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

[Dave Monroe]

http://www.zeit.de/2015/26/thomas-piketty-schulden-griechenland/komplettansicht

On Sat, Jul 4, 2015 at 6:42 AM, Kai Frederik Lorentzen
<lorentzen at hotmail.de> wrote:
>
> 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.
>
> 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
>
>
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