Permalink to Can the American Currency Union Survive?

Can the American Currency Union Survive?

 

The other day, I came across a piece entitled The Two Europes posted on The American Interest website by Francis Fukuyama. For a brief time, in the mid-1970s, Frank and I were graduate students together at Yale – I in history and he in comparative literature (wherein a man who writes as clearly as he does would have been bound to fail), and I have always found him worth reading.

So that is what I did. I read Frank’s piece, which made a simple, sensible point: to wit, that there is no way that Greece can remain in a European Union dominated by the likes of Germany. As he explains, there are two Europes. One is clientalistic; the other is not. Greece epitomizes the former; Germany, the latter.

CaliforniaFlag.jpgClientelism occurs when political parties use public resources, and particularly government offices, as a means of rewarding political supporters. Politicians provide not programmatic public policies, but individual benefits like a job in the post office, an intervention on behalf of a relative in trouble with the government, or sometimes an outright payment of money or goods.

Politics in Germany is about principles and policies; politics in Greece is about pay-offs – and no political party in a country like Greece can actually introduce a policy of austerity without committing suicide. Greece’s troubles arise from a swollen public sector. Absolutely nothing has been done in the last four years to fix the problem, and nothing is going to be done. The election a week ago simply confirms what everyone knew. This means that, unless the Germans are going to sign up to pay the bills of the Greeks in perpetuity, Greece will have to give up the euro.

NewYorkFlag.gifIn the absence of fiscal discipline – and no clientalistic state has any fiscal discipline – the only way to cope with the swelling of the public sector is to devalue the currency. In this fashion, you can effect a genuine cut in public-sector salaries across the board, and the private sector can adjust by raising nominal prices. This is what Greece and, for that matter, Italy, Spain, and France used to do at frequent, if irregular, intervals.

Frank’s argument, which makes perfect sense to me, set me to thinking about the United States. After all, we have the same problem as the European Union. Some of the states constituting our Union have spent money on public-sector salaries and benefits and on welfare programs as if there was no tomorrow. California has a budget deficit of $16 billion for this year, and that is just the beginning. As time passes and pensions promised in the past come due, public expenses will skyrocket. Something similar is true in Illinois and New York. In effect, these are clientalistic states on the Greek model, and they are approaching the end of their tether.

IllinoisFlag.gifThere would appear to be two ways in which this problem could be dealt with. The federal government could assume the debts and pension obligations of the more profligate states, and it could underwrite future profligacy. Or California, Illinois, and New York could leave the American currency union, introduce their new currency or currencies, and let them float against the dollar. This would inflate away public-sector obligations, open the door to tax cuts, and reinvigorate the private sector. It is true that it would also destroy the savings of anyone in these states foolish enough to have any. But, hey, you pay for the place in which you choose to live, right? Alternatively, of course, we could devalue the dollar (which, if you judge it with an eye to the Australian dollar, the Canadian loonie, or gold, is what we are doing). In this fashion, we could and stick it to innocent folks in Texas and Indiana.

My first thought, when at a manic moment I proposed this to my wife, was that California, Illinois, and New York should adopt the Mexican peso as their currency. But then I realized that this would be unfair to the Mexicans whose currency is in considerably better shape now than it would be if superintending it was shared by a civilized placed like Mexico with the governments of states like California, Illinois, and New York.

On reflection, I decided that each of these states needs its own currency. But what should we name them? I suggest that the Stoner Republic out on the West coast call its new currency the joint, that the people of Illinois name theirs after their favorite son and call it the obama. New York’s could then be called the spitzer.

But perhaps you, gentle readers, you could come up with names that are more appropriate.

Like this post? Want to comment? Join Ricochet’s growing community of conservatives and be part of the conversation. Get your first month free.

Members have made 79 comments.

  1. 1
  2. 2
  3. 3
  1. Profile photo of Percival Thatcher

    Not the Capone, Severely. Illinois (or at least Chicago) was already corrupt when Alphonse was still strong-arming pushcarts in Five Points.

    • #1
    • May 14, 2012 at 1:03 am
  2. Profile photo of Scarlet Pimpernel Member

    Given the number of pols in Illinois who have landed in jail, how about the felony for Illinois?

    • #2
    • May 14, 2012 at 1:09 am
  3. Profile photo of Paul A. Rahe Contributor
    Paul A. Rahe Post author
    Scarlet Pimpernel: With a nod to some of our neighbors in South America, I suggest the NY currency be called the un-real, and the California currency be the sur-real. · 14 minutes ago

    Fabulous.

    • #3
    • May 14, 2012 at 1:10 am
  4. Profile photo of Paul A. Rahe Contributor
    Paul A. Rahe Post author
    Scarlet Pimpernel: Given the number of pols in Illinois who have landed in jail, how about the felony for Illinois? · 2 minutes ago

    Keep it up. You are on a roll.

    • #4
    • May 14, 2012 at 1:12 am
  5. Profile photo of Joseph Stanko Member

    But the reason the California budget deficit is such a crisis, leading to a stark choice between deep spending cuts or higher taxes, is that like most states it is required to pass a balanced budget each year. In that respect, the state’s finances seem a model of sobriety next to the federal government that keeps on merrily piling up trillions in debt without any serious effort to balance the budget.

    Won’t the federal government face a credit crisis long before any of the states do?

    • #5
    • May 14, 2012 at 1:12 am
  6. Profile photo of Paul A. Rahe Contributor
    Paul A. Rahe Post author
    Valiuth: It would seem odd for people to want three of the wealthiest states to leave the union. I mean California, Illinois, and New York are the number 1, 5 and 2 contributors to federal tax revenues. In fact these states pay more in federal taxes than they receive back in federal spending. Without them poor southern, and western states would have a much harder time maintiaining their budgets. 

    This is not really a defense of the way these states have been run, . . . these “let them burn attitudes” seem rather stupid to me. People will leave these states, and they will just simply default on their pension obligations. These are options Greece doesn’t really have. While one can complain that California defaulting will be bad on Indiana or Texas. These states did not seem to mind the transfer of wealth that occurs every time tornados, huricanes and wild fires hit them from safe suburban Chicago to them. 

    Unlike Europe America is one nation, indivisible. We can no more let part of our nation financially implode than we could let part of it be conquered. · 19 minutes ago

    I proposed their secession from the currency union, not the Union.

    • #6
    • May 14, 2012 at 1:14 am
  7. Profile photo of The Mugwump Inactive

    The new currency in California should be known as the eight-ball. The name describes both California’s current situation and a common measure of crack cocaine.

    • #7
    • May 14, 2012 at 1:25 am
  8. Profile photo of Paul A. Rahe Contributor
    Paul A. Rahe Post author
    ~Paules: The new currency in California should be known as the eight-ball. The name describes both California’s current situation and a common measure of crack cocaine. · 7 minutes ago

    Bravo!

    • #8
    • May 14, 2012 at 1:33 am
  9. Profile photo of Scarlet Pimpernel Member

    California’s could also be the fault. And Illinois could be the kickback.

    • #9
    • May 14, 2012 at 1:34 am
  10. Profile photo of James Gawron Coolidge
    Paul A. Rahe
    Valiuth: It would seem odd for people to want three of the wealthiest states to leave the union.

    …Unlike Europe America is one nation, indivisible. We can no more let part of our nation financially implode than we could let part of it be conquered. · 19 minutes ago

    I proposed their secession from the currency union, not the Union. · 11 minutes ago

    Hey, I can dream can’t I. Seriously, of course we will be stuck muddlling through with them. This may be like 1975 with New York City defaulting. Mitt could easily have this dumped on him in his first year.

    Hey maybe we could harness Governor Moonbeam’s hot air source and improve our energy situation..whoops sorry there I go again.

    Valiuth, couldn’t we abandon Calfornia, New York, and Illinois maybe just a little? I mean only until they are a little less insufferable.

    Regards,

    Jim

    • #10
    • May 14, 2012 at 1:50 am
  11. Profile photo of EThompson Inactive

    Of the 100 richest places in the United States with at least 1,000 households, the number of places by state are:

    California 23, New York 11, Illinois 9…

    Obviously, these states aren’t fiscally insolvent due to a lack of taxpayer dollars!

    • #11
    • May 14, 2012 at 1:52 am
  12. Profile photo of Nealfred Member

    I don’t know where to start. I don’t like to say much. This isn’t funny. I don’t know what the end of the world feels like but this has some very bad vibrations. The people of Illinois (and I imagine any other state) will never go in for a different currency as alarmist on the clientist side of the political isle begin to cry. So making jokes about something so practical is not good. I own guns and plan to move to Texas. I just hope I get out in time.

    • #12
    • May 14, 2012 at 1:53 am
  13. Profile photo of raycon and lindacon Member

    As long as the feral government is in the hands of statists, California, NY and the apt abbreviation, Ill., have nothing to fear. BO rewarded California’s profligacy in the past with stimulus funds to keep the union pensions rolling in, and the past is prologue. 

    The feral government will maintain a form of chaotic equilibrium among the states until one of three things happens:

    1. The more responsible states finally rebel.

    2. The whole house of cards collapses under it’s own weight of irresponsibility.

    3. The Dems finally lose the feral government, including the Supremes, and the GOP loses it’s statist moorings.

    My money is on number 2. Both choices 1 an 3 require a political class with actual character and courage. As I said, I’m betting on number 2.

    And what will be the new currency of the defunct feral union? The “barter”. I’ll make you a fine dinner if you will fix my lawn mower. And I’ll trade you fresh organically grown tomatoes for a tuneup on my 20 year old car.

    This will be the result of the “progress” that the progressives promise. Demagogues are the salvation of an ignorant people.

    • #13
    • May 14, 2012 at 1:54 am
  14. Profile photo of Valiuth Member
    Paul A. Rahe

    I proposed their secession from the currency union, not the Union. · 24 minutes ago

    You know perfectly well that your proposal is impossible. The only way to kick these states out of the dollar is to kick them out of the Union. Would the plan also have to involve baring residents of these states from leaving their state? If it doesn’t won’t they all just leave and flood the other 47 states with unemployed destitute refugees. Who will just apply for welfare in Indiana and Texas? 

    These musings are silly. Like pretending what would happen if Robert E Lee had had a division of tanks. They also potentially betray dangerous and fractious attitudes among conservatives with respect to fellow citizens. I must admit such talk always gets my dander up, more than it should. I just think it speaks of a great ignorance of how dependent we all really are on each other. 

    So much of conservatism individualistic ideals are illusionarry or incomplete. Our nation can only be diminished by cutting it apart in any way. Greater unity has always served us better, than division. 

    • #14
    • May 14, 2012 at 1:56 am
  15. Profile photo of James Gawron Coolidge

    raycon,

    I think you’ve got them pegged. I guess my only difference with you is that I’m going to pray for #1. I do mean pray.

    Regards,

    Jim

    • #15
    • May 14, 2012 at 2:09 am
  16. Profile photo of Stilicho Member

    California…Dreems

    Illinois……..Illionis (pronounced Lying eyes)

    New York…Nix, Pleural Nixy.

    • #16
    • May 14, 2012 at 2:19 am
  17. Profile photo of Joseph Stanko Member

    As a Californian, I accept. Please kick us out. We’ll start our own currency and pay off our own debts. There’s just one small condition: those of you remaining in the United States will remain responsible for the federal debt. You can’t expect us to help with that if we’re no longer part of the union. Social Security, Medicare, Obamacare, those are your problems now. We’ll make a fresh start without them.Deal?

    • #17
    • May 14, 2012 at 2:21 am
  18. Profile photo of Paul A. Rahe Contributor
    Paul A. Rahe Post author
    Valiuth
    Paul A. Rahe

    24 minutes ago

    You know perfectly well that your proposal is impossible. The only way to kick these states out of the dollar is to kick them out of the Union. Would the plan also have to involve baring residents of these states from leaving their state? If it doesn’t won’t they all just leave and flood the other 47 states with unemployed destitute refugees. Who will just apply for welfare in Indiana and Texas? 

    These musings are silly. Like pretending what would happen if Robert E Lee had had a division of tanks. They also potentially betray dangerous and fractious attitudes among conservatives with respect to fellow citizens. I must admit such talk always gets my dander up, more than it should. I just think it speaks of a great ignorance of how dependent we all really are on each other. 

    So much of conservatism individualistic ideals are illusionarry or incomplete. Our nation can only be diminished by cutting it apart in any way. Greater unity has always served us better, than division. · 26 minutes ago

    Edited 25 minutes ago

    So you propose that we pick up their debts?

    • #18
    • May 14, 2012 at 2:23 am
  19. Profile photo of EThompson Inactive
    Joseph Stanko: As a Californian, I accept…. We’ll make a fresh start without them.

    California has always represented the fresh new start, but I fear that Sacramento is too far gone — too anti-business, too pro-NLRB, and too negligent of illegal immigration issues– to survive. Sadly.

    • #19
    • May 14, 2012 at 2:42 am
  20. Profile photo of Chris Campion Thatcher
    Valiuth
    Paul A. Rahe

    I proposed their secession from the currency union, not the Union. · 24 minutes ago

    You know perfectly well that your proposal is impossible. ThSo much of conservatism individualistic ideals are illusionarry or incomplete. Our nation can only be diminished by cutting it apart in any way. Greater unity has always served us better, than division. · 48 minutes ago

    Our nation has already been diminished by the “cutting apart” of the economy – the public-sector beneficiaries clinging madly to politicians who promise them that their untenable pensions and benefits will always be theirs, in perpetuity. The unraveling has already occurred. Take a look at the unfunded pension liabilities of all 50 (7) states, liabilities which were largely deferred in the short run due to “stimulus” spending. State bailouts have already occurred. It was the Stimulus – The Massive Federal Intervention That Would Save Democrat Votes, Er, The Economy.

    You can only plug your ears and close your eyes for so long. Reality will inevitably slap everyone around, painfully; it’s just a question of when, and how hard.

    • #20
    • May 14, 2012 at 2:49 am
  21. Profile photo of Paul A. Rahe Contributor
    Paul A. Rahe Post author
    Chris Campion
    Valiuth
    Paul A. Rahe

    I proposed their secession from the currency union, not the Union. · 24 minutes ago

    You know perfectly well that your proposal is impossible. ThSo much of conservatism individualistic ideals are illusionarry or incomplete. Our nation can only be diminished by cutting it apart in any way. Greater unity has always served us better, than division. · 48 minutes ago

    Our nation has already been diminished by the “cutting apart” of the economy – the public-sector beneficiaries clinging madly to politicians who promise them that their untenable pensions and benefits will always be theirs, in perpetuity. The unraveling has already occurred. Take a look at the unfunded pension liabilities of all 50 (7) states, liabilities which were largely deferred in the short run due to “stimulus” spending. State bailouts have already occurred. It was the Stimulus – The Massive Federal Intervention That Would Save Democrat Votes, Er, TheEconomy.

    You can only plug your ears and close your eyes for so long. Reality will inevitably slap everyone around, painfully; it’s just a question of when, and how hard. · 6 minutes ago

    Amen.

    • #21
    • May 14, 2012 at 2:56 am
  22. Profile photo of Chris Johnson Member

    For those three, and those that follow their examples, merely shorten “dollar” to “dole”.

    Meanwhile, it makes little enough difference to me, as long as the rest of us are nationalizing pensions through the Pension Benefit Guarantee program. It’s all moral hazard, as long as the rest of us, always, have to provide homes for the first two of the Three Little Pigs. It never seems to matter if the rest of us are diligent and prudent. We always wind up paying our neighbor’s bar tabs.

    Much of America eats hamburgers, today, with the promise to pay on Tuesday. The problem here being that the burger provider never eats the bill for foolishly providing the treat. The restaurants go out of business and the customers that never liked waiting in line behind Wimpy, split his tab.

    • #22
    • May 14, 2012 at 3:16 am
  23. Profile photo of Sumomitch Inactive
    Scarlet Pimpernel: Or perhaps we should establish a means for states to go bankrupt?

    This is preferable to any Federal bailout. At a minimum, we should impose as a condition to any Federal assumption of the State debts that, like a bankrupt company the equity right to control (i.e., voters) management be terminated. Maybe the States could revert to territorial status.

    • #23
    • May 14, 2012 at 3:42 am
  24. Profile photo of Instugator Thatcher
    Joseph Stanko: As a Californian, I accept. Please kick us out. We’ll start our own currency and pay off our own debts. ..

    Heh – your governor cannot even stop a high-ish speed rail project. 

    What will the currency be called? Moonbeams?

    Joseph Stanko: Social Security, Medicare, Obamacare, those are your problems now. We’ll make a fresh start without them.Deal? · 34 minutes ago

    Since the future liabilities of those programs are much much worse than what is already on the books (and since implicitly Californians would no longer receive those benefits as well) sure – done deal.

    • #24
    • May 14, 2012 at 3:43 am
  25. Profile photo of James Of England Moderator
    Valiuth
    Paul A. Rahe

    I proposed their secession from the currency union, not the Union. · 24 minutes ago

    You know perfectly well that your proposal is impossible. The only way to kick these states out of the dollar is to kick them out of the Union. Would the plan also have to involve baring residents of these states from leaving their state? If it doesn’t won’t they all just leave and flood the other 47 states with unemployed destitute refugees. Who will just apply for welfare in Indiana and Texas?

    I don’t think it’d be much harder for a state to leave the Dollar than to leave the Union; both straddle the Constitutional Amendment/ Act of Congress dividing line, but could probably be done by statute.

    I do agree with you that it’s not far from imagining Lee with a tank division, and that it’s the sort of fantasy that can do genuine harm. Americans tend to view themselves as Americans today, rather than eg. Californians (with, yes, the obvious Texan exceptions), and this is for the best. I don’t see any evidence that it is doing harm here, though.

    • #25
    • May 14, 2012 at 3:53 am
  26. Profile photo of Valiuth Member
    Paul A. Rahe

    So you propose that we pick up their debts? · 53 minutes ago

    I don’t see away around it. The reality is that what will happen is these states will renegotiate and default on large parts of their pension programs and then any leftover debts will just be assumed by the federal government either directly or indirectly. They have hit the brick wall here in Illinois and they will soon have very little choice but to cut pack and reorganize all their pensions. In the end though if these states have dug themselves in too deep a hole they are just going to have to be pulled out. 

    Is it ideal? No. Is it fair? No. But, all the states are tied too closely together to let three of the largest states sink into fiscal oblivion. 

    Europe has no cohesion, and Greece has the economic value of Delaware. California, Illinois and New York represent 1/5 of the nations population and accounts for 1/4 of the GDP. These states imploding would bring the whole nation down. 

    • #26
    • May 14, 2012 at 3:59 am
  27. Profile photo of Valiuth Member
    Robert Mitchell
    Scarlet Pimpernel: Or perhaps we should establish a means for states to go bankrupt?

    This is preferable to any Federal bailout. At a minimum, we should impose as a condition to any Federal assumption of the State debts that, like a bankrupt company the equity right to control (i.e., voters) management be terminated. Maybe the States could revert to territorial status. · 17 minutes ago

    I don’t know I think most of these states can just a default on their debts already or rework their major liabilities. What they need is federal support, to make sure the Fed won’t back any crazy lawsuits that would prevent them from reworking their pension plans. 

    I don’t think you can remove statehood once given, or deny citizens of that state control. I mean what could be less of a Republican ideal than to abolish states and return them to complete federal control. No we are just stuck. But flights of fancy aren’t going to help solve the problem.

    • #27
    • May 14, 2012 at 4:09 am
  28. Profile photo of Paul A. Rahe Contributor
    Paul A. Rahe Post author
    Valiuth
    Paul A. Rahe

    So you propose that we pick up their debts? · 53 minutes ago

    I don’t see away around it. The reality is that what will happen is these states will renegotiate and default on large parts of their pension programs and then any leftover debts will just be assumed by the federal government either directly or indirectly. They have hit the brick wall here in Illinois and they will soon have very little choice but to cut pack and reorganize all their pensions. In the end though if these states have dug themselves in too deep a hole they are just going to have to be pulled out. 

    Is it ideal? No. Is it fair? No. But, all the states are tied too closely together to let three of the largest states sink into fiscal oblivion. 

    Europe has no cohesion, and Greece has the economic value of Delaware. California, Illinois and New York represent 1/5 of the nations population and accounts for 1/4 of the GDP. These states imploding would bring the whole nation down. · 7 minutes ago

    I am glad to see that I have flushed you out.

    • #28
    • May 14, 2012 at 4:11 am
  29. Profile photo of Paul A. Rahe Contributor
    Paul A. Rahe Post author
    TeamAmerica: Prof. Rahe,

    Slightly off-topic, but what if a Pres. Romney responds to a Calif. bankruptcy with a bailout conditional on it being reduced to territorial status. (AFAIK, this idea originated with Mark Steyn) Since Calif.’s admission to the union required it to demonstrate the capability for self-government, which it plainly no longer possesses, this would justify a reversion to its former status. · 6 hours ago

    Once a state, always a state.

    • #30
    • May 14, 2012 at 4:21 am
  1. 1
  2. 2
  3. 3