The Advantage of Being Isolated (EuroCrisis Edition)
Historically, when life got too difficult in a given part of the country, us Americans were perfectly willing to pack our bags and move (to California, as it were). From a labor mobility perspective, this is brilliant - labor shortages in North Dakota are solved by surpluses in Nevada, Pennsylvania by Florida, etc. There is a bit of a downside to this - we need to be willing to tolerate massive de-population in some states (and, as it turns out, we are willing.).
Admittedly, the housing crisis has put a bit of a dip in this mobility - people can't Just Move when they have an underwater mortgage to deal with - but lets ignore that for the nonce.
The thing is, in the end, us Americans tend to move around only within America. Its pretty difficult to go further East or West - not too much happening in the Caribbean, and Siberia sucks. North and South, well, Canada and Mexico. Seriously, its not that there is anything wrong with either, but even if you eliminated any latent parochialism, you can't really go much beyond a hundred miles or so north of the border, and Mexico, well, we are building that stupid wall, right?
The bottom line - we move around in America. The labor mobility is in America. National debts incurred by us will be paid off by our children (and grandchildren, etc.), because, in the end, they will mostly all end up in America. This in-America-ness is a critical piece of why the T-Bill is so bloody strong - short of defaulting on it out of insanity/spite/cluelessness/whatever, we all know that our kids won't say "F**k it, I'm leaving all the debt that my 'rents racked up to China, and going to Sinaloa".
Contrast that with Europe - ok, the EuroZone, whatever. Ireland, in a fit of complete insanity (as documented by Michael Lewis) decided to nationalize the (private!!!) debt of its banks thus promptly burdening each of its citizens with - roughly - $20K of additional debt. Think of that number. Its as if our beloved government said "Hey folks! BoA/Chase/Citi/Wells/... kinda screwed up, so could each of you, yes, you kids too, send in an extra $20K to the IRS this year?" (*)
The Irish, as you would expect, promptly started fleeing the country in droves - at the rate of almost 1%/year. 1%/year! Thats 1% of the country's population, every year, saying, to their parents/grandparents "F**k it, I'm leaving all the bank losses that we guaranteed, and am moving to Australia/Canada/USA".
The problem, of course, is that depopulation in Ireland is not increasing the population in The Netherlands, i.e., the tax-base in the Eurozone is actually going down. The per-capita debts incurred by the Euro-zone-ians is actually going up!
Now add in Greece, Portugal, Spain, Italy (and Cyprus now), and you begint to see the magnitude of the problem.
And thus the flaw is revealed. Its all well and good to promote Calvinism/Austerity/whatever. But to actually have this work across the Eurozone, you need growth. Combine austerity with depopulation and what you end up with is a classic deflationary spiral. Or, to put it differently, I now have to work even more, so that I can pay my share of the national debt, and my share of each person that leaves. This causes more people to leave, which increases my share of the national debt even more, which increases my share of the national debt even more, which causes even more people to leave, and so on in a never-ending death spiral of deflation...
The gods of insanity have been incarnated in the form of EU technocrats...
(*) - Don't go down the TARP road, there is a different argument/discussion to be had there)
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