Friday, January 14, 2011

More "Tragedy of the Commons" for the Euro

From today's Open Europe news summary:

"El País reports that the European Commission is working on a proposal to pool the issuance of sovereign debt, guaranteed by the eurozone rescue fund."

The is just another indication that no one in a position of power at the EU understands Professor Philipp Bagus' argument--in his excellent book The Tragedy of the Euro--that the Euro will succumb to the economic law known as "The Tragedy of the Commons", whereby a commonly held resource is plundered to extinction. Pooling sovereign debt absolves the most irresponsible nations from confronting their unsustainable spending by forcing more responsible nations to pick up the tab. All of the incentives are weighted in favor of irresponsibility and none to responsibility. No pie-in-the-sky plan by the EU to dictate budgets to its members will ever work. The members will either ignore such interference or, as has already happened, cook the books to make it appear that they are doing so.

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