The Greek Myth

Tyler Cowen thinks most people have it backwards:

… 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.

Ponder that one carefully.

The post that came from links to this article entitled “Austerity Is Not Greece’s Problem” by Ricardo Hausmann (Cornell Ph.D., Harvard professor, cabinet official in Venezuela when it was still the richest country in Latin America). I knew the situation was bad, but not that bad:

… 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.

His diagnosis of the problem is earthier than mine, but fairly similar:

Fiscal deficits, like unwanted pregnancies, are the unintended consequence of actions taken by more than one person who had other objectives in mind.

The numbers sound like the spending problems of a dysfunctional family:

… From 1998 to 2007, Greece's annual per capita GDP growth averaged 3.8%, the second fastest in Western Europe, behind only Ireland.

But by 2007, Greece was spending more than 14% of GDP in excess of what it was producing …

And Greece is not in a good position to work off its debts:

… The way to minimize the pain is to cut spending without cutting output, which requires selling to others what residents can no longer afford. …

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. … The country produces no machines, electronics, or chemicals.