Conservatives could seize the Greek debt crisis as an example of the dangers of national debt and deficits, but haven’t some liberals also used it as an argument against employing austerity as a way of getting out of a debt crisis?
It’s a math lesson. The Greek government spent too much money and brought in too little.
There are details, of course: interest rates, government deception, the Euro, the fact that Greece couldn’t inflate its currency. At the root, though, it’s math. Greeks such as Pythagoras and Archimedes invented mathematics as we know it. 2,500 years later, it came back and bit them in the butt.
Yes. Everyone looks at the Greek debt crisis and sees in it support for their own beliefs regarding economics.
This is true of all economic issues. Scratch that, this is true of all political issues. At core, these debates are dueling anecdotes and just so stories.
**Yanis Varoufakis faces criminal prosecution over clandestine ‘Plan B’ currency plot
****Supreme court lodges legal case to Greek parliament as “treason” charges escalate against former finance minister **
First he was called incompetent for not having a Plan B, and now he’s a criminal because he had one?
So who’s trying to take him down? And why would he need to hack his own ministry’s computer system? Does the Troika control that too?
Greek debt crisis: A conservative or liberal economic lesson?
Yes.
So many people have fucked up, there’s a legitimate lesson to be found virtually everywhere. We don’t have to either/or this one.
This is arguably one of the underlying problems with fixing the mess. The vigorous finger pointing from everyone relates to justifiable issues, and so one of the primary functions of that finger pointing is the attempt to avoid personal blame. The more energy expended in pointing out real mistakes on the other side is the more one can avoid acknowledging one’s own mistakes. There are legitimate “conservative” lessons and legitimate “liberal” lessons to be learned, but nobody is learning anything because they want the other group to learn first.
Conservatives were always against the Euro. Thatcher:“Every single fixed exchange rate has cracked in the end. We’re all at different levels of development of our economies. Some countries simply couldn’t live up to a single currency”. Those concerns have been proven absolutely correct.
The Greek economy is one of the least free market in Europe. Government spending is high, labor markets are rigid, corruption is rampant, and regulations are stifling. This is why the Euro has been such a disaster. In a healthy economy the Euro would be would be a drag but in an economy as poorly functioning as Greece it has been suffocating.
There are two parts of austerity, cuts in government spending and tax hikes. It is no surprise to conservatives that tax hikes can have a bad effect on an economy.
Before the crisis a conservative would have told Greece to not join the Euro, reform its economy to make it more efficient, cut government spending and debt. Had this agenda been implemented the financial crisis would have been a large speed bump that they would have recovered from by now.
A liberal before the crisis would have told Greece to join the Euro keep all the inefficient regulations, raise taxes on the richest and keep spending high. This is mostly the agenda that was implemented and the result is the economic meltdown.
Paul Krugman and Milton Friedman both were against the eurozone. I don’t see how “conservatives” have such a monopoly on the currency itself.
But the story doesn’t stop there. Given that the euro was created, the core governments were fine with bailing out their own banks by having their public institutions take on the debt. Obviously there are plenty of conservatives who hate bank bailouts, but regardless of the ideological spectrum elsewhere, we can see that inside the eurozone that decision was made by people on the more “conservative” side of the spectrum. Would a “liberal” have used public money to bail out banks instead of letting the banks fail and then reorganizing them? People on the European left are certainly complaining about it now, while the establishment conservatives seem to me more quiet on the issue.
The ECB has a mandate for price stability, by international treaty. This mandate is defined as an inflation rate over the medium term of almost, but not quite, 2%. Yet core inflation in the eurozone has been less than 1% since 2014. Headline inflation actually went negative. Since the financial crisis in 2008, the Fed in the US has had three different rounds of QE. The ECB started its first round in January of this year – seven years after the fact – and they still haven’t done enough to meet their own legal mandate and they have no apparent plans to do more. Would “liberals” in charge of the ECB have done more? Yes. Yes, they would have. Milton Friedman would be criticizing the ECB to hell and back if he were still alive, but inside the eurozone it’s the more conservative inflation-haters who are in charge.
Likewise, I could create a long list of problems that the European left hasn’t fully acknowledged. But there are other threads for that and I’d like to take a different approach.
There’s a broader issue here.
Blame is a funny thing. Human beings aren’t very good at it. It’s always the other guy’s fault.
Imagine a series of switches, and a set of workers whose job it is to flip their own switch when they arrive at their station in the morning. Say there’s five switches, and all five need to be flipped, but on a certain day two of the five workers neglected their job. Shit is fucked. So how do we assign blame to the two who failed at their job? Do we split the blame in half? Is each person 50% responsible? Hmm. Maybe such diminished blame is not quite fair. Both tasks were necessary conditions. Each task was not sufficient in itself. So in a sense, both people were 100% responsible.
But if you ask either one, they’ll point out that it didn’t actually matter what they did because the other guy fucked up. The buck stopped somewhere else. There are always ways to spin the story, too. What if one person is a new worker, and the other a veteran? What if one switch takes a lot more effort to flip? What if one worker has a well-earned reputation of irresponsibility? People will always point this stuff out. How much weight does each excuse earn? A 5% shift of the blame? A 15% shift?
Such a discussion would never end.
We could talk about relative blame all day, mitigating circumstances and all that nonsense, and in the end, it doesn’t really matter. Both switches need to be flipped. End of story. Everybody is wagging the finger, and everybody is pretty much right in doing so. People have fucked up all over the place. If we had a coolly rational Mr Spock to assign blame, and he gave 63% to one side and 37% to the other, then I guess that would be fine.
But we don’t have Vulcan dispassion. We have human beings who are eager to blame the outgroup. The only way to stop that buck-passing would be for both sides to acknowledge 100% of the blame. There were switches that weren’t flipped on both sides, and every switch needing flipping. There are all manner of important lessons to be learned, but the anger at the outgroup’s mistakes has become so intense that basically no one is acknowledging their own fuck-ups. The series of Greek governments have been an extended clown show that’s lasted more than a decade, and the ECB’s decisions have arguably been the worst by any central bank since the Great Depression.
There are plenty of legitimate lessons to learn from all over the European ideological spectrum. We genuinely do not have to pick and choose one side or the other.
I agree that both sides fucked up, and to what degree each side is culpable is irrelevant. What concerns me is the fact that both sides seem to be on-track to fuck it up again in mostly the same ways they fucked it up before.
[ul][li]Loan Greece a lot of money.[/li][li]Time passes.[/li][li]Greece cannot repay the money.[/li][li]Forgive about half the debt, loan Greece more money, until the condition that they will impose austerity.[/li][li]Time passes.[/li][li]Greece cannot repay the money.[/ul][/li]Solution -
[ul][li]Loan Greece more money under the condition they impose austerity.[/ul]I don’t know if throwing good money after bad is a liberal idea or a conservative one, even by European definitions.[/li]
Regards,
Shodan
[QUOTE=Hellestal]
There are legitimate “conservative” lessons and legitimate “liberal” lessons to be learned, but nobody is learning anything because they want the other group to learn first.
[/QUOTE]
Look at that; Hellestal proven right by the very next post.
Austerity was the conservative treatment of an injury caused by decades of liberal economic and social policy.
So, in the grand scale, the Greek debt debacle is squarely a refutation of liberal governance. Bloated, inefficient government-dominated markets and unsustainably-generous welfare programs are the root causes of the crisis. Liberalism is where these ideas reside. Ideas chronically attacked by conservatives.
Also, a healthy dash of culturally-approved tax evasion. This is the third major cause of the problem, and it lies in the behavior and attitude of the Greek people, not in any political ideology.
Puddleglum posted 30 minutes before Hellestal.
Hellestal, I appreciate your posts about economics, and I agree with you regarding the blame game. I’m afraid of asking a stupid question, but I’ll take my chances:
Greece needs to be fixed. A lot of Greek citizens would like that to happen. But how? How does a country with such a history get back on track?
When economists analyze the situation, do they take the history of a particular country into consideration when making their prescriptions? If so, what would be prescribed for a country with such a history of corruption and tax collection issues, and how would you realistically expect it to be enforced?
It’s a sandwich. I have a post after but also a post before.
With one exception – “Why doesn’t the government print money to pay off all the debt?” – I don’t think I’ve ever seen a stupid economics question. And even that question is okay if the kid is young enough.
Nothing is obvious in economics. None of it works in a way that’s easy to pick up or understand.
I don’t know.
If Greece had its own currency, then it would negotiate a partial default on its loans and while devaluing its domestic currency, the drachma. The IMF would offer bridge loans to make the transition, and this valuable foreign cash would be especially important as foreign goods suddenly became much more expensive using the domestic currency. In return for that financial support, the IMF would demand certain governmental reforms, including austerity measures. And the austerity measures would probably work, too, because although government spending might be cut, the weaker currency itself would act as a counter-stimulus.
But Greece doesn’t have that option. They’d have to leave the euro to devalue. Trying to create a new drachma from scratch would take a long damn time, and any transition would be rough as hell. That means any austerity measures can’t be offset by the currency. Their government doesn’t have enough revenue coming in, so the eurogroup reasonably demands cuts, but those cuts depress the economy, which decreases the amount of revenue and increases the debt burden as a percentage of GDP, which means the government doesn’t have enough revenue coming in, so the eurogroup demands cuts. The previous observation in the thread that they’re just repeating the past is not incorrect. They’re on a merry-go-round of pain. How do they get off? I don’t know.
Plenty of people have had ideas. Some of those ideas would definitely help. First and most obvious, the ECB needs to follow its own god damn laws. I mean AAAARGH. Second, they should consider putting a new system of government-issued scrip into place as an alternative means of payment. A sort of double-currency. They would need to accept the scrip as valid for taxation on par with euros, so that it would be initially accepted. More alternative money will both increase domestic demand, and also build the foundation for an alternative currency if the government is forced off the euro.
Third (and maybe more fanciful) it would be helpful for the Greek banks themselves to stay on the euro even if the government is forced off. The eurogroup presumption has been to starve both the banks and the ministry of cash if these bailout deals didn’t go through. It’d be nice if the Greek government could have won a negotiating point that the banks could continue to live, even if the government itself were denied loans and starved of cash. This might be totally bonkers but it’s an idea, maybe worth investigating.
Would any of these ideas be helpful enough, fast enough? Can’t say. I genuinely don’t know. Because underlying this demand problem is the longer-term problem that their government is too clumsy and inefficient and gets in the way too often. Which leads to your other question…
Governmental promises to outside lenders are made to be broken. Governments are sovereign, after all. It’s part of the deal.
Lenders only have leverage when sovereign borrowers are in desperate need of foreign cash. If lenders have a reasonable belief that the current administration seems trustworthy-ish enough to deal, then they’ll roll the dice. If not, then they won’t. Lenders are holding the purse strings this one time (…normally it’s only one time…) and feeling all tingly, but it’s only temporary and they know it. So they want to leverage this one moment and the demanded concessions turns into a Christmas list. If any borrowing government officially approves the measures, well then, that’s generally all the lenders can hope for.
But the euro situation, as we’ve all seen, is unique. I can throw out nifty ideas all day but I mean, come on. This is as much politics as it is economics. Nobody trusts anybody anymore. How do you cut through that? I don’t know. Maybe somebody out there has the answer. I can only wish the eurocrats were more creative and showed more sensitivity to the economics, but even if they did, it might not be enough.
I will say, though, that they should be thinking up a way to unwind this project gracefully. Anybody who’s looking for more layers of administration that would come from more euro-integration is a bloody fool. They need to investigate untying themselves from the diseased system, rather than clinging to the corpse of this dream. Some US liberals like to wax eloquent about the “noble” goals of the euro-project, but that’s a load of crap. Intentions mean nothing. Road to hell is paved with that shit. What we need is noble ideals COMBINED WITH sensible thinking, because nobility unguided by sense is poison.
It’s neither to be honest. It’s a failure of public policy and long term planning, failures that political leaders on all sides of the aisle make and have been making in every country on Earth for a long time, in Greece it’s just sadly been a lot worse than other places and some other extraneous factors have lead to it having worse results for Greece than most other first world countries.
There are a lot of things like low effective tax rates in Greece due to the ease of tax avoidance that would argue against a conservative approach. But there’s also stuff like too-generous pensions, government employing large numbers of persons in unproductive/unnecessary jobs and etc that argue against a liberal approach.
Austerity was not/is not the best prescription for Greece, but Greece’s mess isn’t a simple right/left situation caused by right/left actions.
Something you see in many economies that struggle like this is excessive crony capitalism that creates what I call a ‘faux market’, because people who have political connections and power are able to use that to “win” in the ostensibly “free” market. This creates adverse economic results and leads to systemic problems. Greece had this in spades, and that’s more of a “poor governance” issue than it is a right/left economic policy issue. I don’t know any reputable economist on any part of the spectrum of economic schools of thought that advocates for crony capitalism, poor tax collections or various other simply bad governance situations that go on in Greece.
We got oodles of that shit, problem is, we can’t think of a way to spread freedom and equality through the world, inspire global change but somehow leave all the money and power in the same hands.
I agree that it is all around a giant fuck up on both sides with one exception. That exception is the moral hazzard that arises when the government moves from an arbitrator to a provider which is, in general, a liberal position. Though in most countries both sides play the provider card to one degree or another.
When governments guarantee certain things, like pensions and health care, it creates disincentives for the citizens. For example, if the government promises a pension once a citizen reaches a certain age that can and will change the way people save and invest. Why pinch pennies now if , when you retire, the government will provide for you?
This also causes problems in that, once the promise is made, it is all but impossible to revoke. Greece is a perfect example.of this. The government ran out of money. No one would loan Greece money. And yet, when elections were held, the party that promised more money won. The fact that there was no money to be had was, to many Greeks, irrelevant. Someone had to give them more money. The fact that the people loaning the money would never get it back was trivial (those evil Germans!). The fact that the Greek government made the promise and could no longer keep it didn’t matter. Someone (The rest of the Eurozone) had the duty, even though they never agreed to it, to support the Greeks.
So you end up in a situation where the people loaning the money are evil for wanting some kind of guarantee that they will get it back.
There is also the fact that the Greeks cooked the he’ll out of the books to join the euro. I don’t remember if it was the ‘liberal’ or ‘conservative’ Greek government which did the cooking.
There is a lot of blame to go around. But the dependancy on the government, and the tax evasion, played a big role.
Slee
In as much as it shows the dangers of deficit spending and debt, it’s clearly a lesson for conservatives.
Conservative. Of course austerity doesn’t work to get you out of depression. Problem is, you can’t just wish money into existence. Greece didn’t have it, so austerity was the only option.
The problem with liberals is that their solution to a country running out of money is that other countries should bail them out. That is not only pure nonsense, it’s also not even all that liberal. With the amount of money it would take to spare Greece from austerity we could feed the world’s poor.
Ah. I read your first post earlier today and didn’t realize it was above puddleglum’s.
I’m young for my age. 
Thank you for the thoughtful answers. I think I learn more from your posts than the news articles covering this story.
Is the govt issued scrip you mention the same as Varoufakis’ plan to issue IOUs/parallel currency?
The only criticism I read about him is about his politics and personal style. What do you think of the plan he had in mind?
I never heard that one before. I didn’t even think it was possible. Interesting idea.
With all due awe, cite?