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Scarcity is a failure of the imagination. Very recently there have been floods in the Western Balkans and the relief effort in Croatia has definitely been hamstrung by the "lack of money". Not lack of people or resources: lack of EUro-pegged fiat money to mbilize them.

In Italy, after the Aquila Earthquake, the Italian government was "forced" to raise fuel taxes in order to pay for disaster relief and reconstruction, because the necessary government expenditure would not be monetised by the ECB.

In Spain, years after the Lorca earthquake, in a region with ample resources idle as a result of the construction sector slump, reconstruction still hasn't begun because of... lack of fiat money.

I am not saying that after a natural disaster the wealth and productivity of the affected community won't be affected. I'm saying that there are two ways for that GDP hit to manifest itself: devaluation of the local currency, maybe inflation; or unemployment and permanent reduction of productivity, risk of insolvency from reduce aggregate income. Hard-money views end up producing unemployment, preventing the repair of damaged fixed capital, and generating a debt overhang through reduced growth. But the currency is "sound".

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sun Jun 1st, 2014 at 07:04:54 AM EST
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