The Broader Market

Niall Ferguson of Harvard University argues against former Treasury Secretary Larry Summers’ point that the United States needs more stimulus. I clearly don’t agree with Ferguson on the need to enact immediate deficit reduction, nor his beliefs about what caused the Great Depression and the lost decade in Japan.

Yet, he does make a compelling - and clearly controversial - case for Greece to default, abandon the Euro, and adopt the drachma. On this point, he is correct that Greece stands to gain little from meeting its debt obligations, but a lot from failing to do so. Today, Greek monetary policy is explicitly outsourced to the European Central Bank, while fiscal policy decisions have been implicitly outsourced to the IMF, Germany, France and other EU members that have bailed the country out. Defaulting and starting anew, says Ferguson, will give Greece the ability to take control of economic policy decision making once again.

This is all good and well, but what about the rest of us? A Greek default will most likely cause a global financial crisis that will hurt economies worldwide. Clearly, there is a misalignment of incentives between the Greek people and the rest of the world.