The Austerity Measurement: Greece Defies Keynes, Keynes Laughs Last Patrick Slevin September 1, 2010 Columns 2 If you thought Greece was in trouble prior to the 2010 summer of austerity, when acronymic insults like PIGS (Portugal, Ireland, Greece & Spain—four countries that were worrying the Eurozone with high unemployment and high deficit spending) ran wild in British-dominated European economic news and the country of kalamata olives was a poster child for suddenly budget-conscious conservatives in the U.S., well, you were right. It’s just that now Greeks are even worse off, and the finger-pointing is headed in the other direction. And yeah, I’m doing the finger-pointing. Impulsive and reactionary economic policy is always bad economic policy. Greece was so flummoxed by its overspending that it did the macroeconomic equivalent of calling a fly-by-night debt consolidation company convinced by a radio advertisement while driving over to Asia to ask for more money. Instead, now they’re asking a country of 11 million proud to adopt the survival tactics of Chilean miners in the worst of times. And no, I don’t believe any Greek would rather be stranded in a mine, but hyperbole’s about imagination. And few imagined the economy of Greece would be dragged down like this. The Greek government, admittedly typical of Southern European economies in its relatively high ratio of spending relative to the public sector, has slashed spending 4 percent over what the European Union and International Monetary Fund required, for a total of ten percent overall reduction. As a point of comparison, ten percent of the United States’ budget is the Departments of Education, Homeland Security, Energy and Justice, combined, or a little over half of the Department of Defense budget, before we give it all that extra “war money.” Understandably, the trickle-down effect has been somewhat damning. One city, whose economy is dominated by shipbuilding, reports unemployment numbers of up to 70 percent. The country’s purchasing power has slipped back to the 1980s, and some estimates put the real unemployment rate (not the official rate the historically inept government comes up with) for the country at 20 percent in 2011. As Greece is a member of the Eurozone, the government can’t devalue their own currency to make purchasing easier for their citizens. Prices are going up regardless. And other measures that Greece is trying to implement, like regulating gambling, have to be reconciled not only with the country’s government but its supergoverning European Union. And how does one gamble with no income? In fact, the real gamblers of the past decade or so have been consumer-driven western governments, who were propping up mediocre GDP figures by taking out huge loans on unreal (as in not actually existing) future income and pointing to tax decreases as “growth.” That goes from Greece to the U.K. to the U.S, except the Greeks barely bothered to collect taxes in the first place. The whole system is operating in reverse. In bad times, governments should spend money they don’t have. And in good times, they should pay down that debt. Keynesian economics 101. Even Ronald Reagan figured that out. Instead, governments have been borrowing money in good times. And now, faced with bad times, and faced with the incredible sums they have to borrow to get through them (see the I-can’t-believe-it’s-underfunded stimulus program), governments can’t help but rein in costs rather than serve as the engine for growth. It encourages Weimar Republic-esque discontent and malaise. Because they fucked up the cycle. Save your pennies when times are good and spend them when times are bad. Greece’s modern financial situation is a fable from the land of fables. To ignore their situation is pigheaded and stupid. Like a party of fools shouting taxes are too high and pining what America is about and suggesting that if everyone “shares sacrifice” then we’ll be okay, so long as we don’t allow high earners and business to “share sacrifice” as well as the risk of losing our “economic advantage.” Hello? China? Economic advantage? We sold our soul for iPods a long time ago, before there were iPods. Designed in California. Made in China. And so delaying unemployment assistance to make a point about budgets, as the Senate did prior to a July recess that left a few million unemployed, out of work and out of money, for a few weeks for no other reason than a few hundred overprivileged, mostly white males going on vacation is about as stupid as slashing ten percent of your budget at once, “just to be sure.” You know, it could be argued that American Exceptionalism is merely a fluke result of our ability to analyze problems in the Old World and adjust appropriately—actually implementing lessons laid before us due to the unique and powerfully dynamic government institutions we’ve created and fostered. Or it could be just due to our early 20th century oil wealth and military dominance. But whether we’re ahead of the curve or not, demonizing deficits will always be fashionable. Depressions will never be. It’s no time to be penny-wise and pound-foolish. Oh, and yeah, it looks like I’m doing a political column again. Imagine that. 2 Responses Reedo September 1, 2010 Summed up better than any financial magazine I’ve seen. Reply Reformist September 6, 2010 In good times and bad times alike, governments should borrow just enough money to keep economy fully employed. Government debt is a private sector asset. It is the amount of net savings private sector have. There is no reason to run system otherwise, i.e. not fully employing resources. It is just that, government debt should be absolutely default risk free. It should be backed by power to issue money. The point is, government debt is not something optional, but something necessary for the functioning of the economy as it is currently arranged. Only way out would be to do sweeping monetary reform. Reply Leave a Reply to Reformist Cancel Reply Your email address will not be published.CommentName* Email* Website Save my name, email, and website in this browser for the next time I comment.