Greek Austerity—They Have No Choice

https://grantcoulson.files.wordpress.com/2014/04/incentiveseverywherepicturecorrect1.jpg?w=444&h=288

 

       Do not think about, write about or deal with  human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.


   Wherein we see that the media comments about Greece are fueled by economic ignorance so thorough that it can only come from the consensus of those who must turn a clever phrase based on socialist assumptions.

Ricardo Hausmann on Greece and austerity

by Tyler Cowen on March 3, 2015 at 12:37 pm in Current Affairs, Economics | Permalink

    So the problem is not that austerity was tried and failed in Greece. It is that, despite unprecedented international generosity, fiscal policy was completely out of control and needed major adjustments. Insufficient spending was never an issue. From 1998 to 2007, Greece’s annual per capita GDP growth averaged 3.8%, the second fastest in Western Europe, behind only Ireland.

    …Unsustainable growth paths often end in a sudden stop of capital inflows, forcing countries to bring their spending back in line with production. In Greece, however, official lenders’ unprecedented munificence made the adjustment more gradual than in, say, Latvia or Ireland.

There are many other good points at the link.  Hausmann makes this point:

    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.   

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    Public spending is the opposite of upgrading productive capacity and will lead to, you know, the current Greek situation. Government talk about “investing” but, consistent with most statist assumptions, it means the opposite.

And then the closer can only be described as an “ouch”!:

    Unfortunately, this is not what many Greeks (or Spaniards) believe. A large plurality of them voted for Syriza, which wants to reallocate resources to wage increases and subsidies and does not even mention exports in its growth strategy. They would be wise to remember that having Stiglitz as a cheerleader and Podemos as advisers did not save Venezuela from its current hyper-inflationary catastrophe.

As I’ve said before, that out of control Greek government spending and borrowing has been converted into a (supposed) cautionary tale about the dangers of fiscal conservatism is one of the greatest (and most unfortunate) public relations triumphs of modern times.  That said, I would have preferred it if Hausmann had paid more attention to monetary policy.

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       The media is only correct when it reports the facts. The austerity myth is just the latest bunch of nonsense. The Greek government borrowed more money than it can pay back. Reducing spending is not an option.  This “austerity” will be followed by an economic slowdown.  One cannot then blame the slowdown on  “austerity.”

Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Days of Songs and Mirrors: A Jacobite in the ‘45.”
Cui Bono–Cherchez les Contingencies

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