The two eyes

Namely Iceland and Ireland.  

John Maudlin writes a newsletter too often to say much of anything new each time, but other than that he's all right.  If you haven't been following the bouncing ball of our little European economic experiment, you can look here for his quick recap and clunky foreshadowing (reality is just such a tawdry and obvious plot device).  I won't bother to quote any of it, because the only thing that interested me was the graph, which you can see above.  Some folks will look at this chart and say that the Irish are a bunch of stubborn idiots for not simply defaulting, and they will point to Iceland as a sort of success story by comparison.  

I dealt a bit with this logic back when I saw folks implicitly or explicitly suggesting that Greece should just default, drop out of the eurozone, and get it over with, but perhaps I can refine my point with this chart.   It's not that the chart is wrong or anything.  It's just that it leaves out one very crucial element, which is the real value of savings in the two countries.  

How much tuna and ammo does the 1,000 Krona she had in an Icelandic bank buy Bjork now?  I'm sure there are plenty of Irish who are upside down on their mortgages, just like people are here in the US.  But there really are some middle class folks who have positive net worth.  Those folks might plausibly trade some decline in real wages for the preservation of the purchasing power of their savings.  If you added this factor into your calculation, you might legitimately still reach a utilitarian conclusion that default would be better for more of the population.  But you cannot simply ignore it.  

Of course, all this is a little bit by-the-by; the actual decision making process is not going to be based on an economic calculation at all, but on a political one.

P.S.  There's a whole 'nother discussion to be had regarding whether Ireland should have saved their banks in the first place, or whether they should have only guaranteed Irish depositors and let everyone else go screw, but that gets complicated.