Less now, more later

by Russ Roberts on March 26, 2010

in Crime, Financial Markets

In the comments to this post, Rayllove writes:

If Greece were to default the Euro would tank and a flight to safety would very probably drive up the dollar. That would worsen the US debt and the export situation while helping the Euro exports. The cost of bailing out Greece seems to be the less evil of the choices, what are the alternatives?

The alternative is to let someone, anyone, pay a price for recklessness. Otherwise, you get more recklessness and eventually, you have a catastrophe rather than just a bad experience. All of the reaction to the crisis from Bush through Obama, presumes we can just squeeeze over here, push something over there, institute this program for homeowners, bail out these banks, turn this knob just so, and so on and so on to keep the system afloat without any pain. Maybe they’ll pull it off. But label me skeptical.

Imagine your son getting arrested for shoplifting. The policeman asks for a bribe so your kid can avoid a criminal record. Easy choice, right? You don’t want your kid to have a criminal record, do you? Then your kid is caught breaking and entering. The policeman asks for a really big bribe so your kid can avoid jail. You don’t want your kid to go to jail, do you? A really big bribe is the lesser of two evils, right? So when your kid is arrested for operating a Ponzi scheme on Wall Street and gets fifty years in prison, it’s too late.

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