Willem Buiter, who has some expertise in dodgy debtor nations, has a typically insightful post today, "Fiscal expansions in submerging markets; the case of the USA and the UK."
Despite the dry title, what is noteworthy is that Buiter discusses in some detail how corruption, both in the government and society, limits policy choices. Put simply, diseased leadership has trouble pulling a country out of a debt crisis because no one trusts that they will do the right thing (and frankly, why should they?).
Buiter makes a compelling case that lack of credibility has real costs, and uses it to bolster his argument that the US and UK should not go on the kind of whole hog spending spree that most orthodox economists are demanding right now. He thinks a currency collapse, a scenario that most would dismiss as impossible for the dollar, is in fact probable at higher deficit levels in part because creditors and investors know the US and UK lack the discipline to trim the sails soon enough.
While Buiter does not frame it this way, in effect he is saying that the downside of doing too little (deep recession and/or very sluggish growth) is preferable to doing too much (high inflation and the risk of collapses in major currencies.
But the most important aspect of the post is not the policy implications, but the fact that a Serious Economist has finally said that the lack of scruples in America and Britain has gone beyond the tipping point, and is going to exact high societal costs. The parasites are eating the host. I hope someone out there is taking notice.