This is the story groups like the Heritage Foundation want to push. It’s a combination of a moral fable ("the Greeks have sinned! Now they must redeem themselves through suffering!) and an attempt to reaffirm the dominance of capital over labor (“you must become the kind of workers rich people want to hire!”).
It’s false though.
Is corruption the cause of the economic crisis? Did Greece suddenly become corrupt four years ago?
What about generous government benefits? Did that start four years ago?
What about government debt? Japan’s debt is over 200%. Unemployment is 4%. Our own debt has increased dramatically in the last 4 years, and our economy is getting better. Greece is getting worse.
Why is that? If debt is the sickness, is it also the cure?
But my real question is this : if the problem is that Greeks have pay back loans, doesn’t that mean we have to put them to work? And isn’t any policy that eliminates jobs counter-productive?
Terrible logic. Simply because something doesn’t immediately cause a problem doesn’t mean it’s not a problem or won’t lead to a huge disaster. And unfortunately, you display the classic thinking of bad fiscal planners: “Hey, this won’t hurt us now.”
If you do it long enough, and it gets bad enough, it will do so eventually and it will do so very painfully.
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What about government debt? Japan’s debt is over 200%. Unemployment is 4%. Our own debt has increased dramatically in the last 4 years, and our economy is getting better. Greece is getting worse.[./quote]
Please keep believing that. I like to hope so cruelly dashed. It gives me such delightful chills. Our economy is doing awfully, and it’s not improving. Sure, as long as you carefully select the figures you want to use, you can always argue that, but the plain fact is that people are worse off and fewer of them are em\ployed.
Likewise, Japan isn’t exactly the best example you want to push. They exchanged a brutal crisis for endless economic stagnation and decline. You also may want to consider your unemployment figure, becauwse there’s more than one way to get the statistic that low - and a healthy economy is rarely, if ever, below 5% unemployment.
Bad basis, bad logic, bad conclusion. GIGO in its purest form.
Many leftists believe utterly in Keynesian thinking, despite rather little evidence that it works. You’re tasering a dead horse - it might jump, but it ain’t alive and kickin’ in any sense. Throwing money at people isn’t going to help them actually produce more. And right now they expect to consume more than they produce.
Fundamentally, Greece has issues all around. They have too-high taxes, which is completely taken would more or less leave people destitute. They have too much tax evasion, which is understandable in light of the previous statement, but means the government isn’t payings its bills. Tax evasion also became acceptable all-around, and there’s chiselling at all levels of society, not just the rich (or which Greece has far too few). The Greek government spends too much for its bills, and probably spends the money poorly. Its economy is protected by numerous laws which, iun the end, diminish productivity by making it unrewarding, so people find it easier to relax and be unproductive - why struggle for little or no reward.
Whatever you think is theoretically just or theoretically optimal, nobody much wants Greek debt. The private sector isn’t lining up to buy it. This is why the bailouts have all had to come from EU in some way, or countries using their central banks or leaning on private ones. And without this money flowing in, the government basically collapses. And the Greeks more or less must go to austerity - they need the money more than anyone else wants to lend to them. And that means that whoever has the gold makes the rules.
FYI: For Greece the option of a debt buy-back is starting to gain traction. Greece would pay 30-35 cents on the euro to private sector bondholders, slightly above the 25 the bonds are trading at now. This would theoretically reduce their debt by ~40 billion Euro, or about 15% of their GDP (more or less, depending on how bad the economy will be after the latest round of austerity).
Normally whispers of such a move would drive up the trading price, but collective-action clauses in the bond contracts supposedly provide a dis-incentive for this. Of course Greece still needs to come up with the money, but larger members of the Euro-zone might pony up for this if the other option is to write down public-sector debt–which would hit taxpayers in their countries again.
“Many leftists believe utterly in Keynesian thinking, despite rather little evidence that it works.”
This is tripe. If you look at the economies who are doing best out of the recession - such as Australia, they followed counter-cyclical policy with plenty of gas in the tank (former surplus; low public debt) and they’re doing better than anyone.
Everyone is a Keynesian in a Foxhole. Macroeconomic stabilisation by demand intermediation is the only game in town for a serious recession. It only takes cursory research to show that even Romney’s top economists admit as much outside of campaign season where they pander to the silly base.
The hands-off version of this is monetarism and its mature successors in market monetarism (see Scott Sumner), and the more interventionist version is overt fiscal policy as well as monetary policy. But dealing with demand through counter-cyclical policy is the only serious debate going on.
The whole notion of the fiscal cliff being a terrible contraction depends entirely on a demand side, cyclical framework which warns us to avoid sharp pro-cyclical policy. The description of what is going on otherwise is total nonsense about marginal incentives, food stamps and voluntary employment coming out of RBC. That is just nonsense. Otherwise removing public spending from GDP would be neutral, which it isn’t.
The Greece situation is hugely problematic for a variety of reasons none of which contradict the Keynesian story. Greece accumulated massive public debt, denominated in common currency area that is misaligned with the conditions of the PIGS. It did not follow any kind of basic Keynesian discipline during the good times, accumulating surpluses. It has a ridiculous voluntary tax regime, inviting chronic avoidance, which means even the baseline revenue is not there. And it cheat on the Maastricht treaty just to get in.
Greece does not have room to do anything, but that’s nothing to do with the theory which says you should accumulate surpluses, implement reform and avoid crowding out the private sector during the good times - precisely the opposite of what they did.
None of this changes the story that austerity has been a total failure in the UK and in the Eurozone and has been completely discredited, whilst Keynesian policies have many countries put successful floors in their economies, and several that have come out looking fine.
Well, let me say this. You know, of course, that we’re not on the gold standard anymore. Instead, we use made-up money, in the sense that it’s made by bankers, especially central bankers. It’s not dug up out of holes in the ground. So it might be better to say, “whoever controls the central bank makes the rules.” And that would be 100% correct.
And in the case of Europe, the rules the bankers are making suck balls, because they’re making unemployment rather than employment, which is the opposite of what any sane policy would do.
Because ultimately the wealth of a nation is determined not by weights of gold or bags of coins or by dollars or euros, but by the value of the goods and services created by the workers. “Labour was the first price, the original purchase-money that was paid for all things. It was not by gold or by silver, but by labour, that all the wealth of the world was originally purchased.” (You agree with that, right?)
So any policy that puts people out of work makes a country poorer; and any policy that puts people to work makes a country richer.
So why in the world are the authorities in Europe pursuing a policy that impoverishes Greece while at the same time attempting to obtain wealth from it? That’s just insane, right? I mean, how can you expect to obtain goods and services from a country while putting its workers out of work?
But let me make a couple other points.
The US economy is getting better. It has nothing to do with selecting figures. It’s simply a fact.
I’m curious why you say a healthy economy is “rarely, if ever” below 5% unemployment. I’d say a healthy economy is one where everyone who is willing and able to work, is working. (And an even better economy would be one where people didn’t have to work, unless they wanted to.)
You say throwing money at people isn’t going to help them produce “more”. What “more” are you talking about? More money? More stuff? (And if its more stuff, isn’t that exactly how you get people to produce more?)
You say people expect to consume more than they produce. Of course everyone wants to get as much as they can, for as little as possible, and some people consume more than they produce (the rich), while others consume less (the poor). But collectively we all consume exactly what we produce - right? I mean, unless some of what we produce goes to waste (in which case we consume less than we produce). So what are you getting at?
As far as Greek debt is concerned, it doesn’t really matter whether “people” want it. All that really matters is whether the ECB is willing to buy it. If it is, then people will want it. If not, the ECB is destroying the EU from within.
I hear you and I understand that line of reasoning. However, it also represents what one usually would refer as “entrenched political positions”. Some US government officials will retire by simply pursuing these kinds of attitudes.
However, I’d present to you that due to ever changing conditions and contexts within which US government and its tax base operates a situation has risen to a level of imminent disaster if reductions are not made. So, if we agree that reductions need to be made and we cannot go away from the meeting if we did not achieve this, ratio compels us to reach deep down and alter our thinking by, 1st introducing a set of criteria that we will abide by when evaluation what’s more important – SS or military spending. For me personally, that’s so easy but I do realize that due process is needed.
I’m just a tiny bit cynical that US government officials who are in the Government longer than some old Soviet Party apparatchiks would have courage and self-interest to do that. Let alone the fact that they have to navigate corruption colloquially referred to as lobbying.
Let’s also remember the banks were allowed to do so by politicians who were as greedy as the bankers, and that often the people taking loans they could not pay were as greedy as the other two, trying to “make a kill” by flipping flats they could not even afford.
Let’s remember those same politicians retire and become… bankers. By bailing out the banks, they’re just keeping their leather armchairs buffed.
Unemployment is less than 5% in Japan, and inflation is approximately 0. If I remember right, we went below 5% in this country too, a few years ago, without accelerating inflation.
Or they can decide to simply repudiate the debt, the euro, and the desires of Europe if they decide that the resulting disaster will be smaller than the disaster of austerity.
quick …name 10 products you saw in the past week, that were made in:
Germany
Greece
Spain
Italy
Germany makes at least 5 mass produced cars (BMW, Audi, Mercedes, VW, Porsche), many industrial machines and controls, & power generation systems (Siemens), computers & software (SAP), tennis shoes (Addidas & Puma), CNC machines,
Other than a few over priced clothing items, wine, and tourism ads, I can not think of anything else that I recall encountering while shopping, in-store of online, that were made south of Germany.
Seems to me, the Northern Nations in Europe work hard to pay for the socialistic free loaders down south. The only way out is for these Northern Nations to export a considerable percentage of their jobs to these southern nations. Be sure to send your top quality & productivity experts (like Deming) to get them up and running. That will work for about 20 years, per the USA model. Then these dirt poor countries will surpass you, just like Korea and China did with the USA. They may even end up owning much of your debt.
…I can’t name ten products that I saw in the last week made in the United States. I, of course, live in New Zealand. Following your example the US must be socialistic freeloaders because the only American product on the supermarket shelves are Hershey Chocolate Bars.
IMHO, unless the above 3 nations increase industrial output ( as well as trimming their paid vacations & early retirement), the only way they can recover w/o repetitive bailouts by the Northern Nations, would be a 50% Wealth Tax and/or a 50% depreciation of their currency. Austerity (singularly) has shown to cut GDP for 2-3 yrs. All 3 seem like the only sound option.
Greece needs to look back in history, when they invented / pioneered the iron age, and became military & industrial super powers.
PS historically, when countries defaulted on their loans, that was legitimate grounds for invasion…from what recent history tells us, Germany will collect…esp when it affects their masses.
well aware of what “ironic” means…and it does apply…he stated that, regarding a topic about USA jobs outsourced, that the only USA product on the shelves in his area were Hershey bars…when, in fact, those are now made in a plant in MX