Monday, May 24, 2010

Liberalism's Weakest Link

I’ve suggested that the fate of modern liberalism rests on the capacity of the political process to allocate resources with tolerable efficiency (see, e.g., here), and the bond market’s estimation of its capacities in this regard (see here). It’s bad enough that we have to contend with the visible difficulty our own political process is having getting us to a political equilibrium on issues like health care reform. But Howard Schneider and Neil Irwin’s piece in today’s Washington Post suggests that it might be much worse than that.  Our ability to use our political process to achieve egalitarian objectives might depend for the foreseeable future on the efficiency of the Greek political process (my emphasis):
“If the trouble starts -- and it remains an ‘if’ -- the trigger may well be obscure to the concerns of most Americans: a missed budget projection by the Spanish government, the failure of Greece to hit a deficit-reduction target, a drop in Ireland's economic output.

“But the knife-edge psychology currently governing global markets has put the future of the U.S. economic recovery in the hands of politicians in an assortment of European capitals. If one or more fail to make the expected progress on cutting  budgets, restructuring economies or boosting growth, it could drain confidence in a broad and unsettling way. Credit markets worldwide could lock up and throw the global economy back into recession.”
That's why it's not that reassuring when people like Fareed Zakaria try to reassure us by observing that "America is no Greece."  The differences may not end up mattering nearly as much as he thinks.

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