Magical Thinking

This is what policy paralysis looks like. From the FT’s ongoing coverage of the eurozone crisis:

8.40: Another day, another fudge. Or so cynics might think following the latest eurozone finance ministers’ decision on Greece. After meeting until late into the night, ministers from the 17-member common currency area agreed to – yup you guessed it – wait a bit longer before deciding what to do.

Sometimes bad policy-making takes the form of enacting bad policies. But sometimes it takes the form of doing nothing.

What do the EU’s finance ministers think will be different one month from now? Do they expect that between now and then Greece will find a secret treasure chest that will enable the Greeks to miraculously reduce their budget deficit? Or that investors will just get bored of the whole eurozone debt crisis, go on a nice holiday for the rest of the year, and stop applying pressure to fix anything?

I realize that this will probably sound like a truly horrible insult (particularly to European policy-makers themselves) but I can’t help but be reminded of the magical thinking that characterized so much of George W. Bush’s policy-making, who regularly avoided making difficult policy choices due to the apparent belief that things would just get better on their own. It seems that many European policy-makers are hoping for such a similar magical resolution to the eurozone debt crisis.

Either that, or it’s nothing more than simple procrastination.

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About Kash Mansori 46 Articles

Who is this guy, anyway? And is Kash his real name?

Yes, Kash Mansori is my real name, and I've been writing online about economics since 2003, with a few breaks here and there. After receiving my PhD in economics in the late 1990s, I did a tour of duty as an economics professor at a small liberal arts college in northern New England. The charm of 6-month long winters eventually wore off, however, and I left the academic world in order to move south to warmer climes. I now live in North Carolina and make my living providing economic consulting services, primarily to US and European companies in the manufacturing, high-tech, and finance industries. I have a couple of kids, I enjoy cooking, and I have maps hanging all over the walls of my house.

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