic surplus" needed to solve the Social Security crisis. And so long as things remain more-or-less as they are today, during the next forty years American capitalism will produce enough additional economic surplus to solve the "national debt" and "Medicare" crises as well.

Once again: finding the Boskin/Bush surplus doesn't tell us what to do with it. As Business Week sums it up:

Until now [this problem] has been portrayed as an intergenerational conflict between young, working taxpayers and old, retired beneficiaries of government transfer payments. Boskin demonstrates that there may also be a conflict among retired boomers with differing levels of savings. Upper-crust boomers will control a large share of the nation's wealth. If that wealth is taxed as it's supposed to be under current law, there may not be a serious problem covering the costs of Social Security and Medicare, whose stability is crucial for middle- and lower-income retirees. Yet wealthy boomers may fight to have tax rates cut in order to keep more of their retirement savings.

The political fight over redistribution will continue, in other words, with an outcome presently unclear. What is clear right now, however, is that the system worked.