Tuesday, November 15, 2011

Tyler Cowen Outlines a Way to Solve Italy's Debt Problems

My comments:  

Unlike the Germans, Italians do not obey laws just because they are laws democratically enacted.  This has good and bad effects.  One result is that makes it difficult to collect any  tax, let alone a wealth tax.   So I think that Italy may have to default in some way.  

But Italians should not disrepair.  The biggest negative result from a partial default would be that it would make it difficult for the Italian government to borrow, but IMHO the benefits of being able to borrow are overrated.
To me the 2 benefits of borrowing are:

1. To move some of your consumption earlier in you life when it is more enjoyable. 
2. It enables businesses with good ideas to grow faster. 

A balanced budget amendment results in the same thing a government that cannot borrow.  Also borrowing is not a great idea if you like Italy have rapidly falling population. 

If I was an Italian citizen (or Greek) I would vote for default. I would say the government is debt not me. 

No comments: