Are the Republicans’ answers on the European debt crisis: a. the equivalent of an ignorant kiss off -- a kind of “Let them eat euros” statement -- that fails to understand the trouble brewing and its consequences for the United States, or b. the right economic policy?
Every one of the Republican presidential candidates in Wednesday’s debate was dismissive or silent on the need to intervene in the Europe’s financial problems. In that position, they reflect the overwhelming popular sentiment that bailouts of U.S. financial institutions must never be repeated, let alone ones overseas. (Two subtle, but important exceptions: Jon Huntsman repeatedly pointed to breaking up financial institutions that are “too big to fail,” and Romney voiced support for the IMF.)
Many Republicans couple their disdain for bailouts with an equal disregard for new financial regulations like Dodd-Frank. While I’d venture to say that very few Americans, or even many members of Congress, have any real idea what’s in that new financial regulatory law, it is in the Republican repeal canon just after the new health-care law.
These positions on bailouts and regulation, of course, trace back to the saints of free markets: Milton Friedman and Adam Smith. In their view, markets must be allowed to work unfettered by interference. There may be mass destruction as markets are allowed to hit bottom, but, as in the case of an addict, that is considered the first step toward recovery.
Because, fairly or not, most Americans believe that so far all steps to help the economy and solve the financial crisis have either failed or delayed the inevitable, this traditional Republican view on free markets is enjoying a comeback.
But one very interesting Republican isn’t buying it. Paul Volcker, President Reagan’s Fed chairman and a one-time advisor to President Obama, has a very different take on the European debt crisis. He knows that capital is global, as are the institutions that invest and move it. There are no borders. What happens in Athens and Rome and Madrid doesn’t stay in those capitals. Volcker’s article in the New York Review of Books calls for greater global financial and regulatory cooperation and controls. It is worth a read.
Volcker, of course, wasn’t even welcome in the Obama White House, so doubtful he’ll be joining a Republican administration anytime soon. For now, the Republicans’ attitude toward Europe’s financial issues may be good politics, bad policy.