The Washington Post Just Can't Resist Editorializing About Fiscal Policy in Its News Section

Fox on 15th yet again did some heavy editorializing in a front page story on the euro zone crisis. It referred to the plan to constrain debt as an effort to create an institutional structure that will "slap automatic penalties on governments that recklessly spend and borrow."

How did the word "recklessly" get into this article and why did it make it past the Post's editors? The point is that if the penalties are automatic, then they will not distinguish between countries that borrow "recklessly" and countries that might end up borrowing for reasons that are not reckless.

For example, a country like Ireland may end up borrowing because it had private banks that engaged in reckless lending and faced collapse. The country then had the choice of seeing its banking system go under or borrowing to rescue its banks. (It is possible that Ireland could have kept its banks operating at lower cost by giving creditors haircuts, but that is a debatable point.)

Alternatively, a country like Spain may end up borrowing because incompetent central bankers allow an enormous housing bubble to grow unchecked. When the bubble bursts it creates a severe recession leading to a huge loss of tax revenue and a massive increase in spending on unemployment benefits and other transfers.

An automatic enforcement mechanism does not distinguish between this sort of borrowing and borrowing that is done for reasons that may be viewed as reckless. That is precisely the point with an automatic mechanism, it is automatic. The Washington Post should be able to hire people who understand this.

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written by skeptonomist, December 10, 2011 9:20 AM

Countries that don't spend excessively on social programs, which includes most of those in Europe, but still chronically have high debts, are probably not collecting enough taxes. We know this is the case in Italy and Greece. More responsible countries don't care to be perpetually bailing out the lax countries, and there is no reason they should not try to force the latter to bring their finances under control. This is not the same issue as the misguided insistence on austerity as a cure for a downturn, although the things are badly confounded at all levels.

Does anyone really think a European union would work if some countries are allowed to spend all they want without collecting taxes? Is the ECB just supposed to keep buying up all the bonds issued by those countries?

If you don't have automatic mechanisms, you will be forced to rely on the judgement of politicians and Maestros like Alan Greenspan.

"reckless"
written by JoyfulA, December 10, 2011 9:52 AM

The point of the post, Skepto, is that the action is automatic and that WaPo's "reckless" addition is reckless editorializing in a supposed news article.

Tilting at Windmills
written by Ellen1910, December 10, 2011 6:21 PM

Once a narrative is adopted by a news organization ("Gore Invented the Internet" -- and he discovered Love Canal, too), it is virtually impossible to alter it. It takes a Kuhnian revolution, and they don't come along all that often.

More than a year ago WaPo adopted the narrative which put Greece and its profligacy at the center of Euroland's crisis. And so it shall ever be.

The Washington Post Just Can't Resist Editorializing About Fiscal Policy in Its News Section

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