Comment by nawitus | Hacker News Reader

Comment by nawitus | Hacker News Reader

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>In fact, you can see this difference play out in slow motion in the Eurozone, which still has not recovered from the financial crisis. Things would have played out very different had their been a Eurozone federal government that provides at least the basic components of the social safety nets.

I don't understand this argument. Are you claiming that there's no social safety nets in Europe? There are and have been and will still be without a federal government (although I like to argue we already have a defacto federal government).

Just because individual member states provide their own social security and finance it through borrowing money from the central bank(s), doesn't really seem that different from a federal government directly providing social safety nets. In fact, most member states have a way better social security net than United States. I could, in theory, just stop working today and get paid about $1200/month in addition to things like practically free health care and university education. Of course, there are poorer member states that have worse social security.

The issue is with the ability to issue currency, not with the social safety net. The sentence that you reference is a little misleading. What was implied, was that if the Eurozone had a federal government with the ability to issue currency, and that same government was also in charge of the social safety net (among other programs), then there wouldn't be as much of a crisis because they could print money to pay for the programs. Because the social safety nets are implemented by the individual countries, and those countries cannot print their own currency, they are currently forced to implement austerity measures. This is why recovery has been so difficult. The last thing you want to do is to cut spending during a recession.

Thank you for helping with a clarification.

I would add the following: If there had been a federal government, then that government would not even have had to do anything that looked like "printing money" in public discourse.

This is because this federal government would not have had any trouble issuing new debt in the form of bonds. Why not? Because everybody would have known that the European Central Bank would effectively guarantee those bonds under any condition, and therefore there would not have been a panic about the debt in the first place. It's all a psychological game.

As evidence, consider that the fiscal policy part of the US federal government has not done anything that looks like "printing money" up to this point. All they have done is issue bonds, i.e. get loans from creditors.

Yes, the Fed has done things that look like "printing money", but that's monetary policy which has nothing to do with social safety nets.

You can "print money" by loaning it from the central banks, which individual member states certainly can do. In fact, that's what all EU members are doing.

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