Monday, June 25, 2012

PIIGS: the Original Acronym and the Original Proposition

If one thinks back several years to when the acronym PIGGS was coined [Portugal, Ireland, Italy, Greece and Spain] the original proposition put forth was: a debt train wreck involving the PIIGS. Keep this in mind for a moment.

Now consider the many talking heads, pundits and those supposedly in-the-know explaining very assuredly that the EU would “talk” it out and negotiate a deal to avert any supposed debt train wreck.

However, each deal that was supposedly in the pipeline, when hatched, ended, in the main, in yet another deal which lead to another deal and so on which did nothing to solve the crisis. That the debt train wreck would be adverted, really became, a cascading series of “talk” that amounted to more “talk” but never stopped the impending debt train wreck.

One should consider Dr. Frank Knight’s proposition of the First Law of Talk: "Talk is cheap and it drives out talk that is less cheap."

Note: Frank Knight was an economics professor of both Milton Friedman and James M. Buchanan. Both Friedman and Buchanan are Nobel Prize winners in economics.

“Frank Knight humorously hypothesized that this idea about bad and good money could be applied to communication. "Cheap talk" was easily manufactured and it tends to drive out more reasoned talk because the response to cheap talk is more generally even cheaper talk that is yet more inflated. This law can easily be seen in action in the realm of politics and diplomacy. It also applies to academic arguments that generate a certain amount of vitriol.” (1)

Returning to the original proposition regarding a debt train wreck associated with the PIIGS, were the talking heads, pundits and those supposedly in-the-know advocating cheap talk? Was the more reasoned response the original response of: a debt train wreck?


(1) Frank Knight's First Law of Talk

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