Senior fellow Michael Clemens was mentioned in Ezra Klein's Washington Post wonkblog.
From the Article
Herman Cain, the unlikely leader in the polls, got the night's first question. "Italy is on the brink of financial disaster," said Maria Bartiromo. "It is the world's seventh largest economy. As president, what will you do to make sure that their problems do not take down the U.S. Financial system?"
His answer was 176 words. None of those words were "Italy," "Europe," or "banks." Here's what we did get: "Just like a dollar must be a dollar when we wake up in the morning, just like 60 minutes is in an hour, a dollar must be a dollar." And: "This administration has done nothing but put stuff in the caboose, and it's not moving this economy." These lines sound slightly garbled, as if Cain was struggling to answer an unexpected question. In fact, they're both lines that Cain has used many times before, in response to questions that had nothing to do with Italy or Europe.
Bartiromo turned next to Romney. Same question. "Should we allow Italy to fail?" Romney, at least, had prepared. "We don't want to step in and try and bail out their banks and bail out their governments," he said. "They have the capacity to deal with that themselves."
But what if they don't? That's the possibility that markets are increasingly grappling with. Gavyn Davies, chairman of Fulcrum Asset Management, put it starkly in the Financial Times. "Taken together, the four most troubled nations (Italy, Spain, Portugal and Greece) have a combined current account deficit of $183 billion. Most of this deficit is accounted for by the public sector deficits of these countries, since their private sectors are now roughly in financial balance. Offsetting these deficits, Germany has a current account surplus of $182 billion, or about 5 per cent of its GDP. Viewed in this light, it is clear that there needs to be a capital account transfer each year amounting to about 5 per cent of German GDP from the core to the periphery. Without that, the euro will break up."
But it's hard to imagine a world in which the Eurozone is dissolving and the United States is recovering. Just as our housing crisis pushed Europe into recession, their political crisis could swiftly destabilize our economy. And though Romney was more conversant on the European debt crisis than Cain, he didn't have a contingency plan, either.
"We've got to fix our deficit here," he said. But if Europe implodes and American businesses start firing workers and hunkering down and American consumers begin hoarding money and putting off purchases and then the American government begins cutting its spending, too, where exactly is the demand supposed to come from? Where is the recovery going to come from? It's certainly not going to be exports to Europe.
As in 2008, we're entering another period in the global economy where the unthinkable might actually happen. But we don't seem to be thinking about it very hard. When you talk to participants in the 2008 financial crisis, they lament the seven months between when Bear Stearns fell and when Lehman collapsed. It was wasted time, they'll tell you. We saw the crisis beginning and we had time to prepare for it but we did nothing of the kind. Everyone wanted to believe it would be alright, that we could go on pretty much as usual. Much as we're doing now.
It's still too early to predict the endgame in Europe with any certainty. But what we can say with certainty is that American politics is pretty much going on as usual.