[np] Austerity is not Greece's Problem (Ricardo Hausmann)

[Kai Frederik Lorentzen]

When looking out a window, it is easy to be fooled by your own 
reflection and see more of yourself than the outside world. This seems 
to be the case when US observers, influenced by their own country's 
fiscal debate, look at Greece.

For example, Joseph Stiglitz regards austerity in Greece as a matter of 
ideological choice or bad economics, just like in the US. According to 
this view, those who favor austerity must be obsessed with the theory, 
given the availability of a kinder, gentler alternative. Why would you 
ever vote for austerity when parties like Greece's Syriza or Spain's 
Podemos offer a pain-free path?

The question reflects a lamentable tendency to conflate two very 
different situations. In the US, the issue was whether a government that 
could borrow at record-low interest rates, in the middle of a recession, 
should do so. By contrast, Greece piled up an enormous fiscal and 
external debt in boom times, until markets said “enough" in 2009.

<http://www.project-syndicate.org/commentary/greece-export-problem-by-ricardo-hausmann-2015-03#> 
Greece was then given unprecedented amounts of highly subsidized finance 
to enable it to reduce gradually its excessive spending. But now, after 
so much European and global generosity, Stiglitz and other economists  
argue that some of Greece's debt must be forgiven to make room for more 
spending.

But the truth is that the recession in Greece has little to do with an 
excessive debt burden. Until 2014, the country did not pay, in net 
terms, a single euro in interest: it borrowed enough from official 
sources at subsidized rates to pay 100% of its interest bill and then 
some. This situation supposedly changed a bit in 2014, the first year 
that the country made a small contribution to its interest bill, having 
run a primary surplus of barely 0.8% of GDP (or 0.5% of its debt of 170% 
of GDP).

Greece's experience highlights a truth about macroeconomic policy that 
is too often overlooked: The world is not dominated by austerians; on 
the contrary, most countries have trouble balancing their books.

Recent advances in behavioral economics show that we all have enormous 
problems with self-control. And game theory explains why we act even 
more irresponsibly when making group decisions (owing to the so-called 
common pool problem). Fiscal deficits, like unwanted pregnancies, are 
the unintended consequence of actions taken by more than one person who 
had other objectives in mind. And lack of fiscal control is what got 
Greece into trouble in the first place (...)

The problem is that Greece produces very little of what the world wants 
to consume. Its exports of goods  comprise mainly fruits, olive oil, raw 
cotton, tobacco, and some refined petroleum products. Germany, which 
many argue should spend more, imports just 0,2 % of its goods from 
Greece. Tourism is a mature industry with plenty of regional 
competitors. The country produces no machines, electronics, or 
chemicals. Of every $10 of world trade in information technology, Greece 
accounts for $0.01.

Greece never had the productive structure to be as rich as it was: its 
income was inflated by massive amounts of borrowed money that was not 
used to upgrade its productive capacity. According to the Atlas of 
Economic Complexity, which I co-authored, in 2008 the gap between 
Greece's income and the knowledge content of its exports was the largest 
among a sample of 128 countries (...)


http://www.project-syndicate.org/commentary/greece-export-problem-by-ricardo-hausmann-2015-03


-------------- next part --------------
An HTML attachment was scrubbed...
URL: <http://waste.org/pipermail/pynchon-l/attachments/20150704/06de9946/attachment.html>