Greek Referendum Poll

[MadImmortalMan]

What do you consider "austerity working" to be?

Germany?

[Razgovory]

Under the situation where a country:
+ has no central bank or control over monetary policy
+ exchange rate is fixed as with largest trade partners
+ faces severe recession and financial crisis that is global in dimension

A policy of hard austerity as that actually demanded of and implemented by Greece is insane.  If you asked 1000 economists that hypo, 990 are going to say it's nuts.

You can talk blue in the face about whether austerity "worked" here or there.  But is was predictable it would fail in Greece, it did fail, and it failed badly.  And part of what is happening now is a consequence of that failure.

What are the other 10 going to say?

[Admiral Yi]

Under the situation where a country:
+ has no central bank or control over monetary policy
+ exchange rate is fixed as with largest trade partners
+ faces severe recession and financial crisis that is global in dimension

A policy of hard austerity as that actually demanded of and implemented by Greece is insane.  If you asked 1000 economists that hypo, 990 are going to say it's nuts.

You can talk blue in the face about whether austerity "worked" here or there.  But is was predictable it would fail in Greece, it did fail, and it failed badly.  And part of what is happening now is a consequence of that failure.

Joan Minsky, correctly predicting 10 of the last 1 failed austerity programs.  Remember what you were saying about Teh Fiskal Kliff?

I'll repeat the same question you declined to answer previously: let's assume everybody in the world gets on board with your program, and the decision is made to pursue "hard austerity as it was implemented in Greece."  Who pays?

[Admiral Yi]

To say that austerity (or anything else) has worked you need to consider the evolution of purchasing power, unemployment, demographics, investment ... and yes, also debt management. I wouldn't class a country with long-term 20+% unemployment a "success", for example.

As I've stated several times in the past, faulting austerity for not producing growth is like faulting video games for not giving women bigger boobs: reducing deficit spending will axiomatically decrease aggregate demand, contract the economy, reduce employment, etc.

OK, that analogy was Marty-esque but you get my drift.

[DGuller]

To say that austerity (or anything else) has worked you need to consider the evolution of purchasing power, unemployment, demographics, investment ... and yes, also debt management. I wouldn't class a country with long-term 20+% unemployment a "success", for example.

As I've stated several times in the past, faulting austerity for not producing growth is like faulting video games for not giving women bigger boobs: reducing deficit spending will axiomatically decrease aggregate demand, contract the economy, reduce employment, etc.

OK, that analogy was Marty-esque but you get my drift.

Marty, can you fix up Yi's analogy?

[Razgovory]

To say that austerity (or anything else) has worked you need to consider the evolution of purchasing power, unemployment, demographics, investment ... and yes, also debt management. I wouldn't class a country with long-term 20+% unemployment a "success", for example.

As I've stated several times in the past, faulting austerity for not producing growth is like faulting video games for not giving women bigger boobs: reducing deficit spending will axiomatically decrease aggregate demand, contract the economy, reduce employment, etc.

OK, that analogy was Marty-esque but you get my drift.

Marty, can you fix up Yi's analogy?

I'll give it a try.  Faulting austerity for not creating growth is like faulting a hangman for not saving lives.  I thought that the idea behind Austerity was to end deficit spending, which is tantamount to "free money", that most monstrous of economic crimes.  As far as I know this did not happen.  The economy contracted drastically which led to decreased revenue which resulted in deficit.

[The Minsky Moment]

Joan Minsky, correctly predicting 10 of the last 1 failed austerity programs.  Remember what you were saying about Teh Fiskal Kliff?

I can't even think of 10 austerity programs, much less predict them, much less predict correctly.
As for the Cliff, don't recall what I said.  Although usually I'm not big on predicting.  I'm confident that I said the sequester was idiotic and I stand by that.  Total abdication of responsibility by Congress. 

Other that that I would say if you are going to do  fiscal consolidation, it helps if you can tank your currency and if you've got a central bank to willing to rev the presses to high speed

I'll repeat the same question you declined to answer previously: let's assume everybody in the world gets on board with your program, and the decision is made to pursue "hard austerity as it was implemented in Greece."  Who pays?

Who pays now?  The consequence of the policy was higher debt load.

[The Minsky Moment]

Under the situation where a country:
+ has no central bank or control over monetary policy
+ exchange rate is fixed as with largest trade partners
+ faces severe recession and financial crisis that is global in dimension

A policy of hard austerity as that actually demanded of and implemented by Greece is insane.  If you asked 1000 economists that hypo, 990 are going to say it's nuts.

You can talk blue in the face about whether austerity "worked" here or there.  But is was predictable it would fail in Greece, it did fail, and it failed badly.  And part of what is happening now is a consequence of that failure.

What are the other 10 going to say?

Blah blah blah von Mises blah blah blah some crazy quote from Ayn Rand novel blah blah blah the magic Walrus told me it would be OK

In ascending order of relative lucidity and common sense.

[The Minsky Moment]

For the record, and save Yi the trouble of trying to mine 2012-13 era posts, the experience of the sequester/cliff has led me to give more credit to the view that monetary policy can offset fiscal impact, even when interest rates are very low.   I give more credence to the Scott Sumner/market monetarist view of the world than I did before that episode.

But that really has no bearing on the Greece question.

[Admiral Yi]

OK Joan, if you don't want to answer the question I will.  The rest of the EU pays.

*If* you want greater deficit spending by Greece *and* you don't want them to acquire an unsustainable debt load, they have to get free money from some one.

IIRC the original bailout allowed for something like 4% deficits in the first two years.  What would have made you happy?  6?  8?  For more than two years I assume?

So the inescapable result of your preferred policy is the rest of Europe gives Greece a gift of 6-8% of GDP for a number of years, because they feel that sorry for poor Greek pensioners, and because they value the inviolability of the eurozone that much, and because they feel that much solidarity with their EU brethren.

And of course the other PIIGs won't raise a stink because their situations are TOTALLY DIFFERENT.

[Monoriu]

Greece still has a per capital GDP that is double China's.  The guys who retire early and receive 96% of their pre-retirement salaries as pensions are much richer than the Chinese who are willing to endure 14 hour, 6 day work weeks in factories with tight controls on how many toilet breaks each worker can take.  Bankrupt Greece is still richer than China the economic powerhouse of the globe.   

[The Minsky Moment]

OK Joan, if you don't want to answer the question I will.  The rest of the EU pays.

*If* you want greater deficit spending by Greece *and* you don't want them to acquire an unsustainable debt load, they have to get free money from some one.

Incorrect. 
The rest of the EU paid to take the debt off the hands of creditors.  That was done *with* austerity.  The cost was paid regardless.

Without austerity the only difference would have been the ECB writes off a big chunk.  Just an accounting entry.  And in the context of massive global central bank balance increases, totally immaterial.

[The Minsky Moment]

Bankrupt Greece is still richer than China the economic powerhouse of the globe.   

Hate to break it but lots of countries are richer than "the economic powerhouse of the globe." Using the 2014 IMF numbers that would include Colombia, Serbia, Libya, the Dominican Republic, Algeria.

China is still a poor country.  There are pockets of prosperity.  And still huge swaths of grinding poverty.

[jimmy olsen]

OK Joan, if you don't want to answer the question I will.  The rest of the EU pays.

*If* you want greater deficit spending by Greece *and* you don't want them to acquire an unsustainable debt load, they have to get free money from some one.

IIRC the original bailout allowed for something like 4% deficits in the first two years.  What would have made you happy?  6?  8?  For more than two years I assume?

So the inescapable result of your preferred policy is the rest of Europe gives Greece a gift of 6-8% of GDP for a number of years, because they feel that sorry for poor Greek pensioners, and because they value the inviolability of the eurozone that much, and because they feel that much solidarity with their EU brethren.

And of course the other PIIGs won't raise a stink because their situations are TOTALLY DIFFERENT.

The rest of the EU is going to end up paying anyways, so what's the difference?

[Admiral Yi]

Incorrect. 
The rest of the EU paid to take the debt off the hands of creditors.  That was done *with* austerity.  The cost was paid regardless.

I don't know what you're talking about here.  It doesn't match the post you responded to.

Without austerity the only difference would have been the ECB writes off a big chunk.  Just an accounting entry.  And in the context of massive global central bank balance increases, totally immaterial.

Well, that's certainly an interesting idea on where to find the free money.

Assuming for the sake of argument that ECB rules would permit such a write off, or that they could be changed to do so, how does one justify giving Greece free money in the amount of 6-8% of GDP but not the other indebted countries?  Surely an equivalent gift to Portugal or Ireland would have a similarly negligible effect on the money supply and inflation and the exchange rate and asset values?

If other countries in the future got into a similar situation as Greece by partying like it's 1999, could they then expect similar treatment?  If no, why not?  All the arguments for monetizing Greek debt would apply to them as well.