Comment on Uri Dadush and Moises Naim column in the FT

Uri Dadush and Moises Naim are as brave and as intellectually honest as Olivier Blanchard in pointing out that economics fundamentally isn't about absolute prices, but about relative prices.

But there is a way to correct relative prices that requires neither Greece, Spain, and Ireland pulling out of the Euro nor the ECB printing enough money to generate inflation in all the Euro countries apart from these three, who presumably, would keep their prices fixed while those of others rose.

The third option is just to have Greece, Spain, and Ireland cut their prices and wages by the percent by which say, the OECD, judges they are too high. If all Greek price posting, wages, and nominal contracts made between Greeks are reset, say, 30 percent lower than their current value, you have precisely the same effect as devaluing without devaluing. (See my FT Economists' Forum Blog on this.) This could be effected by government decree or by patriotic appeal. The parties that really need to come along are the domestic creditors, who would otherwise experience a real capital gain.

As in any devaluation, foreign creditors will if he country's foreign debt is denominated in foreign currency. So Germany and France should provide assistance to Greece by reducing the payments due on their own or their banks' Greek bond holdings and continuing to do so as long as Greece maintains a responsible fiscal policy as adjudicated by the OECD, the Bank of England, or some other creditable body.

My other comment is that Greece is most likely in better, if not much better, long-term fiscal shape than is the U.S. So the hedge funds who have decided that Greece is heading down the tubes might want to focus on the broader set of liabilities facing countries. I.e., they may want to do long-term fiscal accounting. Were they to do so, they would seen Greece's sale, with the help of Goldman, of future revenues for current receipts, for what it was the minute it happened -- manipulation of inherently meaningless short-term, cash flow fiscal accounting.

If the OECD were to help assist countries to get their pricing in line, it might also want to help them do meaningful long-term fiscal gap and generational accounting, which is very long overdue.