Now and then some politician or pundit whispers the dirty word, “default.” What if the U.S. defaulted on its debts? Oh no, we would all die! Wouldn’t we?
Actually, most nations have defaulted on their debts at some point in history, and some have done so multiple times. They did not die. They lived on to perhaps default yet again, which will yet again not kill them.
If you are into charts, check out “This Time is Different” by Kenneth Rogoff. Defaults, panics, and crashes have recurred with monotonous regularity throughout history. Glancing over this historical economic panorama, it is hard to escape the notion that no one knows what the heck they are doing when it comes to managing an economy. I suspect that the less they know, the more strident they are in standing on their dogma (Save us, O Invisible Hand.)
The phrase “This time is different” is uttered during every speculative buildup and before every crash (including 2008) that has ever occurred and-guess what? It wasn’t. It was the same. Speculation-crash, boom-bust.
Almost every country has defaulted, but Spain is the current champion, having managed to default seven times in the nineteenth century alone, after having defaulted six times in the preceding three centuries. France has defaulted eight times and the French kings had a unique method of debt restructuring-they sometimes killed the creditor.
National defaults come in clusters, usually around big wars or big crashes like the Great Depression. War may be a money-maker for a very few, but it has bankrupted nations over and over again. This time it’s different? When will we learn that this time is the same?
And when will we learn that the mysterious entity called “capital” flies around the globe, landing where it will? But that’s a good thing, you say, that is foreign investment spurring growth. In the short run it is reported as a good thing, and as an economy heats up with foreign capital the target nation is hailed, for example, as a “Celtic tiger” or a “Chilean miracle.” Alas, that fickle capital is just as likely to fly off to another nation, leaving behind a tiger head mounted on a boardroom wall or a Chile pepper rotting on the sidewalk.
Bottom line: We are not rational. The rational actor model of economics is poppycock. We gamble, we make bad choices, we want to get rich quick. We go to war. We are probably going to keep doing all these silly things.
The markets must be regulated, there must be rules. The casino capitalists are going to carry on as they always have until they are stopped.
Regulate them! Think of it as a Gambler’s Anonymous intervention. It is for their own good, and Lord knows, it is for the good of the rest of us.