Technology – My Continuing Linux Journey

There’s a term in the Linux/BSD community for people who do what I’ve been doing since late November: “Distro-Hopper”.  I have downloaded and tried so many variants of Linux and BSD that I have lost count.  The habit could really be addictive for some people, but I have too short of an attention span to fiddle with new operating systems constantly, so at some point I just want to settle on one (or two, or three, or…) and move on with life.

To frame the discussion of Linux distributions, it’s useful to understand the core systems on which most of the popular distributions are based.  There are several major Linux base distributions, each of which has spawned a family of variants:

·      Slackware – This is the oldest major Linux system still active.  The most popular variant is openSUSE, sponsored by Attachmate/Novell, which offers an enterprise version for corporate servers.

·      Debian - The core system is a true non-commercial project run by volunteers.  The most famous variant, Ubuntu, is the product of Canonical Ltd.  Ubuntu has one of the largest user bases of any Linux variant because it is designed for non-technical users and has excellent support mechanisms.  Ubuntu serves as the base for many other distributions, including several *buntu’s with different desktop environments and the superb Linux Mint family.  Debian itself is the base for a plethora of systems, and is a very popular OS in its own right.

·      Red Hat – Fedora is the open-source core of this family, which serves as the testing ground for Red Hat Enterprise Linux.  Some other important distributions that trace their origins to Red Hat include Mageia and PCLinuxOS.  There are also a number of open-source RHEL clones such as CentOS, Springdale, and Scientific Linux.

·      Gentoo – Appealing to developers and other systems professionals, Gentoo is both fast and elegant, but less appropriate for non-technical users.  Sabayon and Calculate Linux are two distributions that attempt to make Gentoo more accessible, while Funtoo is something of an “improved” Gentoo (by the originator of Gentoo).

·      Arch – Arch is a system that has great appeal to advanced users.  There are a few attempts at bringing Arch to the masses, such as Manjaro, but in general Arch is largely Linux for experts.

In addition to Linux, there are several systems available based on BSD Unix, which are a subject for another day, and quite a number of other smaller Linux versions that are not based on any of the major core systems above.

Over the course of two months, I installed and played with at least 15 different operating systems and explored nine desktop environments.  Suffering from a bit of install fatigue, I took a break to think through what I’ve learned and step away from the prejudices I picked up through the process.  Every system I installed can be made to function as well or better than Microsoft Windows, so selecting the appropriate operating system for a given PC should include such factors as hardware support; performance; ease of networking with Macs, Windows PC’s, and printers/scanners; ease of maintenance and system upgrades; stability, and availability of your preferred desktop environment.

My test computer offers some challenges to an open-source operating system.  An HP Mini 311 netbook, it runs a slow Intel Atom 270 processor (32-bit, but multi-threaded) with 3 GB of RAM, nVidia Ion graphics, Gigabit Ethernet, and a Broadcom dual-band 802.11n wireless card plus Bluetooth.  The two primary hardware issues are the low speed & power of the CPU and the Broadcom wireless card.  Support for the nVidia graphics, the touchpad, and Bluetooth has not been a problem.  The Broadcom wireless card is a major problem, because Broadcom’s relationship with the open-source community has been poor.  As a result, some the “best” systems I have tested require a special set-up sequence to make the wireless card functional, and many support only the much slower 802.11g protocol initially.  Since the Mini is only rarely connected to Ethernet, the ability to have fully functional 802.11n wireless networking operating is extremely important to me.

When I wrote my last article, I was using Linux Mint Debian Edition with Mint’s own Cinnamon desktop environment.  The Mint project provides an extremely popular operating system based on the similarly popular Ubuntu version of Debian.  The standard Ubuntu-based versions of Mint are among the best systems available for non-technical users, with easy set-up, great support of hardware, and a superb user community.  Mint also offers a couple of versions based directly on Debian itself rather than on Ubuntu.  The benefits of the Debian Edition Mint distributions (“LMDE”) include greater speed and efficiency and a semi-rolling release model, at the expense of losing compatibility with the Ubuntu software repositories, having a bit less polish, and having a slightly increased risk of instability.   Based on my own experience, I think Linux Mint is one of the best systems for those new to Linux, while LMDE requires either a decent amount of experience or a willingness to learn much more about the system.

I do like the “rolling release” concept that LMDE offers.  Most systems, such as Ubuntu or Fedora, have a relatively fixed schedule on which they offer new releases.  Ubuntu, for instance, publishes a new version every six months and offers security and bug-fixes in between as necessary.  The primary issue with that model is that updating to a new version can be difficult and may require the equivalent of a complete re-install, with a significant amount of effort to re-implement any changes you made to your system.  With a rolling release, you install the system once, and updates occur whenever a packages’ latest update passes the scrutiny of the operating system’s QA team.  (LMDE actually follows a slightly different model they call semi-rolling release in which they issue “update packs” occasionally that have been carefully tested prior to release.)  The resulting system is slightly less likely to be bug-free but saves the effort required by a complete reinstallation every time a new release is issued.  I’ve been very pleased with the semi-rolling- and rolling-release systems I’ve tried, and intend to stay with that model.

Eventually I left LMDE for a couple of reasons: first, even with the layer of Ubuntu code removed, the system ran a bit slowly on my netbook, and second, the Cinnamon desktop environment seemed to have some bugs that forced occasional reboots.  Having begun this journey to escape Windows reboots, I did not see the benefit of moving to another unstable environment.  I think the Cinnamon DE is very appealing and as it matures I believe it will remain extremely popular, but for my HP Mini it is just not the right choice at this point in its development.

I have tried many of the major desktop environments, including Gnome 2 and 3, Unity, Xfce, LXDE, Enlightenment, MATE, and KDE 4 in addition to Cinnamon.  Of these, KDE stood out as the most natural interface for me.  I found that KDE combined with an efficient operating system works extremely well on my netbook, and I will use KDE as my standard interface going forward.

My favorite operating systems are openSUSE 12.3, Sabayon, and SolydK, all running KDE 4.10 and each based on a different branch of Linux.  In addition to KDE, all three of these distributions share a visual elegance that many others lack.  The effort that went in to making openSUSE, Sabayon, and SolydK visually appealing is immediately obvious when you compare them to other distributions.

Sabayon attempts to provide a stable but leading edge system based on Gentoo Linux that is simple enough non-technical users can run it.  In a normal Sabayon installation, the system can be updated once a week to pick up new updates that have been tested and approved by the Sabayon team.  Users not comfortable with the command line have access to updates and additional applications through an excellent GUI tool called Rigo, but updated kernels are installed through the command line.  In my opinion, if Sabayon is installed and set up by a reasonably astute person it could be run by most people with little assistance. 

openSUSE is the open source “lab” for Attachmate/Novell’s SUSE enterprise product that competes with Red Hat Enterprise Linux.  While Red Hat seems to be well integrated with the Gnome community and its GTK underpinnings, SUSE and openSUSE seem to have a similar close relationship with KDE and QT.  Red Hat and Fedora support and offer KDE as an option, and openSUSE and Novell support and offer Gnome, but I have the sense that Red Hat views Gnome as their primary environment while openSUSE focuses more on KDE.  As a result, it is not surprising that openSUSE’s KDE implementation is one of the best available.  The installation and set-up process would likely prove daunting to a total newcomer to Linux, but once installed openSUSE is a rock-solid system that would be ideal for the non-technical user.  Because of the relationship with Novell and SUSE, openSUSE is likely to be around for quite awhile, the support community is huge, and the documentation is excellent.  The Tumbleweed variant of openSUSE offers a rolling release model that keeps up with more recent application and KDE updates, so users have a choice between running the latest and greatest or staying with the stability of the point releases.

Finally, SolydK is a brand-new distribution based on Debian’s testing branch.  The leader, Schoelje, maintained an unofficial KDE version of Mint Debian, and used the LMDE base to create SolydK.  He added an Xfce version, SolydX, when LMDE dropped support for that desktop environment.  Schoelje has an art/design background so the Solyd products look great and will likely continue to improve in visual design.  Debian places a very high priority on stability, so systems built on Debian (other than those, like siduction, that are based on the experimental branch of Debian) tend to have older versions of software and an older kernel.  Therefore a standard implementation of SolydK is likely to have older versions of the Linux kernel and significant application software than Sabayon or openSUSE.

SolydK supports my Broadcom card from the initial boot – one of the benefits of being derived from Linux Mint Debian Edition.  openSUSE and Sabayon initially default to a driver that supports older Broadcom wireless cards, and shifting them to a different driver with the appropriate firmware took some effort and some research.  openSUSE cannot “ship” with proprietary codecs to play MP3’s and DVD’s, but instructions to add these with a simple command are well-documented on openSUSE’s site. 

For people new to Linux, one other distribution deserves mention: PCLinuxOS.  A rolling-release, this operating system’s core team focuses on providing an extremely stable system that is immediately useable.   Like Linux Mint’s support community, the PCLinuxOS community is very friendly and supportive and the system works well from the initial installation.   Among the beginner-friendly systems that I tried these two stood out.

I have a few other systems I’d like to try, including Mageia 3 and Korora, which is an easy to use version of Fedora.  When I have more time I hope to play around with Gentoo and/or Funtoo – a user builds these systems for a specific computer by compiling the operating system from source code.  As a result a Gentoo or Funtoo system can be extremely efficient.  I also want to work more on “siduction”, a fast rolling release based on the “unstable” (or leading-edge) branch of Debian, named “Sid”.  I installed it earlier, but struggled to get my Broadcom wireless card operational.  The siduction team has some good documentation and the people are great; the process forced me to learn a lot about config files and get more comfortable with the command line but after a while I realized this system demanded a higher level of knowledge and more spare time than I possess.  Working with siduction would improve my understanding of Debian-based distributions if and when I have more time.

I have chosen openSUSE as my main operating system.  My installation of version 12.3 worked flawlessly, and after a week or two I converted it to the Tumbleweed rolling-release variant with minimal effort.  I worked through the process of enabling the Broadcom driver for my wireless system largely by reading multiple sources, but I believe the openSUSE community would have solved it for me more rapidly had I asked.  The sheer volume of documentation available can be a little overwhelming, but the people on the forums are awesome.

After reading reviews and other comments, I believe I came to openSUSE at a propitious time.  In version 12.3 the elements come together to form a polished and stable operating system that strikes a good balance between offering up-to-date applications and OS technology on the one hand and providing a solid and dependable system on the other.  And it is efficient enough to run a full-featured KDE implementation on the relatively limited resources of my netbook with excellent responsiveness.  I would recommend openSUSE to any Windows user with a decent level of technical knowledge as the perfect antidote to Windows 8.

Silence on the Economic Front?

Several friends have asked me “Why have you not written more articles on economics? To which my answer is simple: nothing has changed. The central banks of the major economies are still engaged in a money-printing race to debase their currencies. Leaders in the EU continue to kick the economic can down the road and to lie to their public as they move to emasculate each country's tenuous grip on democracy and put European government in the hands of the EU bureaucracy, a group of elitists who are not answerable to an electorate. In the US, legislators and bureaucrats with no concept of economic reality are pushing the United States past a point of no return. So, rather than continue to write repetitive articles on an unchanging and demoralizing economic situation, I have decided to write about something else.

Computer Operating Systems, Part 1: Mac OS X vs. Microsoft Windows

One of my new projects: explore options to replace Microsoft Windows. Earlier this year, my company-provided laptop experienced multiple Windows 7 crashes each week, including the infamous Blue Screen of Death, or “BSD” as it's known in the computer community. One night I came home to learn that both our primary computer and my wife's laptop had crashed with BSD's following a Microsoft Windows update. Even more exciting, neither would boot from the hard drive; even Safe Mode was unavailable. I spent the next weekend working through alternatives and finally restored our primary PC to semi-functionality late Sunday night. It still hangs about 30-50% of the time when trying to bring up Windows, but aside from that it's relatively stable. The laptop restoration went much quicker since I could bypass the trial and error, and subsequently returned to a normal level of MS Windows “reliability”.

My disgust with this situation led me to purchase a MacBook Pro for work in August. We had tested a MacBook at home a few years ago, but at the time my wife was not ready to move to OS X's heavily mouse-driven environment so the MacBook ended up in the hands of our daughter. Because of that experience, I knew going in that I would lose most of my keyboard shortcuts. However, Microsoft had already butchered many of those in the transition from Office 2003 to Office 2007, and of course the Mac OS has many of its own keyboard shortcuts.

The initial learning curve on the Mac was extremely short; I was largely functional on MS Office immediately, for instance. Setting up access to a couple of Corporate programs with no Mac clients was a one-time event with Parallels and Windows 7. I have experienced a few inconsistencies with MS Office documents created on Windows machines, but none have been show-stoppers. The integration of the hardware and operating system is superb – the great benefit of Apple's closed system design. I was so impressed that for a time I considered replacing all the computers at home with Mac's. However, three factors prevented me from making that decision: first, the selection of Mac's is very limited compared to the non-Apple world; second, the hardware is nose-bleed expensive. Third, Apple's overall business practice philosophy is not supportive of the user base. Essentially, Apple is telling the world: “We know what you need. Shut up and do what we tell you.”

One other point of interest on the Mac. Apple specifies a “Style” doctrine that programs for the Mac should follow. If software developers follow the style guide, their programs share a common look, feel, and command structure with other Mac programs. For the most part, Microsoft's Office suite ignores the Apple style. Interestingly, though, they ignore the style of MS Windows' Office as well. So a new user coming from Windows gets the opportunity to learn a new operating system while learning a new set of commands for their productivity suite as well.

Other major developers provide programs for the Mac that fall far short of the Windows version. Intuit, for example, offers only a brain-damaged version of Quicken for the Mac, and no support for QuickBooks Enterprise Edition. Those considering the Mac should definitely research their key programs for Mac versions or alternatives before making the leap. For most users, however, I think the Mac is a viable, easy-to-use, and stable alternative to MS Windows, for those that can afford it. I purchased a MacBook Pro for my oldest son to take to college, and have recommended Macs to friends frustrated with Windows.

Computer Operating Systems, Part 2: Other Alternatives to Microsoft Windows

Out of the box the Mac will not play Windows movie files, so I found an open-source application that would handle them: VLC. (There's a saying in the computer world that if VLC can't play a file then it isn't meant to be played.) Then I checked up on OpenOffice, an open-source replacement for MS Office, and found its Mac-specific variant called NeoOffice. Microsoft does not offer Access for the Mac, but you can get a free database program as part of either OpenOffice or NeoOffice. As I explored the open-source world, I read a great deal about Linux, which I'd not looked at in years. So I decided to spend some time in the Linux world to see if it was a viable alternative to Windows, not just for me but for less technical users.

Between Thanksgiving and New Years, I tried at least 10 variants of Linux, most on a three- or four-year-old HP 311 netbook. (Note that 10 is a small fraction of the number of Linux variants available.) I used the netbook as my primary testbed because it is not a mission-critical computer for me, and because I have a couple of spare 2.5” hard drives I can easily swap in and out. I focused on popular distributions that were identified to be easy to install and use. They ranged from CentOS, an open-source version of Red Hat Enterprise Linux used by corporations to run critical tasks, to several distributions designed for non-technical people switching from Windows. Some were easy to install, others needed more effort, but eventually I was able to get every variant operational.

I won't go into any depth in this article on the various distributions I have tried. For the time being I have settled on two systems I intend to test in greater depth: I have Linux Mint Debian (LMDE) running the Cinnamon desktop environment on my netbook, and I've installed PC-BSD Unix on our main computer with the KDE desktop environment. BSD Unix is a robust and stable operating system developed in a very different manner than Linux, so it will be interesting to explore how the different design philosophies affect the user experience.

My goals for a replacement system include:

1. Support for key hardware and my home network,
2. Stability and ease of maintenance,
3. Easy to teach to non-technical users, and
4. Adequate replacements for our key applications

• Office suite (LibreOffice)
• Personal finance
• MP3 library/iPod sync
• Photo editing & organization
• Video player (VLC)

Some applications are easy – web browsing and email, for instance. In the spreadsheet/word processor/presentation category, LibreOffice is closer to the best (2003) version of Microsoft Office than the last two versions Microsoft has sold. And it comes with an excellent database program. Other categories have a number of options to explore, like the alternatives to Quicken.

And so the journey begins.

Opinion - The ECB's "Quantitative Easing"

This week the European Central Bank provided private European banks with unlimited access to funds at a low interest rate for a three-year term.  The banks responded by absorbing nearly 500 billion euros of these loans, pledging their worst assets (including sovereign debt of the southern European countries) as collateral to the ECB.  The ECB’s action staved off an imminent bank liquidity crisis in Europe, reducing one source of recessionary pressure on the European economies.  I could write a short book on the ramifications of this action, but I’ll limit this article to a few key points: first, this was an intervention of massive significance; second, it was a necessary step in the short term; and third, it does nothing to address the underlying issues and thus only pushes back the final day of reckoning.

The ECB is restricted by law from becoming the “lender of last resort” for the countries of the Eurozone, but can intervene to provide liquidity to the banking system.  By this action, however, the ECB has violated the spirit of the law by indirectly supporting the southern European sovereign debt markets, accepting their debt as collateral and providing private banks with cheap money in return.  This has transferred the risky sovereign debt from the private banks to the ECB, stabilizing the private banks’ capital situation and simultaneously driving down the interest rates on sovereign debt.  The prime directive of the ECB is to ensure that inflation does not get out of hand, but this action is a massive move toward an inflationary policy.  This is a significant change in policy as the ECB has acted to live within the letter of the law while violating its prime directive.

The private banks were brought to this crisis by the European bank regulators, who assigned sovereign debt assets a zero-risk rating.  As a result, private banks invested heavily in the debt issues of weaker Eurozone countries since their bonds offered higher returns.  (Note that the higher returns implied a market judgment that these bonds had higher risk!)  When the quality of the debt of countries such as Greece came into question, the French and German governments were suddenly faced with the possibility of domestic bank failures should Greece default on its loans.  In addition to the threat to the shared euro currency, a default would force the France and Germany to bail out their private banks.  Led by France and Germany, the European Community reacted with a series of bailouts for Greece.  Unfortunately, the imposition of strict austerity measures in Greece in return for bailouts did not address the key underlying issues that created the Greek government debt crisis.  Noting the ineffective (and counter-productive) response of the European Community to the Greek sovereign debt crisis, the bond market traders spread the crisis to the other troubled southern European countries of Italy, Spain, and Portugal.

As the debt crisis deepened, the European banks found their access to traditional refinancing (or wholesale debt) markets increasingly limited, because the banks held large amounts of Eurozone sovereign debt – the market recognized that one or more sovereign debt defaults could force many of the European banks into bankruptcy.  This withdrawal of wholesale debt providers from the European bank market forced the ECB’s extraordinary loan program to supply liquidity to the European banking system.  With the economies of Europe moving back into a recession, the loss of liquidity in the European banking system would intensify the recessionary pressures as funding for both private and public debt would contract.

One major consequence of the ECB action is the transfer of default risk on Eurozone sovereign debt from the private banks of Europe to the ECB.  Moreover, since the ECB is legally the first priority lender, this action has reduced the value of Eurozone debt held by other parties; in the event of a Eurozone government default, the ECB will be paid before other debt holders.  Thus the wholesale debt markets will now be even more unlikely to supply credit to European banks, forcing the banks to increase their future dependence on the ECB for funding.  Similarly, the private market for Eurozone government debt has become less attractive because private holders of troubled country bonds are now subordinate to the ECB.

Finally, the risk of default by the troubled Eurozone countries has not diminished; the risk has simply been transferred from the private banks to the ECB.  And the backstop for the ECB is the combined resources of the Eurozone countries; rather than bailing out their private banks, Germany and France could be forced to bail out the ECB.  Ultimately, the taxpayers of the Eurozone will have to pay the bill, either through increased taxes or increased inflation (or most likely both).

The ECB action was required to prevent the European banking system from freezing up over the next few weeks, (and the ECB will be forced to continue it in future months), but this Euro version of the Fed’s Quantitative Easing program will have many ramifications both for the debt markets and for the economies in Europe.  By printing money on this scale the risk of future inflation has risen, and the transfer of questionable assets from the private banking system to the ECB has not decreased the overall risk to the Eurozone system.  Mario Draghi chose the lesser of two evils in pursuing this course, but it’s clear that he is aware of the tradeoffs and is not pleased with having been put in this position by the incompetence of the Eurozone governments.  The ECB has kicked the can further down the street, but this has merely delayed the inevitable reckoning.

Technology: Synchronize Your Email (and more) on Multiple Devices

If you are like me, you use more than one computer plus mobile devices such as smartphones and tablets, and you likely have more than one email account.  I would often receive notice on my mobile phone of an email on my personal email account while at work.  To respond, my options were to wait until I could get to my home PC, access Verizon’s terrible web mail client from work, or use the tiny keyboard on my phone.

Then I found an elegant solution to the problem with Easy-Email.  Now I can access all my email accounts on all my computers using Mozilla’s Thunderbird email client, and the changes I make are automatically synchronized among all my devices.  (And I’m not limited to Thunderbird; I’ve also set up the solution on Outlook before moving back to the speed and power of Thunderbird.)

The gents behind Easy-Email provide guides that contain step-by-step instructions for setting up a robust, multi-computer, multi-account email solution.  Essentially, the solution employs the advanced email capabilities of Google Gmail in conjunction with the major email client of your choice to consolidate your accounts.  Gmail serves as the central repository while your email client on each computer reflects any change made to your email folders.  Note that all the email you receive or send is available on each computer you set up in the system.  That is, you can send an email from one PC and have that email available in the Sent folder on every other PC.  In my case, I can send and receive email from my work PC, laptop, netbook, and home PC on any of my four email accounts, in addition to my iPad and mobile phone.  I’ve also set up my contacts and calendar using another guide from Easy-Email with similar synchronization capabilities.

I have encountered a couple of minor issues with the system I’ve set up.  First, running your email through Google Gmail can delay incoming messages; the delays I’ve experienced have ranged from a few minutes normally to an hour or more on occasion.  Second, I have run across one strict mail server that seems to dislike Gmail and rejects random messages.  For my purposes the benefits of the email system outweigh these minor drawbacks.  Your mileage may vary.

The guides are well-written with plentiful screen shots, and the authors respond to questions on the site’s forum quickly.  The cost is minimal, so you can try it without a huge investment.  To learn more, check out the Easy-Email site at: http://www.easy-email.net/  You might find solutions to multiple annoyances you just live with today.  (Note: This article was written earlier this year for another purpose.)

Opinion - The Euro Crisis: Cause and Possible Resolutions

In the last two months, a break-up of the euro has moved from a notion derided by the European elite, to an event that seems almost inevitable.  In reality, the inherent flaws of the current Eurozone system made this crisis inevitable, and there exist only two possible outcomes: (1) the 17-nation Eurozone (EZ), or some subset, moves to complete economic union, or (2) the weaker nations begin to exit the common currency.

In the current structure of the EZ, the euro represents a basket of independent economies, some of which are stronger (e.g. Germany) and others which are notably weaker (e.g. Greece).  As a result, the Euro’s value in the world market reflects that overall mixture of strong and weak economies and provides the strong countries with an undervalued currency and the weak countries with an overvalued currency.  This has worked quite well for the core northern countries like Germany, Finland, and the Netherlands which have seen their exports increase dramatically, improving productivity and generating significant trade surpluses, to their economic benefit.  According to Austan Goolsbee, professor of economics at the University of Chicago, Germany’s exports as a percent of total Gross Domestic Product (GDP) grew from 29% in 1999 to 47% in 2008, and “its net export contribution to GDP (exports minus imports as a share of the economy) rose by nearly a factor of eight.”  Much of these exports have gone to the southern countries of the EZ.  Goolsbee further notes that in three key southern countries, Spain, Italy, and Greece, the export percentages of GDP have either increased slightly or have fallen over that time period.  Essentially, this means that industry and jobs have moved from less productive regions such as Greece to more productive regions, such as Germany.

The threatened countries share some key characteristics, including restrictive labor laws and an uncompetitive workforce, over-regulation of industry and the economy, and over-taxation, the sum of which has led to economic stagnation and high unemployment.  Exacerbating these economic fundamentals are massive welfare entitlements that are unsupportable by the slow- or no-growth economies, resulting in a ballooning debt load.  The current euro crisis began when investors realized that Greece could not possibly generate the economic growth necessary to retire their current debt, much less their massive future obligations.

Separate sovereign currencies help regulate imbalances caused by disparate economies.  For instance, over the last decade Germany’s mark would have increased in value compared to the Italian lira, lowering the competitiveness of German products and slowing Germany’s growth in exports.  Italian goods would have gained competitiveness from a properly valued currency, and the current account imbalance between the two countries would likely have been much smaller.  Italy’s debt issue would not be solved, but would be partially mitigated by the devaluing currency with the concomitant inflation reducing the value of the debt.  They would be paying off debt with ever-cheaper lira.

Under the terms of the European Union bailouts, Greece, Italy, and Spain are being forced into dramatic budget cuts and tax increases, the latter of which will retard their economies even further and force more cuts and tax increases in a vicious cycle.  This counterproductive response is illustrative of the misguided Keynesian economics professed by the EU bureaucracy, which has also added to the debt crisis through its reliance on “stimulus” programs which increases sovereign debt with minimal to no effect on economic growth.

Interestingly, Nouriel Roubini, professor of economics at New York University, predicted this situation in 2006: “ . . . if Italy does not reform, an exit from [the euro] within five years is not totally unlikely.”  He continued: “Italy faces a growing competitiveness loss given an increasingly overvalued currency and the risk of falling exports and growing account deficit.  The growth slowdown will make the public deficit and debt worse and potentially unsustainable over time.  And if a devaluation cannot be used to reduce real wages, the real exchange rate overvaluation will be undone via a slow and painful process of wage and price deflation.  But such deflation will keep real rates high and exacerbate the growth and fiscal crisis.  Without necessary reforms, eventually this vicious circle of stagdeflation would force Italy to exit [the euro], return to the lira and default on its euro debts.”  Roubini summarized his prediction: “If Italy were to exit [the euro] this effective default on domestic and external – public and private – euro debt obligation would become unavoidable.  And a sovereign nation is able to follow such policies – [euro] exit, return to national currency and effective default on euro debt – regardless of any legal or formal constraints that the [EZ] treaty imposes in terms of no exit clauses.”  That means as a sovereign nation Italy still has the ability to break the EZ treaty when they realize it is in their best interest to do so.

At the formation of the euro, Milton Friedman, one of the greatest economists of the twentieth century, noted the fundamental flaw of the structure: “The exchange rates between different currencies provided a mechanism for adjusting to shocks and economic events which affected different countries differently.  In establishing the common currency area, the euro, the separate countries are essentially throwing away this adjustment mechanism.  What will substitute for it?”  He continued: “ . . . the more likely possibility is that there will be asymmetric shocks hitting the different countries.  That will mean that the only adjustment mechanism they have to meet that with is fiscal and unemployment: pressure on wages, pressure on prices.  They have no way out . . . with the euro, there is no escape mechanism [of sovereign currency devaluation].”

Thus without a substantial change in the substance of the EZ, either the weaker countries will be forced to abandon the euro or a core group of stronger countries will abandon it for their own new common currency.  The alternative is a move to complete economic union and much greater political union: a true United States of Europe.  The current proposals of “fiscal oversight” by Brussels are, of course, wholly inadequate; at some point a non-governmental, unelected bureaucracy will be unable to force a sovereign nation into certain actions.  Once that line is reached, a country’s government or its people will balk.  In the long run, nothing short of a surrender of fiscal sovereignty to the EU by all the EZ governments can save the euro.

The dollar succeeds in the United States because the states of the Union have surrendered their economic sovereignty to the federal government.  Economically, this means that the more productive states like Texas engage in a constant transfer of money to the less productive areas (think Detroit) through the federal government.  This occurs within the various European countries now: the industrial north of Italy essentially subsidizes southern Italy.  In a United States of Europe, money from Germany and the other highly productive areas would go to the less productive southern countries.  What is uncertain at this point is whether Europe’s people are ready for this massive step.  The relatively modest bailouts thus far have already created ill will among the taxpayers of Germany, and the overall price tag of fixing the EZ’s debt issues will be an order of magnitude greater.  On the other hand, the governments and bureaucracies of the European countries are totally committed to the EU and to ever-increasing bonds among the community, so this scenario is not completely impossible, particularly if the EU manages to finesse the necessary treaty modifications and avoids plebiscites. 

To summarize, the original concept of the common euro currency was flawed from its inception as was noted by non-Keynesian economists from the outset.  The removal of the mechanism of variable exchange rates without imposition of a federal European sovereign power rendered the current crisis inevitable.  Resolution will occur either through a dissolution of the common currency or a move to a significantly stronger economic union with a surrender of fiscal sovereignty by the EZ nations to a federal entity. 

Book Review of “Sovereignty or Submission”

Daniel Hannan, a British author, journalist, and Member of the European Parliament, wrote this review of a book by John Fonte entitled “Sovereignty or Submission”.  Fonte explores the trans-nationalism movement and the shift of sovereignty from the elected governments of countries to the bureaucrats of entities like the UN and the European Union.

In the last few weeks we have witnessed the removal of two elected governments in Greece and Italy, replaced by EU technocrats without an election.  The Prime Minister of Greece was removed for suggesting that the Greek people be given the opportunity to vote on the economic reforms “required” by the EU.  Democracy is anathema to the Brussels supra-national government, and the EU is thus the poster child for the dangers Fonte discusses.

Daniel Hannan, by the way, is author of a book entitled “The New Road to Serfdom: A Letter of Warning to America” in which he describes the ills of EU-style socialism and warns the US to reject Barack Obama’s attempt to impose it on the US.

Hannan's review of "Sovereignty or Submission"