Tyler Cowen writes that we're way past the time when modest measures might save Italy and the eurozone:

Why should another two percent inflation a year turn the tide? The inability to implement any kind of credible rule means that the “in the moment” solution has to be all the stronger. So the “answer,” if that is the right word, is ten percent inflation a year for the eurozone — plus the firehose to Rome — to get the real value of those debts down and quickly. Maybe twelve.

I don’t feel like debating whether this would be better or worse than the status quo; I am content to suggest it probably won’t happen, not even if German and French leaders understand the gravity of the situation, which I suspect they do....It’s a common meme these days that the German leaders “don’t get it,” but I view it in reverse: they’re the ones who understand how grave a problem it is, and how truly hard to fix it would be, which is why they are not doing more. They don’t see the point in pulling out the peashooter against the elephant, and the blunderbuss is not yet available, if it ever will be.

Perhaps. Public statements from various German worthies have been contradictory enough that you can reasonably draw a lot of different conclusions about what they do and don't understand. But Tyler may be right. One plausible interpretation of German actions is that they're simply playing a very high-stakes game of poker. They know it's inevitable that they're going to go all-in at some point, but they want the periphery countries to commit as much as possible to the pot first. After all, even a blunderbuss won't work unless there's a pretty serious willingness to accept substantial fiscal reforms among the folks getting the bailouts.

In a way, the dynamics here are similar to TARP. The serious objection to TARP isn't that we should have just let the banking system collapse, it's the fact that we bailed out our banks with too few strings attached. We should have nationalized them, or broken them up, or insisted on major compensation clawbacks first. This is my guess about what's going on in Germany. They're going to bail out Italy and the others eventually, but they want to have plenty of strings attached. And that won't happen until the level of panic is considerably higher than it is right now.

That's the optimistic view, anyway.

Ryan Avent gazes bleakly across the Atlantic at Italy, and sees only a yawning abyss gazing back at him:

I have been examining and re-examining the situation, trying to find the potential happy ending. It isn't there. The euro zone is in a death spiral. Markets are abandoning the periphery, including Italy, which is the world's eighth largest economy and third largest bond market. This is triggering margin calls and leading banks to pull credit from the European market. This, in turn, is damaging the European economy, which is already being squeezed by the austerity programmes adopted in every large euro-zone economy. A weakening economy will damage revenues, undermining efforts at fiscal consolidation, further driving away investors and potentially triggering more austerity. The cycle will continue until something breaks. Eventually, one economy or another will face a true bank run and severe capital flight and will be forced to adopt capital controls. At that point, it will effectively be out of the euro area. What happens next isn't clear, but it's unlikely to be pretty.

....I hate to get this pessimistic about the situation. It feels panicky and overwrought. I can't believe that Europe would allow so damaging an outcome as a financial collapse and break-up to occur. And I still don't understand why, if this is all as obvious as it seems to me, equities aren't down 20% now, rather than 2% or 3%. But the window within which something could be done to prevent it is closing, and fast. I hope to be proven astoundingly wrong in my assessment, but I'm struggling to see alternative outcomes.

Megan McArdle, after pondering the contradictions of democracy, comes to the same conclusion. Because any plausible solution to Europe's problems must necessarily be hugely unfair to someone, no solution will be forthcoming and our Creditanstalt moment might be imminent:

I used to write about developing countries a fair amount. Time and again they would make these bizarre and pointless moves, like suddenly and for no apparent reason defaulting on a bunch of debt....And the other journalists and I would cluck our tongues and say "Why can't they do the right thing when it's so . . . bleeding . . . obvious?"

Then we had our own financial crisis and it became suddenly, vividly clear: democratic governments cannot do even obvious right things if the public will not tolerate it. Even dictators have interest groups whose support they must buy.

This has come home to me forcefully several times over the last few years, but never more than now....I am very much afraid that the euro zone is about to plunge us into phase two of the global financial crisis--and that as with the Great Depression, phase two may be even worse than the dismal years we've just endured. In search of fairness, we may all get a lot more justice than any of us really wants.

I am, oddly enough, not quite this pessimistic yet. I say "oddly" because I pretty much agree with these assessments and I'm a naturally pessimistic person in the first place. But I still think that, at the 11th hour and 59th minute, when the depth and malignancy of the abyss really and truly sinks in, Europe's leaders will finally do what needs to be done. Not willingly, maybe not even legally, but they'll do it.

I am, however, less sure of this than I used to be. Instead of a 90% chance of this being the eventual outcome, I'd now put it at maybe 60%. Maybe.

You know you want it. So here it is. The end of Rick Perry's presidential campaign, if there's any justice.

Oh hell, here's some more Perry, just for the entertainment value. Don't pretend you aren't enjoying this:

BARTIROMO: Governor Perry, name the top programs that you would cut in terms of long-term deficit reduction. Include Medicare, Medicaid, Social Security, and defense spending in the order you see fit.

PERRY: Well, every one of those — and by the way, that was the Department of Energy I was reaching for a while ago.

(APPLAUSE)

PERRY: So here what's we have to look at as Americans. And it's the entitlement programs that are eating up this huge amount of money that's out there. And it's also the spending, Congressman Paul. And when you look at Medicaid, Medicare, Social Security, and those unfunded liabilities, I think are over $115 trillion just in those three programs. Those are the places where you go where you have to make the really hard decisions in this country.

BARTIROMO: So what is your order? And you didn't mention defense spend.

PERRY: Well, obviously, Social Security is one of those where we either can go to a blended type of a program where we blend price and wages, and come up with a program, and can save billions of dollars there. But the people who are on Social Security, they need to understand something today. It's going to be there for them. Those that are working their way towards Social Security, we've made a pledge to them. Those individuals are going to have those dollars there for them.

But the young people out there, who is going to stand up for the young people in this country, those that are at the workforce today, and stand up and say, we are going to transform this program so it's going to be there for you? I will do that. I will stand up for the young people in this country and put a program into place that will be there for them.

No, I have no idea what that bolded bit means. Is he talking about CPI calculations? Maybe. If he is, does he even know it? Probably not.

I told Marian I'd take her out to dinner tonight, so that's what I'm going to do. That means no debate wrapup from me — which, frankly, is no great loss since tonight's debate has been pretty dull so far. In place of serious commentary, then, here are my debate-related tweets from tonight. Enjoy.

5:01: I guess Michael Bay style intros are the new normal for Republican debates.  

5:04 Hate to admit it, but Jim Cramer is sort of the perfect questioner for one of these spectacles.

5:14 Perry's solution for Italy: they're too big, must be broken up.

5:20 Debate so far: taxes bad, bailouts bad, Obamacare bad, illegal immigrants bad.

5:39 Good news for Rick Perry: he hasn't gotten very many questions so far.

5:48 Responding to housing question, Perry slags regulations. But Texas did well during housing bust precisely because it had stronger regs.

5:50 RT @richlowry: perry has a genius for making any policy--no matter how worthy--sound crude and simplistic

5:52 RT @emptywheel: What would you do to Fannie Mae? Cain: Is she a blonde? Does she want a job?

5:59 Gingrich is really in full asshole mode tonight.

6:03 Santorum's whining really needs to stop. Does he have any idea how unattractive it makes him?

6:17 Total Perry meltdown. Can't remember what agencies he wants to nuke.

OK, I'm glad I stayed for that last Perry moment. I expect it to be on 24/7 cable news loop within the hour. Now I'm going to dinner.

So what is Italy's problem, anyway? Daniel Gros looks at the numbers and says their capital investment is fine, their structural indicators are fine, and investment in R&D is fine. In other words, all the usual measures that economists think are important seem fine. By process of elimination, then, their problem must be lousy governance:

There is only one set of indicators on which the performance of Italy has clearly [declined]: the governance of the country. This can be measured by the Worldwide Governance Indicators (WGI) from the World Bank. The three most important indicators for the economy are:

the rule of law;
government effectiveness in general; and
control of corruption.

Italy’s performance on all three indicators has deteriorated dramatically over the last decade. Moreover, by all these measures Italy now ranks lower than any other Eurozone country (including Greece!). The difference between Italy and the Eurozone core is now over two standard deviations below the core Eurozone average.

I don't know if I buy this or not. Is governance really the only metric on which Italy has declined? Their demographics are pretty bad, after all. And they've been famous for dysfunctional government pretty much forever.

But demographics don't explain a flattening in GDP per hour worked. Not obviously, anyway. And on that measure, it looks as if Italy (the thick red line on the bottom chart) started pulling away from other nearby countries right around 1996, exactly the same time that all their governance metrics started going to hell too. So maybe that really is what's going on. Technocracy may not be getting much good press these days, but maybe a strong dose of technocracy is just what Italy needs for a while.

Then again, it might be just the opposite. In the 1990s, Italian voters rebelled against the influence of the Mafia in government, but guess what? It's possible that things ran better when the Mafia was in charge. After all, it's at least plausible that small-scale Mafia thuggery is less malignant than the industrial-scale business thuggery of a guy like Silvio Berlusconi. Something to think about.

Harold Meyerson on yesterday's elections:

The common thread in yesterday’s unbroken string of Democratic and progressive victories was the popular rejection of right-wing overreach. From Ohio, where voters overturned by a margin of 61 percent to 39 percent Republican Governor John Kasich’s law stripping public employees of collective-bargaining rights; to Maine, where voters overturned by a margin of 60 percent to 40 percent Republican Governor Paul LePage’s law abolishing Election Day voter registration; to Arizona, where voters recalled Republican state Senate Leader Russell Pearce, the most vehemently anti-immigrant state legislator in the nation; to, will-wonders-never-cease, Mississippi, where voters rejected an initiative declaring a fertilized egg a person from the moment of conception, effectively outlawing abortion and just maybe birth control as well, by a decisive margin of 57 percent to 43 percent, voters shouted a resounding STOP to the rightward gallop of public policy at the hands of the radicalized Republican Party.

I would very much like to believe this. But I need to cogitate a bit more first. Something about this doesn't quite ring true for some reason, but I'm not sure what. Maybe I need to see Republicans stop the insanity first and send Herman Cain into the dustbin of history where he belongs. Then I'll be a believer.

Here's an interesting, if unsurprising, survey experiment. Brandon Bartels and Jake Haselswerdt polled a group of people to find out if they approved of a government program that would help people afford to own homes. It was presented in two different ways:

Option 1: We’re going to ask you your opinion on a government program intended to help Americans afford to own homes. Under this program, individuals who take out a mortgage to buy a home are eligible to deduct the monthly mortgage interest from their taxable income, thereby reducing their tax burden. The total savings for individuals under this program are estimated to be $94 billion for fiscal year 2011.

Option 2: We’re going to ask you your opinion on a government program intended to help Americans afford to own homes. Under this program, individuals who take out a mortgage to buy a home are eligible for a grant from the federal government to help them afford the monthly payment. The total government expenditures to individuals under this program are estimated to be $94 billion for fiscal year 2011.

A lot more people supported the tax deduction than the grant. That's not too surprising. What's a little more interesting, though, is that camouflaging this program as a tax deduction mostly affected conservatives. Liberals and conservatives both supported the tax deduction version at the same rate (an average of about 4.5 on a scale of 1-7), but when it was described as a grant, conservative approval plummeted while liberal approval dropped only a bit.

I suppose this isn't all that surprising either. After all, in the modern era tax expenditures have mostly been a dodge to win conservative approval for government spending programs. Apparently it's a pretty good dodge.

Grover Norquist explains to Politico how he keeps everyone in the Republican Party toeing the anti-tax line:

Sometimes, he said, he has to yank a wandering leader back into line, as he said he did with Senate Minority Whip Jon Kyl (R-Ariz.) in May. Kyl publicly ruled out raising tax rates to bring in revenue, which was interpreted by some observers as leaving the door open to a variety of tax increases that wouldn’t involve rate changes.

“So, I call Kyl. ‘What did you say? What did you mean? How can we work together on this?’” Norquist said, adopting the tone of a teacher scolding a second grader as he recalled the conversation. “Yes, I said rates,” Kyl said, as Norquist recalled.

“And then,” Norquist said, “he went down on the floor, and he gave a colloquy about how we’re against any tax increases of any sort. Boom!”

Is Norquist exaggerating to make himself look good? Maybe. But this is a two-edged sword. In public, Norquist usually likes to pretend that he plays a modest personal role, and that's served him well. This kind of boasting probably doesn't. Even a bunch of anti-tax Republicans might start to rebel if they start hearing stuff like this from him a little too often.

In a referendum last night, Ohio voters decisively repealed a law that curbed collective-bargaining rights for public-sector workers:

AP has declared Issue 2 (as the law was called on the ballot) dead. As of this writing, with about 75 percent of precincts in, repeal led by a whopping 62 to 38 percent margin.

Gov. John Kasich (R) took office in January vowing to curb unions’ power. But he appears to have overstepped his hand in curtailing the rights of 350,000 public workers — including firefighters and police officers — to negotiate over benefits, equipment and other issues....By including firefighters and police officers in the legislation, Republicans in Ohio set themselves up for a far more difficult fight. Wisconsin’s collective bargaining law made exceptions for both.

This is a real dilemma for conservatives—and frankly, for liberals too. Kasich may have gone too far, but at the same time, there are real problems with public-sector pensions in a lot of states. One way or another, voters are going to have to decide how to handle this, but here's the dilemma: The biggest abuses come from the very public safety professions that voters are most sympathetic toward. Right-wing governors get a lot of mileage from attacking teachers and "chair-warming" bureaucrats, but it's not teachers who get to retire at age 50, it's not teachers who get to retire at upwards of 90 percent of their working-age salaries, and it's not teachers who engage in "spiking" that can raise their retirement pay well above their working-age salaries. That stuff mostly happens in the public safety arena.

Pension reform is already close to impossible because you can't legally change contracts for existing workers without their agreement, and for obvious reasons existing workers aren't likely to give up their lucrative pension deals. But those pension deals are going to cost taxpayers a lot of money over the next few decades, and in some states that cost is going to be impossible to deal with. That's two impossible things colliding, and the third impossible thing is the public's support for the very occupations that are costing them the most.

I'm not sure how this is going to play out over the coming years. But it's going to be tough sledding for everyone: liberals, conservatives, public sector workers, and taxpayers. Ohio was just the warmup.

UPDATE: The first sentence has been changed. Sorry for the confusion. Issue 2 was a ballot measure that asked for approval of Senate Bill 5, an anti-union bill. The "no" vote garnered 61 percent and SB 5 was repealed.

For a while it was sort of interesting watching Victor Davis Hanson's years-in-the-making fall from idiosyncratic conservative to frothing-at-the-mouth loon, but I gave up the entertainment of watching his descent some time ago. Today, though, Adam Serwer directs me to his latest bizarre screed, and I see that Hanson has just continued getting crazier even while I wasn't watching.

Anyway, read Adam's post for the whole story, but I'll just highlight one little piece of Hanson's latest. A couple of nights ago I was explaining to Marian that we liberals are terrified of Herman Cain because he's a strong, conservative black man — an authentic black man, not some deracinated offspring of a Harvard-educated Kenyan — and that's why we have to destroy him. She looked at me funny, and I told her I was just kidding — but that apparently a lot of tea-partyish conservatives are quite convinced of this. Don't believe me? Ladies and gentlemen, I give you Victor Davis Hanson:

Cain also wins greater scrutiny, not exemption, because he is black — or at least a certain sort of black. In addition to his conservatism, his voice, bearing, grammar, and diction, even his showy black cowboy hat, bother liberals in much the same way that Joe Frazier was not Muhammad Ali and Clarence Thomas was not Anita Hill. Black authenticity, as defined by Southern mannerisms and darker complexion, amplified by conservatism or traditionalism, earns liberal unease....The comparison with Obama is volatile: Cain is authentically African-American and of an age to remember the Jim Crow South; Obama, the son of an elite Kenyan and a white graduate student, came of age as a Hawaiian prep-schooler, whose civil-rights credentials are academic.

And now, if you'll excuse me, I need to get back to work destroying Herman Cain. Because I know that he's the only man who could actually beat Barack Obama next year and I'm terrified of him. As Cain explained yesterday, the Democrat Machine is out to get him. But luckily for you, it's no secret. To see our plans unfold in real time, just follow @DemocratMachine on Twitter.