Thursday, October 20, 2011

Philosophers Support Greek Austerity

Probably not, but suppose you read a newspaper story on the Eurozone crisis that emphasized the solemn obligation of Greece to repay its creditors and included a sentence like this:
Philosophers and Greece’s foreign lenders say the austerity measures are required to meet its obligations, but they are deeply unpopular with Greeks.
You might wonder whether philosophers, who glory in their argumentative skills, actually agree on this.

In fact, the sentence in today’s New York Times reads:
Economists and Greece’s foreign lenders say the austerity measures are required to modernize its economy, but they are deeply unpopular with Greeks.
Now I happen to be an economist myself, and I know and communicate with lots of other economists of varying political and doctrinal affiliations, and none of us—none—thinks that austerity fosters modernization.  How will across the board wage cuts and tax increases (on wages of course, since other forms of taxation can easily be evaded) turn the national railway system from a patronage machine into a transportation service?

The question behind the question is why the Times feels the need to give austerity an aura of professional approval.

I’m an economist, I think the Greek economy is dysfunctional on several levels, and I’m with the strikers.

9 comments:

Dick Durata said...

I think what thee Times means by 'modernizing' is that the Greek economy becomes wholly controlled by global financial interests.

Jack said...

Peter
I'd appreciate your thoughts to my comments on the Times article on AB, here:
http://www.angrybearblog.com/2011/10/open-thread-10202011.html#comments

Reading through the source, The Economic Programme for Greece published by the European Commission will give you a good sense of why the Times article makes the statements that seem more the product of a philosopher than an economist. On the other hand some would say that there is little difference between those two areas of thought.

http://ec.europa.eu/economy_finance/publications/occasional_paper/2010/pdf/ocp61_en.pdf

Shag from Brookline said...

Might protesters wearing togas symbolize wearing sackcloth?

Peter Dorman said...

Jack, you are asking a ton of questions about the Greek situation, and I can't possibly answer them all here. Just for starters, though:

It is the Greek government that has massive debt obligations. It famously kept two sets of books for a number of years.

"Liberalization" is econ-speak for deregulation, moving toward a free market approach.

Greece cannot possibly afford the level of patronage employment in the public sector. This is why tax hikes alone can't service the debt.

But Greece cannot service its debt no matter what: there is too much of it, and in an economic downturn the government should be running primary deficits, not surpluses. (Primary means net of debt service.) That's why default is unavoidable.

You are right that a lot of the demands being placed on Greece are about getting political buy-in, especially from Germany.

Important: Greece owes money primarily to private Eurozone banks. So-called bailouts for Greece are in fact bailouts for the banks.

So: the protesters are saying, why should we impose pauperization on our country in order to make the bankers whole?

Jack said...

Question to your important point, who's money did the banks lend to Greece? Was it shareholder money? Was it depositor money? What I've read so far only implies that it was private banks that were on the hook for the debt. What I'd like to know, and it hasn't been easy to find, what did Greece use the borrowed funds for? It is implied that much of it went to rescue private Greek banks and that it was not, initially, for the purpose of supporting a so called bloated public employment sector and the pensioners.

What the wag once said about the lawyers first more appropriately should have been the bankers. Maybe that's what he meant.

Jack said...

"Greece cannot possibly afford the level of patronage employment in the public sector. This is why tax hikes alone can't service the debt."
That statement worries me coming from you on this site. First, the implication is that public workers in Greece are little more than patronage appointees. I've yet to find any good analysis which would validate that idea. A Wiki (yes, I kknow that's not the best source, but it does include a reference) article on the issue of Greek debt points out that Greek workers work the greatest number of hours of all European workers and are second only to Korea when hours of work are compared world wide.

I'm reminded of Scott Walker's claims in regards to Wisconsin's public employees. It seems that the workers that provide the services that we all know to be critical to a modern society are thought to b e no better than felons making off with large and unearned pay checks and sunning themselves on a beach in sumptuous retirement. Been there, done that. Twenty five years in NYSs OMRDD, professional clinical services and mid-level management. I can assure all out there that unless you work at hard manual labor you've not had as hard a task under as much pressure as do most public employees. And my job was not nearly as difficult and under appreciated as those working at the lowest levels of pay classification. Close all the schools, the public hospiotals, let the roads go to pot and end all government provided water and sewage treatment. Then live with the results. Pay private industry to do the jobs and increase your costs with no likely improvement in services. Maybe we can import a bunch of Foxxcon retirees to take over the public sector jobs in Greece.

Secondly, what is clear is that it is not tax hikes that are needed, but, instead, the Greek government has to begin collecting any tax at all. An emormous percentage of taxes due go uncollected in Greece. Apparently Swiss banks are holding an enormous amount of Greek earnings that have gone untaxed (or more accurately uncollected taxes that are owed to Greece).

Brenda Rosser said...

"In economics, austerity is a policy of deficit-cutting, lower spending, and a reduction in the amount of benefits and public services provided."

Therefore, a rational economist would never 'support' austerity. After all the very point of having an economy in the first instance is to provide benefits and public services.

A much better program designed to cut the deficit - in a time when wealth is so concentrated in very few hands - would simply be to fail to pay the (rich) creditors and implement cooperative public strategies for continued wealth creation and preservation (for the masses). Easier said than done, perhanps, when the ownership and control of wealth-producing capital is also very concentrated.

Jack said...

Asset confiscation sounds like a better and more direct approach to a problem that has been growing like some cancerous mass which has attached itself to the heart of our economy. Austerity is fine if applied in a manner which would reduce profligate wealth accumulation by a small band of pirates acting in concert to suck the life blood from our economy. Are we now, and have we been for the past several decades, in an era of Vampire Capitalism? You can only destroy the destroyer of life by driving a stake through its heart or exposing it to the light of the day.

A crazy analogy? I think not. What do you get when you cross a political operative with a capitalist? A vulture which is not content until it has stripped all the meat from the carcass of its helplessly injured prey.

Sandwichman said...

Peter, the construction "Economists say..." is shorthand for "we're making this shit up and we want you to swallow it whole without sniffing it first to find out that it's just shit."