What does a universal language have to do with sovereign debt crises?

As has been mentioned on this blog (and countless other places over the past few months), Greece and other heavily-indebted members of the Eurozone are faced with a uniquely difficult road ahead. Why? Because it’s very hard to lower debt as share of GDP if the economy isn’t growing, and these countries’ available options for stimulating growth are limited. Specifically, individual members of the Eurozone can’t devalue their currencies in order to make their exports more competitive (because they’ve got the euro of course), and can’t ease monetary policy to encourage consumption and investment over savings in rough times (because the European Central Bank determines that for the whole Eurozone). With those options to boost growth off the table, these troubled economies are essentially faced with a choice: painful cuts in government spending that drive the economy even further into recession, or a default that could imperil the whole continent.

This reality — that members of a common currency can’t really use policy to stimulate their economies — is often used to make the case that the Eurozone was a mistake in the first place. After all, how could you have such a big area with so many different kinds of countries with different levels of wealth, and one single currency and monetary policy for all of them?

The interesting thing to me is that this is exactly what we have in the United States, and yet this fact is almost never mentioned. After all, we have 50 states, all of which share the dollar as a common currency, and all of which take a single monetary policy from the Federal Reserve. Similarly, we have states in our US currency union which are rich and others that are poor (median household income in Maryland, for instance, is nearly double that of Mississippi), and some are facing extreme budget pressures (eg. California). Clearly, there are differences between the Eurozone and the US in how public finances are managed. US states can’t run deficits and federal oversight of state finances, of course, are much more intense (Eurozone leaders are headed in this direction); in the US we have plenty of mechanisms to transfer wealth between states via the federal government, so the fiscal burden on poor states is eased; and the US collectively issues its own debt (which Europe doesn’t) so states can effectively borrow with the full confidence of the United States’ ability to pay.

But there’s one more difference between the European and American currency unions which is often forgotten: labor mobility. Specifically, I’m talking about the relative ease with which an American who, when his/her locality or even whole state hits hard times, can pack up his/her things and move somewhere else where the local economy is in better shape. As an example, imagine you’re an auto worker in Michigan, a state where the economy is heavily reliant on the auto industry. The US auto industry comes under pressure from foreign competition, and thus so does the Michigan economy, and you lose your job. Your job making cars may take decades to come back, if it does at all. You could stay where you are and try to find a job doing something else, but there are plenty of fellow Michigan residents just like you looking for work, and there aren’t many options. So what do you do? Well, one option is to pack up your things and move to another state where the economy is in better shape and there are jobs available. It’s not an ideal situation; no one wants to pull their kids out of school. But if enough people do this, the labor pool in Michigan falls, unemployment gets a little better, and downward pressure on wages is partially alleviated. It still might be tough to find a job in Michigan, but it would be a lot worse if people were trapped inside and didn’t have the freedom to look for work elsewhere.

Note that there’s nothing legally preventing someone in Greece from packing up their things and moving to Germany to find a job. The Eurozone made sure it had full labor mobility when it was created, for exactly this reason. But realistically, there’s a big difference between moving from Greece to Germany and moving from Michigan to Texas. There are many reasons for this, but the most basic and important one is that most Greek people just don’t speak German. This is a major issue for currency unions: A country under stress and in a deep recession (eg. Greece) can’t stimulate itself via devaluation or monetary expansion, and its citizens can’t move to where the jobs are because of language and cultural differences. You can have labor mobility on the books, but not in real life.

To me, this dilemma (currency unions not working properly because people can’t understand each other’s languages), provides a new economic implication for Baha’u’llah’s call for a universal auxiliary language (to be taught in schools as secondary to our native languages). Consider Baha’u’llah’s own words on this subject (emphasis below is from me):

The day is approaching when all the peoples of the world will have adopted one universal language and one common script. When this is achieved, to whatsoever city a man may journey, it shall be as if he were entering his own home. These things are obligatory and absolutely essential. It is incumbent upon every man of insight and understanding to strive to translate that which hath been written into reality and action. (Proclamation of Baha’u’llah, p. 115).

This is a great example, in my view, of a Baha’i teaching which is hardly ever associated with economics, but which if applied would have very tangible economic benefits. A universal auxiliary language would effectively lower all sorts of cross-border costs, including the cost of living and working in another country. Just imagine a world where no matter where you move, you can communicate with the locals and actually feel at home.  That would be huge for someone living in a multi-language currency union and who has just lot his/her job. But it would also huge for someone living in a country with its own currency and monetary policy, but where the economy happens to be broken (plenty of developing countries fit this description at present). It’s not a cure-all for the world’s economic problems, but it’s one more piece of the puzzle in terms of how a genuine, deep sense of unity among human beings can help achieve better outcomes.

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3 thoughts on “What does a universal language have to do with sovereign debt crises?

  1. One currency, 27 country and 23 languages? It’s like wagging the the dog. Still I admire it. Just go back 65 years and see how far they have com. I hope it works.

    Iraj

  2. A thoughtful look at the effect of language on the advancing the well being of humanity. In addition to language, their is the effect of attachment to the well being of an individual state over the well being of the Euro zone over all. Clearly the adoption of a single currency is not sufficient to create a unified economy or to relieve the imbalance in the various states. Without the creation of an European identity it is not possible to do more then to remove the inefficiencies of multiple currencies.

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