Greek unemployment: Interviewed by John Doyle, ABC Radio National

Unemployment in Greece is now at a staggering 27%, but behind all the statistics and the ongoing international drama there lies a major human tragedy and an ongoing European Crisis that is ravaging the continent like an unstoppable bushfire. Click: RN Breakfast Tue 15th Jan 2013 – Greek unemployment

92 thoughts on “Greek unemployment: Interviewed by John Doyle, ABC Radio National

  1. @Richard

    Im well aware that Austrians define inflation as an increase in money supply.
    But thats not what people complain about when they talk about inflation.They complain about the increase in prices which supposedly is caused by the increase in MS.

    Like i said, there must exist certain conditions for the MS to cause prices to spike.It just doesnt automatically happen.

    • Crossover,

      Before I quote Mike Whitney from counterpunch.org and Barron’s on the Bearded One’s (Bernanke’s) progress on QE, I’d like to say that I am an avid reader of Warren Mosler’s blog at moslereconomics.com. He, as you know, I think together with Randall Wray, came up with MMT at the University of Missouri – Kansas City. I must say that Mosler (Wray, too) is not only brilliant but a very likeable fellow, too. MMT, as you know this, too, applies only to sovereign countries such as Canada, Australia, and the US — countries who have CONTROL over their OWN currency.

      Ok … Here’s Mike Whitney:

      Since 2009, the Fed Chairman has launched 3 rounds of his bond buying program called quantitative easing or QE. He also initiated a similar program called Operation Twist in which the Fed changes the duration of its portfolio by selling short-term US Treasuries and buying longer-term ones. Like QE, Operation Twist is designed to reduce borrowing costs for businesses and consumers by pushing down long-term interest rates. All told, the Fed’s various unconventional easing programs have more than doubled the Fed’s balance sheet (now approaching $3 trillion) while tripling the amount of liquidity (base money) in the financial system. At present, those excess reserves pose no danger to overall price stability, but if the economy rebounds–as it eventually will–then the Fed will either have to mop up the extra liquidity quickly or face an inflationary tsunami unlike anything the country has experienced in its 230 year history.

      Barron’s

      ….the Fed not only has failed to spur real growth but mainly has pumped up prices. That’s been a boon for wealthy investors who have benefited from lift in asset prices, but a bane for middle- and lower-income consumers who have to pay more for food and fuel…..
      During QE1 and QE2, wholesale gasoline prices jumped 30% and 37%, respectively, while the food component of the Goldman Sachs Commodity Index rose 7% and 22%, respectively. Meanwhile, the Standard & Poor’s 500 gained 36% and 24% during those respective spans. ….

      The unintended consequence of higher prices, and reduced workers’ real incomes as a result, actually has been to slow economic activity, he argues. The wealth effect, meanwhile, has been confined to upper-income households, whose spending is hardly affected by asset prices. According to one estimate Hunt cites, a $1 increase in wealth generates less than 0.5 cents in incremental spending.

    • “MMT, as you know this, too, applies only to sovereign countries such as Canada, Australia, and the US — countries who have CONTROL over their OWN currency.”
      Ofcourse.But take a minute and think about it.Why did Argentina default?It defaulted because it pegged its currency with the US$.As long as its currency was pegged/convertible to the US$ it was precisely as if it was using a foreign currency.The thing is, they CHOSE to do it.And they could very well break the peg instead of defaulting.Unfortunately, they defaulted and broke the peg afterwards.In my eyes this was a voluntary constraint.Pretty much like the debt ceiling.Thats a voluntary constraint too.They imposed it on themselves.If you go on a diet,you prohibit yourself from eatting.But you can quit the diet whenever you like.
      Its pretty much the same with the euro.We (at least on paper) decided to abandon our currency and adopt a foreign currency.And even after adopting it,its the european treaties we imposed on ourselves that dont allow us to treat it as a domestic currency.

      Mike Whitney is right on spot about the purpose of QE and OT.They aim to reduce the long term interest rate.They’re not aiming to flood the banking system with extra liquidity so that it will be able to lend more.
      The explanation for this is simple.The Fed always provides the needed liquidity when banks are short on them.This means that this is no constraint for banks in the 1st place.

      So then Mike Whitney says: “At present, those excess reserves pose no danger to overall price stability, but if the economy rebounds–as it eventually will–then the Fed will either have to mop up the extra liquidity quickly or face an inflationary tsunami unlike anything the country has experienced in its 230 year history.”
      I wonder why he says that these excess reserves pose an inflationary danger.My best guess is that he believes that once the economy recovers,banks will be able to extend massive amounts of loans with all these excess reserves and cause the economy to overheat.
      If im right on my guess then he got several things wrong.First,like i said banks are not reserve constrained when it comes to providing loans because the fed always provides them.According to the banking regulations of the Basel Treaty, banks are CAPITAL constrained,regarding their ability to give loans.Since QE is a simple asset swap,the capital position of the banks is unchanged,thus their ability to give loans is unchanged too.

      With that being said,banks dont lend reserve balances any way.Reserve balances only serve the purpose of settling interbank transactions and deposit withdrawals.Loans are created out of nothing.

      As for Baron,
      I agree with his comment on growth.Unfortunately monetary policy is not as effective as fiscal policy is regarding growth.
      But i take his other comments with a pinch of salt.
      Investors have actually been forced to take on more risk since safe and risk free assets (like gvt debt) are removed from the system and the long term interest rates are falling.Any asset price change (increase) is and will be short term since QE does not provoke any change of the fundamentals.Furthermore the false inflationary expectations caused by QE can alone cause prices to be bid up but when reality hits there will be correction.He also says that after QE1 and QE2, the cumulative increase in gas price has been 67%.Thats the 1st time i hear such a figure,but even if i choose to believe it i cant help but wonder how inflation has been kept so low when gas prices drive the prices for the majority of products.And i also cant help but wonder if after 2 QE’s gas price in the US increased by 67%, then what are the prices in Japan after a decade of QE ?You know people talk like QE has never happened before…

      The most extensive analysis on QE that im able to agree with can be found here:

      http://pragcap.com/understanding-quantitative-easing

      More links to articles are at the bottom of that page.Have a look if you like.

    • PS.Looked up gas price yoy change at the Fed.Its not 67% but close.After an almost 30% drop in 09 it rose about 28-29% in 2011.But i insist that there’s no transmission mechanism from QE to the real economy.There have to be other factors for that.Tensions in Arab countries,Iran,emerging economies…

    • Why did Argentina default?It defaulted because it pegged its currency with the US$.As long as its currency was pegged/convertible to the US$ it was precisely as if it was using a foreign currency.

      Indeed. It was a promise (to convert at a fixed exchange rate) that the government could not keep. The peg was the equivalent of being on a gold standard

    • Crossover,

      Mosler likens QE as a tax on the private sector; Whitney as a “free lunch” to the banksters.

      If Barry Obama were not bought and paid for by the banksters, he’d have the Bearded One buying infrastructure bonds instead of toxic ones.

    • @lastgreek

      Just to not let me be misunderstood.Im not defending QE.Its useless and since people have a wrong perception about it and react irrationally to it, then its even harmfull.Im merely saying that its just impossible for it to create demand pull inflation because it doesnt have the ability to increase the available buying power for anyone.Furthermore,a big amount of interest payments is withdrawn from the economy in exchange for almost 0% interest earning reserves.That disinflationary in itself.

      With that said, if Obama was on his right mind he would use fiscal stimulus (which actually has been proven to be effective on the US economy,to the extent it was used) instead of involving the Fed whose weapons are nothing but painkillers…

  2. Crossover – “How can you be so dumb seriously?you’re posting absolute numbers and trying to prove a point.What are you 15?” You have to use absolute numbers because the increase in government borrowing skewed the GDP numbers so much it makes comparison to GDP meaningless.

    “.You cant default when you issue your own currency.” – This is incorrect. To illustrate the point you have Obama threatening to default on US government debt if the debt ceiling is not increased.

    “rather it set a band of prices it would allow it to float between” Okay and how did it do this? What method did it use to control the price?

    “Like i said the high interest rates were meant to protect the foreign reserves.” – Foreign reserves of what?

    “And YES high interest rates CAN cause inflation at certain cases.” Lets be more specific. If you increase interest rates you will not increase the amount of money in circulation.

    • “You have to use absolute numbers because the increase in government borrowing skewed the GDP numbers so much it makes comparison to GDP meaningless.”
      You’re still dumb.Even if we agreed that for whatever nonesensical reason we should use absolute numbers instead of the gdp ratio,when you compare public debt as % of gdp and private debt as %of gdp and you see that through out the last decade the former was in the range of 97 – 105% and the latter went from 40% to over 100% then its safe to say that private debt skyrocketed and gvt debt was stable.Do i need to break it down further to you?

      “This is incorrect. To illustrate the point you have Obama threatening to default on US government debt if the debt ceiling is not increased.”
      Which in other words means that they will not default once the debt ceiling is raised (as was the case actually).So you do realise yourself that their ability to avoid a default is based on the laws they pass rather than the money they have….

      Alan Greenspan: “The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default”

      “Okay and how did it do this? What method did it use to control the price?” CB’s buy and sell currency if they want to maintain a certain price for their currency…thats how it always works.

      “Foreign reserves of what?”The foreign reserves held at the CB that help it maintain its monetary policy.

      “If you increase interest rates you will not increase the amount of money in circulation.”
      Indeed.But this only makes sense if you’re an Austrian.For the rest, inflation is the continuous increase in prices.And like i said, under certain circumstances

    • My last comment was not posted in full.
      Interest is an expense.Thus increased interest rates can lead to an increase in prices in order to protect profit margins of the borrowing corporations and businesess.Nobody spoke about interest rates increasing the money supply except you.

    • Of course absolute numbers matter a lot. At least as soon as the economy (or private income respectively) is shrinking. As can be seen, for instance, in Greece.

      An amount that was, say, 80% a few years ago would represent, say, 120% now in the depressed economy (illustrative figures only).

      It escapes me how the Keynesian approach to always pump up the debt even more should improve the situation.

      Don’t forget, the 2nd half of Keynes’ recipe, to reduce the debt during good times, was almost never, almost nowhwere done. The few instances where it happenend were by chance, not by targeted political action.

    • @vss

      There has to be a context when you measure spending,debt etc.
      And absolute numbers dont provide this option.
      Indeed the example you posted is valid.Yet if you look at the private debt graph i provided,you can see that it started skyrocketing right after we entered the euro and the economy was growing.Obviously the recession enlarged the debt/gdp ratio but there was no recession until 09.The increase untile then was solely due to credit expansion.

      As per your argument about Keynesians.
      First things first, im not a Keynesian.
      Actually in your eyes, im probably worse than a Keynesian.Since i dont see a reason to worry about gvt debt in good or bad times.The only constraint i see is inflation.This is what should dictate gvt spending (and thus gvt debt too).and not solvency which is not an issue for any country that issues its own free floating currency and its debts are denominated in this currency .A fact which in turn shows that the only problem with the euro is the way we decided to treat it (i.e. treat it as a foreign curency),through our laws,legislations,maastricht treaties etc…

  3. Proffesor, i just read “Ο παραλογισμός της γενικευμένης λιτότητας”.
    I can tell i wasn’t expecting you to use the sectoral balances approach to explain why it is not possible for all of us to have trade and budget surpluses.
    But having seen you, first using the same retoric with MMT to demonstrate both the ineffectiveness of QE and its inability to be inflationary,and now seeing you use sectoral balances, i can’t help it but ask if you have changed your mind about MMT ?
    Because you once replied to a reader that “now in my old age i am not planning to become an MMT advocate” or something along these lines.
    If you did change your mind maybe you should start writing more about it.
    If you didn’t, i’m always eager to know your critique on it.

    • corssover -” it is not possible for all of us to have trade and budget surpluses.” – I dont think there is a single person who would disagree with you.

      “QE and its inability to be inflationary” Oh please

    • Im not going to argue with you when you clearly dont understand how QE works.Once you do your homework and learn that QE involves an increase in Bank Reserves held at the Fed and cannot enter real economy circulation, then we can proceed discussning this further.Mind you im still waiting for the hyperinflation from QE1….

    • Cross – “QE involves an increase in Bank Reserves held at the Fed and cannot enter real economy circulation, ” – QE involves The Fed increasing the “assets” it has on its books and in exchange for these “assets” it prints/creates money and gives it to the banks. By definition it is inflationary, the effects of which are highlighted in the video.

    • Again you dont understand that reserves are not money that banks can use outside of the banking system.Its a simple asset swap.Not a net money injection in the real economy.Wake up.

    • Look at this graph:

      http://tinyurl.com/a9jlsh3

      Green line is the Monetary Base in USA, M1.
      Red Line are the reserve balances of the credit institutions held at the Federal Reserve..read: “Reserve Balances with the Federal Reserve Banks”.
      Blue line shows what the monetary base would be if you subtract the reserve balances.
      I hope its clear now that all QE did was flood the banking system with excess reserves that are impossible to enter real economy.
      You may still want to call this inflation, since according to Austrians this is inflation.No matter what you want to call it,the prices cant go higher than where they would go if you started printing trillions and burried them in your backyard.

  4. http://www.rieas.gr/research-areas/editorial/1894-narrowest-divide.html

    Governments in democracies are expected to defend the constitution and the laws of the Nation and do their utmost to protect and enhance the national interest.

    This basic principle has been obviously forgotten by the Greek administrations that came to power since 2009 and surrendered Greece to her creditors and, principally, Germany.

    This surrender, without a single shot being fired in anger, has destroyed the Greek economy (with all its problems and shortcomings); has driven at least one third of the population of Greece under the poverty line recognized by the (so-called) European Union; has triggered the biggest mass emigration of the young since the end of WWII; has driven suicides up by 50%, making Greece one of the foremost victims of self-destruction globally; and has pushed the country under thinly-veiled foreign occupation represented locally by foreign “technical assistance” teams and EU officials in the unofficial but crucial role of Gauleiters.

    To drive the knife deeper into the wound, the Samaras government is bringing to parliament a law that throws the gates of the Greek state wide open to the creditors to claim all national assets with absolutely no exception in order to satisfy their demands.

    The law, the government claims, is a “prerequisite” for Greece to receive further “bailout” aid from the lenders in March 2013 so that she can continue to shoot herself now in the limbs, now in her torso.

    Bluntly speaking, it will allow the lenders to come in and lift everything, including the family silver, with Greece voluntarily dropping her national sovereignty and accepting not/not to pursue cases against the lenders in the courts.

    Mr. Samaras, just like his immediate predecessors, exists in a shadowy political space narrowly divided from what any sane historian, lawyer, and international expert would recognize immediately as aiding and abetting parties that glaringly seek the reduction of national sovereignty and the permanent injury of the people of Greece.

    I care little to hear the usual choir crow that without these fatal, self-inflicted wounds Greece won’t be “saved.” Since she is already dying, she is beyond “saving” as the lenders propose.

    Between genocide by taxation, destruction via outrageous income cutbacks, wrecking by shutting down government investment, and, finally, exploding the very foundations of our country by entering into bestial agreements as above, our “democratically” elected government stares at a colossal separation from the body of people who supposedly gave it the “right” to act as it does.

    If this latest atrocity does not push public opinion into total mobilization against the “troika”-induced pandemic threatening to finish Greece as a physical entity, then we will deserve what comes next.

    Liberty and national sovereignty are not on offer. They are won at every moment of every day of every year thanks to our vigilance and willingness to sacrifice.

    • “Between genocide by taxation,”

      I am not pro high taxes, but maybe you should compare the new “high” Greek tax rates on labor to Germany or France! You will see that what everybody is complaining about in Greece, has been reality in many countries for a long time…

  5. A couple of months ago, one of the Canadian TV news networks (Global TV) did a story of a Greek businesswoman from the Peloponnese struggling to keep her pasta (dry foods) manufacturing business from going bankrupt. Before the crisis, her market was only Greece. But now, to increase sales so the plant does not shut down, she started marketing her food internationally, especially to cities with large Greek communities such as New York. It was supposed to be a feel-good story in an otherwise awful economic situation in Greece.

    All was good until the camera zoomed in to where the food was being made. I counted about a dozen people working there. Now please excuse me for saying this, and I know this is going to upset Yani, but not one person in the food plant “looked” Greek. (Yeah, I know, “What does a Greek look like?”) They all looked southeast Asian. (Now please don’t start with “What does a southeast Asian look like?”) Sure, they could be all legal residents, but let’s not lie to ourselves; most likely they’re not. She hired illegals because, to use apt Marxian language here, she wanted most of the damn surplus for herself … and damn the employee benefits, too! See that pissed me off, especially when I read a few days earlier of how the Greek unemployed are now cut off from medical treatment. In other words, if you’re unemployed and have cancer you are going to die a painful death.

    Am I wrong for feeling upset at this businesswoman for not hiring Greek citizens, especially when the damn “unemployment is a staggering 27%”? Or should I start feeling upset when Greece becomes a nation of beggars and prostitutes … or another Latvia?

    (Btw, Chris Coles, the US economy is not in exactly the same state as Greece. The US economy is infinitely better than Greece’s, as screwed up as the US ecomomy is … lol You see Greece is not a sovereign nation; it is a German dumping ground. (Hell, the Germans even dump their shitty submarines on Greece.) And don’t let your crummy politicians, especially that fakester Barry Obama, fool you with all this bullshit talk about the necessity of cutting spending on social programs such as social security and medicare. If anything needs to be cut, it’s that insane military budget.that just keeps on killing people.)

    • Hmm, well, speaking in general terms… a lot of Pakistanis working in factories and other businesses have been, and continue to be. working legally and are fully documented. If you want to know why a Greek business would employ Pakistanis at minimum wage rather than Greeks, both Yani and I can tell you. Most Greeks consider that they are worth more than minimum wage, and are reluctant to put in the extra effort to make the business work. South East Asians, on the other hand, are so grateful for work at even these low pay rates, they will work hard.

      It is still about the gap between underdeveloped economies and Europe, but it is also about Greek expectations of financial reward being rather high and completely unrelated to skills and effort. In other words, too many Greek people are looking for overpaid easy jobs (and not only in the state sector) through connections and influence.

      Of course, you may be right that they are not employed legally, On the other hand, I doubt that an employer would be stupid enough to permit tv cameras into such a situation…

    • Most Greeks consider that they are worth more than minimum wage, and are reluctant to put in the extra effort to make the business work.

      Before the Euro crisis, that argment may have had merit. (Hell, I’ve even joked on another blog of how it was mostly cheap, Albanian labour that build the Olympic facilities … and on time, too!) I don’t think it has today, xenos — especially not with depression-level unemployment and medical coverage that is now, unfortunately, tied to legal employment.

      I doubt that an employer would be stupid enough to permit tv cameras into such a situation…

      Well … it was an international film crew, not a Greek one. And the camera zoomed in on the plant floor for a few seconds only. Maybe all the employer had in mind was the free publicity for her products?

    • Sorry, but I know that you are not living in Greece. If I were to tell you about some recent appointments of useless malakes to state jobs — through Pasok — you would understand that nothing has changed. Well, pensions and wages have been cut, and people have been made homeless and hungry, but Pasok and ND carry on as before.

      And I am not convinced that young Greek people are prepared to work for low wages. I know of no evidence to support this claim, and have seen much to contradict it. They prefer to emigrate.

    • To Guest, well i am living in Greece and i can perfectly answer this mystery as to why greek people don’t work for less than minimum wage. It’s pretty simple to grasp if you live in Greece…

      First of all, you can not live with 400euros per month. It’s just not an adequate amount to make ends meet. You can not make plans for the future (family etc), you can’t buy anything unless it’s absolutely necessary. You can not save money for bad times. If you get sick, you probably have a big big problem. Bear in mind that living in Greece is super expensive!

      An immigrant, away of his/her country does not have an viable alternative. Civil wars, world game politics, dictatorships and others have made his/her country a death place. So sure, does he have an alternative? For him, it’s a matter of life and death. So i guess the immigrant is not “lazy”. Believe nobody wants to live away from his birthplace!

      The problem for Greeks is not that they want to get paid like a swiss because they think their work is more worthy. The problem is they want a wage they can live by. And they don’t have one!

      Even in agricultural places, they don’t hire anybody! In olive oil, if you hire someone, you don’t have any profit. So you have two options, either you don’t bother or you harvest due to tradition and love for the soil. In Crete, there are only a few immigrants left compared to 10 years ago doing agricultural work.

      If you are a greek and believe that greeks are lazy, you probably don’t have a financial issue and blame your fellow greeks for feeling ashamed of comments by non-greeks.

      As far as the the countless youth sitting in coffee shops. Simply think this. Going out for coffee is the cheapest means of entertainment. Secondly it’s better than sitting home getting depressed. In other words feeling depressed all together is better than feeling depressed all alone!

      Get over your inferiority complex, for god’s sake! Still seeking approval by others?! Get a life!

    • @thlias

      I suggest you get a better education and learn to read what people are actually saying. At no point did I suggest that young Greek people SHOULD work for low wages: I am merely pointing out that they are not prepared to do so. The job of a serious scientist is to initially try to describe reality, then explain it; perhaps in the final stages — after analysis — we may feel competent to suggest some “shoulds” and “oughts”. Of course, this approach is at odds with much of the low quality education that Greek students are subjected to.

      Following from this point about wage expectations, I can assure you that I have had to work longer hours, over weekends and nights, to compete research projects, which Greek students would never consider doing. This means that they are not adequately prepared for the harsh world of work, even assuming that they possess the necessary skills.

      At the other extreme, I cannot recall the number of times I have been told by “colleagues” about how they secured for their son, daughter, dog, cat etc. a lifetime job with a high salary — through Pasok or ND. The sheer shamelessness with which Greek university professors abuse the corrupt system, and in so doing ensure that there is no meritocracy in the Greek labour market — is itself remarkable. So employment expectations are unrealistic in Greece, because there is no respect for skills and experience — what really matters is which politicians your family knows and maybe whom you slept with.

    • @Xenos

      Please spare me with the scientific approach …
      you are not even in a position to comprehend that i answered not to what you said but to what you meant.

      And after your lecture about evaluating reality using logic, you reference your argument on what i have heard and what other people say they do. Nice experimental logic.

      And what do you mean they are not “prepared” to do so? Are you insane? I just wrote you why you can’t live with “minimum” wage in Greece. Can an average waged german live in the center of Manhattan? Your logic is dressed up “scientifically” but defies reality.
      But again, what do you care if you are right or wrong. It’s not you that you are subject to implement what you say.

      You are blinded by your ethics man, get a life!

      Even in a matter of economic theory about how an average wage can be evaluated, you refer to “corrupt shameless greeks should be punished simply to understand how harsh life can be” ethics.

    • @thlias

      There are several good books on logic — many written by Greeks — that may be of use to you in constructing arguments. Kindly desist from making personal comments about me, though; this is not acceptable in any context, and is particularly ludicrous as you know nothing about me.

    • @xenos
      Please don’t use this authoritative style. What do you mean by “this is not acceptable in any context”?
      My comments were about what you say, not who you are. I don’t know you. If you don’t like my comments then don’t take part in this conversation in the first place.

      When participating in an open debate, you are commented about what you say. And my critique is also subject to other people judgement.

      Self-asserting the logical value and truth on a matter just by declaring it so is not very wise . I am sure it’s very difficult to find a mistake in your logic by speaking to yourself.

    • @Xenos
      You have replied to me 2 times and i thank you for that, but please give me an advice on how to get prepared to work for less than minimum wage. The way you said it, sounded like a solution to me.

  6. @KlausKastner:
    Re:”So if the State of Texas were in shambles and couldn’t afford unemployment payments, a Texan unemployed would still get payments from Washington. Not because Washington is so noble and generous but rather because those Texans (and Americans from other states) who are not in shambles have sent their money there.”

    26 weeks of unemployment benefits are normally paid by each state gov. using state tax imposed on that state’s employers. In normal times there is a surplus of st. unemp. taxes collected that are used to pay benefits from. But unemployment in Texas during 2008-2009 was far from normal. Its unemployment benefits fund was wiped out quickly just like funds in so many other states. Congressional budget passed by democratically controlled House and Senate provided states with interest-free loans to help with their unemployment benefit shortfalls. This was not considered a noble act but part of emergency federal funding that US government provides to all states when necessary to bolster US economy. Congress also provided 48 additional weeks of unemployment benefits with no recourse to states. Other emergency funding to states went for teacher, police and firefighter salaries to avoid layoffs in deficit states. Where did all that funding come from? ans: US government deficit spending.

    US government does deficit spending for all sorts of things when it deems it necessary. Recent examples include all funding for both Iraq and Afghanistan wars and creating Medicare part D plan for seniors (drugs) during Bush’s 2 terms in white house. And especially during past recessions it was used to stimulate the economy.

    If you look at some of taxfoundation.org data for smaller states in USA like Arizona, Alabama etc., you’ll see that they are many deficit spending states (receive more federal funds than paid). And even with these imbalances the US prospers. It measures it economy with all states included.

    • Jmarco – You need to have this in mind, there is no such things as free money or interest free money, somebody somewhere is or will be paying for this free money

  7. Yanis:
    Finally finished “The Global Minotaur” Especially appreciate the notes section. It was very helpful. What no happy ending? Initially I had blamed the 2008-09 meltdown on Wall Street greed but your book has given me a better perspective of how global economy got there.

    Since President Obama is no FDR (bold leader) and relys on the same financial gurus who helped create this mess, I agree that the future for US economy may be just a lot muddling along. Obama/Congress seem intent on using corp. budget mentality on government spending (cut costs and profits rise or in gov.- speak 2-3% GDP growth will follow). I believe most Republican leaders are praying/hoping that the economy craters again.They would love to be in control of Pres, office Congress and Senate so they could wreck social security and medicare.

  8. @ Klauskastner:
    See answer to your comment:
    “Regarding the 3,78 BUSD which Texas and Texans received in unemployment benefits, could you tell me how much Texas and Texans transferred to the Federal Government as funding for those benefits during the same period? That is the sum of the various forms of payroll taxes (social security, medicare and unemployment taxes).”

    Ah! Well there is somebody that accumulates that data. Go to http://www.taxfoundation.org. Use their search function and type “Federal Taxes Paid vs Federal Spending by State”. Click on Texas Tab.

    You would be surprised to find out that Texas is not being short changed in taxes paid vs funds received. Over 24 yr period study it appears that Texas was always getting their money’s worth of federal funds. Maybe you forgot that federal government has more depts/agencies than just Treasury-IRS. Forget about including federal unemp. tax (0.60% on 1st $7K) that’s one of lowest federal taxes paid by employers. Federal government collects ss and med ss. taxes but it also pays out medicare health care costs and social security benefits. The Taxfoundation.org has only data by state for years 1981-2005. They are looking for more funding/contributions to continue gathering that info for additional years. I would be surprised if years after 2005 would be substantial different for Texas.

    • @Jmarco

      Thank you for the reference. A very interesting site, indeed!

      You confirm what I had expected, i. e. that money sent to Washington is more or less in balance with money received from Washington. So if the State of Texas were in shambles and couldn’t afford unemployment payments, a Texan unemployed would still get payments from Washington. Not because Washington is so noble and generous but rather because those Texans (and Americans from other states) who are not in shambles have sent their money there.

      There is no such mechanism in the EU. The EU does not collect ‘federal EU taxes or social contributions’ and my guess is that any proposal to that effect would have the political chance of an icycle in hell. Would it make sense to have EU-wide unemployment insurance? I would yes because, like with an insurance company, the larger the insured group, the better coverage tends to be and the lower the premiums tend to be. But, again, I would give it the chance of an icycle in hell (in the near term, at least).

    • Klaus,

      I, too, was “surprised to find out that Texas is not being short-changed.” Yet, here are some disturbing stats (state rankings) from the “very interesting site” on Texas:

      Residents With Health Insurance: 50th in ranking

      Children With Health Insurance: 50th in ranking

      High School Graduation Rate: 50th in ranking

      Children Above Poverty Line: 44th in ranking

      For me, it is a shithole of a place to raise a family.

      I bet you did not know that Texas is the radioactive shilthole of the US, too. Texas is where most of America’s nuclear waste is dumped. And dumped it is — right in the open desert, near the New Mexico border.

      My point in the above rant is … even if you have a SRM, when you have corrupt politicians, aided and abetted by an indifferent and stupid electorate … GOOD LUCK.

    • Last Greek – What are the actual figures? Ranking is a comparison, if you dont know the figures its pretty meaningless.

    • @Klaus: the problem is that the EU thinks it does have EU social insurance policy. This started in 1971 with Regulation 1408/71 on the co-ordination of social insurance and has more recently been amended to include non-EU citizens who move between EU countries. In the caselaw of the European court, this policy area has been one of the largest causes of litigation in Europe (surpassed only by employment rights cases brought against the Commission by its own staff).

      The problem is that for so many policies — employment, migration, taxation, monetary, amongst others — the EU refuses to take itself seriously as a political entity. The policies are all co-ordination (apart from taxation which is even more of a mess), where the role of European law is to tell states how they should manage relations with each others’ national systems, and giving protection to individuals’ and legal entities’ rights. In effect, the European policies are a complex mess of 17 national policies with a dysfunctional legal framework to try to make them sort of work together.

      An analogy might be with a watchmaker, who instead of designing his watches holistically, collects parts from 27 completely different watches, hammers and distorts some of the cogs and wheels so that they sort of fit together, and sells it to you as a normal functioning watch. The fact that it cannot keep accurate time, and has a probable lifespan of less than a year, is not mentioned. This is what European politicians have been doing for decades — selling a malfunctioning overpriced product to unsuspecting consumers, and asserting that they are doing a wonderful job. The problem is, though, that most of the “national watches” are also of such low quality, that nowhere can you buy a decent watch. The only future lies in appropriate European collaboration, instead of the half-assed nonsense that has been done for decades. The euro is just the latest (but most important) piece of incompetence; we are at a juncture where we can either revert to failing nation states or accept a federal polity. I am not optimistic that the correct choice will be made.

    • Richard,

      By figures you mean percentages?

      Ok, then. Let’s take one category that I previously mentioned: “Share of Residents With Health Insurance (2009).” Approx. 24% of Texans did not have have any. Not only was this the highest percentage in the country (hence the 50th ranking), but it was significantly higher than the national average of 15%. Btw, Massachusetts which ranked 1st was only 4%.

      Is that meaningful to you now?

      Anyway, Richard, click the link that Jmarco provided if you’re interested in checking the figures.

      PS: My apologies to Texans for using the word “shithole” to describe Texas (of course, I did exclude Austin ;-)). I sometimes have a nastry temper when things upset me. It’s just that such a rich state can do so much better. And that awful man who is currently your Governor … Rick Perry. Why? Why haven’t you impeached him or at the very least have your state Attorney General investigate him for bribery? This man when he was seeking the 2012 Republican nomination for President actually declared, live on national TV, that he could be bought if the price were right! I am not kidding.

    • If you want a EU federal state, than it needs to be called that way and given to the people(s) of Europe via referendum. If only the elites want it, it will not work and eventually lead to hate

  9. jmarco – “I can not buy all your Greek government conspiracy/fault points.” – I point out the reality and you call it a “conspiracy theory”.

    ” It seems to easy to say that Greek government created this mess.” – Its easy because it is a fact.

    “But no, it did not tell its banks/citizens that they must invest in risky CDO or CDC investments.” – This has nothing to do with the problems in Greece, the UK, okay but not Greece. For the record Greeks were the biggest savers in Europe.

    “Yes, it spend and borrowed more in the good times” – Yes, and when the country joined the Euro the borrowing went into overdrive. http://www.tradingeconomics.com/greece/government-spending

    “The financial crisis that hit Greece, Europe and US was not too much government spending but too many risky loans in the private market that lost their supporting value.” – This is not correct for Greece. The problem in the US in 2008 was a banking problem, the US government has the borrowing problem in the horizon. In short Greece is ahead of America on this.

    “ECB did demand/get reductions in government spending as part of lending agreements.” – Again, this is not correct, as I highlighted in my previous comment, Greek government spending is still around the level it was during 2008. See above graph.

    ” I label that austerity (word “austerity” refers to reduced spending (benefits/services). ” – Okay, instead of using Newspeak, lets call it what it is, welfare cuts.

    “When more citizens are losing their jobs surely you see that government spending will rise if it provides unemployment benefits. ” – Sure and surely you see the actions of the Greek government has increased unemployment by destroying the private sector. Taxes have increased since this was written http://independence4wales.com/2011/8-ways-papandreou-sabotaged-the-greek-economy

    “Would you rather Greece take the Ayn Rand approach and let Greek citizens fend for themselves (no benefits)?” – I grant you this is the government line but as usual it misses an important step. How about the government not increase taxes in the first place? The government tax increases have caused the skyrocketing unemployment and the decimation of the private sector in Greece.

    “I received part of those unemployment benefits and it helped me out tremendously.” _ im sure it did, I would even go as far as to say benefit cuts are the absolute last thing any government should do. It should be at the end of the queue. Benefit payments are the fruit of the taxes that people pay, by reducing benefits payments the government becomes less relevant. This article goes into more detail as to why benefits cuts are akin to sabotage http://independence4wales.com/2012/uk-wage-pension-benefit-cuts-why-they-are-anti-capitalistic-100-counterproductive

    “That was $3.78 billion that went into Texas economy without state government imposing any taxes to pay for it.” – Okay, so someone else will pay for it through federal taxes or through the taxes in their state

  10. Richard:
    I am new to this blog discussions but I can not buy all your Greek government conspiracy/fault points. It seems to easy to say that Greek government created this mess.

    Yes, the Greek government is responsible for Greece using the Euro as its currency.

    But no, it did not tell its banks/citizens that they must invest in risky CDO or CDC investments.

    Yes, it spend and borrowed more in the good times and let too many citizens avoid paying their taxes than it should have. The financial crisis that hit Greece, Europe and US was not too much government spending but too many risky loans in the private market that lost their supporting value.

    Normally after financial crisis hit private markets, countries look to their government for help in restarting their economy. Greece cannot do that easily, It gave up that ability when it joined the Eurozone. Greece is at the mercy of ECB and ECB did demand/get reductions in government spending as part of lending agreements. I label that austerity (word “austerity” refers to reduced spending (benefits/services). When more citizens are losing their jobs surely you see that government spending will rise if it provides unemployment benefits. Depressed economy will create need for more benefits/services from any government. Would you rather Greece take the Ayn Rand approach and let Greek citizens fend for themselves (no benefits)?

    I live in Texas. Texas received $3.78 billion (interest free) in unemployment benefits from federal government over 2 yr period after July 2009 which they have repaid by borrowing in the open market (bonds) I received part of those unemployment benefits and it helped me out tremendously. That was $3.78 billion that went into Texas economy without state government imposing any taxes to pay for it. The bonds give Texas 20 yrs to pay it off.

    • ” It seems to easy to say that Greek government created this mess.”

      Indeed. And it wouldn’t be true in the sense that the Greek governments during the past decades were certainly the primary responsibles for the desaster. But they would have been not in the position to do so if there were not large groups of the Greek society, most of all the public sector, which forced them to do so.

      In other words, the ‘elites’ incl. the Governments plus certain influental groups of the population together formed the huge coalition(s) which caused havoc onto Greece.

      BTW, on a sidenote: in 2011, there were reports that 63.000 Greeks collected the pensions of already deceased relatives. Of course, the Greek government promised to end this practice pronto. According to recent news, by the end of 2012, there were still 50.000 cases. Go figure.

    • VVS – Yeah, the only thing the Euro did was bring the mismanagement to light. The Greek government was no longer able to hide it with massive inflation.

    • jmarco

      I wonder if you could help me out because I am not so good at retrieving information from the internet.

      Regarding the 3,78 BUSD which Texas and Texans received in unemployment benefits, could you tell me how much Texas and Texans transferred to the Federal Government as funding for those benefits during the same period? That is the sum of the various forms of payroll taxes (social security, medicare and unemployment taxes).

      Thank you in advance!

    • jmarco – Im not sure if I need to but I will say it anyway. No one is attacking your views at least not me, its just a frank and honest discussion

    • Klaus,

      Regarding your question on Texas: In 2007, for example, gross collections (by the IRS) were just over $225 BILLION or about $9,500 per capita. That should give you an idea of how much the federal government collects annually from Texas, which I think you probably know already ;-)

      Btw, a most excellent post on the Third Reich …

    • Klaus,

      I am looking at Texas’ rankings compared to other states on education, poverty, and health insurance for residents … not pretty. Austin aside, Texas is one big shithole.

    • Klaus,

      Gross collections by the IRS from Texas were just over $225 billion, or $9,500 per capita, for the year 2007, ranking third behind California and New York. That should give you an idea of the annual transfers.

    • TDOC – This sort of thing is typical. Walk around smaller towns in Greece and you will see them putting in grand, new dedicated cycle lanes and sidewalks while the road next to it is in disrepair.

    • @Richard
      Yes , I think light rail is probably the best investment around but there is a sort of strange illogical Ecofascism building which seeks to fill the political vaccum.
      This video from Le Mans France is instructive.

      The globalists in charge of the EU project wish to destroy the only coherent political power base in France and indeed Ireland.
      They bring in this Nitrates directive apparently to protect water courses with a ban on Manure / nitrite spreading on hills with a gradient over 7%……….

      At the same time free trade schemes bring in cheap Brazilian Beef from former rain forests………
      The local farmers cannot compete with this double edged darkness.
      Bringing down tarrif walls while expecting these people to run a business respecting the envoirnment is pure badness.

      They wish to turn all of Europe into a fucking theme park.

      The real objective of those guys in Brussels is a destruction of local and nation state redundancy using spurious ecology arguments which on a global level is a canard.

  11. Also major decline in German car reg this December………..could be a stat blip but
    Dec car reg : – 16.4 %

    this is 40,000~ less cars then last December………….half of the total yearly Irish consumption.
    Greece total for the year was 58 ,482 (-40.1%) the largest % decline in Europe from a already very small 2011 base.
    (In 2007 Greece car reg was 279 ,374.)

    In contrast the albeit tiny Icelandic car market is up 56% in 2012.
    Why is this ?
    Icelandic savings is more or less internal / capital controls
    It is not bailing out global banking /wage arbitrage operations so more capital is available in the home market to purchase external goods.

    http://www.acea.be/images/uploads/files/20130116_PRPC-FINAL-1212.pdf

    • What do you expect? GErmans are moving their money out of the EU before the capitals controls will be implemented and their money confiscated to prop up the South!

  12. Jmarco;
    “I tell them of Greece’s huge unemployment (over 50%) for its young people.
    I ask: Do average Americans really want that kind of unemployment for our youth to happen here?”

    The US economy is in exactly the same state as Greece; except that the truth is being hidden from the general public. You need to bone up on Dan Amerman who had, almost a year ago, shown that the US has similar youth unemployment. Ergo, 19.9% unemployment with 50% of the 16 – 19 age group and 26% of the 20 – 24 age group without any job. (Making 9 Million Jobless “Vanish”: How The Government Manipulates Unemployment Statistics By Daniel R. Amerman, CFA) http://danielamerman.com/articles/2012/WorkC.html

    As I see it there is an underlying problem with regard to lending that no one seems to want to talk about; the lack of any reference to the need for an equity capital base, (savings invested as free enterprise equity capital), into job creating businesses; which in turn will create new jobs. http://www.itulip.com/forums/showthread.php/23688-Ben-Bernanke-s-Speech-An-Open-Letter-to-The-US-Congress-UK-Parliament-and-the-European-Parliament

    • @Chris Coles:
      You may be right about US unemployment figures for its young people is much higher than actually reported but Amerman is manipulating reported statisics and his unemployment rate/figures are subject to error just as much as the US Labor Dept.can be. Unemployment rates are statistical tools and not actual unemployment figures. Listen, the Government(Labor Dept) has been using the same methodiogy for arriving at its unemployment rates for many years now. And no they are not attempting to manipulate them for some better outlook. I agree that our media does not do a good job of explaining unemployment figures or even provide alternative views of US labor figures like Dan Amerman’s view. US network media condenses everything they report into 3 sentences with a video/picture. Print media tends to use general info without too much detail or may be just focusing on a recent event only. Their articles leave you with more questions than answers. But the worst info comes from our politicans or politican spokespersons. They have points of view or agendas that they want to happen.

      Private economy is not going to hire young person or start new enterprises without a demand. Our economy is mostly consumer driven so the consumer needs dollars to spend and provide the demand for businesses to hire and invest. You need a horse (dollars) to move cart (economy). I believe one of MMT options to get the economy really moving is to declare full social security tax holiday for both employee/emplorer. Get at least a year’s worth of payroll tax holiday then start reducing the holiday tax by 25% a year so you ease of it. And in 2013 federal government should spend funds for road repairs in major urban areas that payout over five year period.

  13. Hello Yanis, the stance of remaining a credible intermediary in the overall dialog isn’t lost on me. In light of that ability do you foresee the potential of a silver lining yet to be considered in Greece which might focus around an entirely new set of economic bases? You’re insights would be of interest to consider, especially in light of limited resource economies that the future forebodes. Options, for example that might bring outside wealth into Greece much the same way as tourism but be different in the sense that the wealth brought in was more permanent and built a new community of long term stakeholders into existing local communities. Reaching for solutions to immediate concerns from a wide number of possibilities seems a proactive position to advise on.

    • That would be nice. I just cannot, for the life of me, imagine how investors would divert resources into a social economy that is in a perpetual tailspin. For what purpose? Especially when investment is so scarce these days globally, at least when compared to savings…

    • This is a real long shot to take, and just one part of a new economy. My mode of thought is based on the idea that people like to plan their lives out and in the long run no matter who they are, end up old, isolated and often reliant on care to the end of life. Building a small but workable economic base around permanent residency for retirement, health and hospice care purposes would involve whole communities and could be a growth market if successful. When done on scale and in a fashion that gives normality, dignity and community it might have a real value. Surely I’m dreaming, it’s a compassionate dream, sorry I’m such a twit.

  14. The printing press is not a high tech thingy really.

    The evidence is in…………… Europe is the plantation owners house or possibly just a madhouse and Asia is the cotton fields………..
    To free up capital for its global wage arbitrage operations the bankers have decided to not feed the man servants & maids in the big house.

    The euro is /was the biggest con job of all time…………European savings have no local investment role as the banks cannot make a cut from such high labour rates.

    The Euro is poison.
    It has struck straight into the heart of the nation state and indeed perhaps went beyond all its makers dreams.
    European capital export has created the Asian monster , the bankers perfect creation.

    The most terrifying monetary experiment ever created.

  15. Yanis:
    You hit the nail on the head again. Depression for Greece is felt deeply both at economical and human levels. When I tell people at the coffee shop in Dallas that we should look first at what’s happening in Europe especially Greece before we have US government vote in huge budget cuts. I tell them of Greece’s huge unemployment (over 50%) for its young people.

    I ask: Do average Americans really want that kind of unemployment for our youth to happen here?

    They tell me that they have heard about Europe and Greece hardships but it just a perpherial problem for them. They hear so much bad news of school shooting and such that they just tune out stuff like Europe’s problems.

    I fear America is heading into another recession out of fear and its unwillingness to see clear factual results of austerity vis vie Europe.

    • jmarco – first of all there is no austerity in Greece. Let me explain why.

      1.The cost of living has gone through the roof and the poor have been hit the hardest by an order of magnitude.

      2. The Greek government is spending more or less the same as it did pre crisis.

      So let us stop talking about austerity, it is a fiction created by the media to justify big government.

      Second, budget cuts and depression. The above points plus. The problem in Greece is 100% down to excessive government debt. Meaningful budget cuts coupled to tax cuts in the medium and long term are the ONLY things that will stop the USA from going the way of Greece. Let me repeat, the problems in Greece are 100% caused by excessive government borrowing, if the USA does not want to see itself go the way of Greece the government must not spend more than it takes in. If the USA continues on its current course of massive government borrowing one of two things will happen. The government will default forcing it to balance its books immediately which would be far more painful than gradual cuts.

      The second and more likely option is massive inflation and the destruction of the dollar as a credible currency.

      Those are the only 2 possible outcomes and like I said, option 2 is by far the most likely to happen.

      Boehner is not resisting Obama because he wants to destroy the country, he is resisting because he thinks it is what is best.

      There is no painless solution to the problem. The patient is in critical condition and needs to be stabilized. To do this government spending has to be cut massively in Greece and in the USA. For recovery, taxes have to be cut in the medium and the long term, it wont be easy but it is the only thing that builds a solid foundation for the future.

  16. I agree, what an atrocious introduction by the host. I’m glad you corrected him. I’m endlessly correcting my colleagues, friends and acquaintances regarding how the economic crisis in Greece has evolved from a manageable situation to a disaster in the stifling context of the eurozone. I cringe when I hear the “spendthrift Greece” storyline designed only to absolve the lenders of any fault of their own. I read two of your books and I loved them especially the “Foundation of Economics” but now I’m looking for the viewpoints of other disciplines as well.

    I have been reading “Debt: The First 5,000 Years” by anthropologist, David Graeber, who examines the concept of “debt” through the ages and through the various tribal, primitive, and ancient societies. The author’s premise is not an admonition against borrowing or lending, but to put both on equal standing as they’re supposed to be. In other words both parties, lender and borrower, are responsible for a lending transaction and all its intended and unintended outcomes.

    Debt default is a necessary requirement to steer lending towards worthwhile and potentially successful activities. Unscrupulous lenders will lend money to anyone – bad risks included – and for any type of activity – even questionable activities – if there is a sure way they will get their money back. If there is little risk of losing their principle, why should a bank ponder with “who” or “why”.

    George

    • George – Greece needs more people like you.

      You sum up the problem of the government borrowing in the name of the taxpayer excellently “Unscrupulous lenders will lend money to anyone – bad risks included – and for any type of activity – even questionable activities – if there is a sure way they will get their money back. If there is little risk of losing their principle, “

  17. Jiannis, I don’t understand you. You sit on position where you can speak out and provide the answers and ease the pain of tous sibatriotes, but you are not doing anything of importance.
    Explain the fractional reserve banking system to the people, explain the fact that banks create money out of thin air, Explain the success of the Lincoln Greenbacks and explain the marvelous recovery of the Third Reich from the Weimar-republic.
    The answer is “debt free money” loaned from the goverment to the people, where the goverment has created the money with respect to the GDP. 1 drachma = an amount of work decided by the goverment.
    It can be done!
    Forgive me for shouting at you, but aren’t you desperate too?
    Conme on Yiannis people would listen to you! Try it! On the aspida! Eimaste ellines!

    • I don’t see how what you propose can be done because Greece does not have a printing press. None of the 17 EZ-countries has a printing press.

      It’s interesting that you mention the ‘Third Reich recovery’. It seems that, for political correctness reasons, very little is written about how record unemployment could be wiped out in a very short time. The standard discussion-stopper is always that it was the military/war production which facilitated all that. I can’t quite believe that because military/war production, to my knowledge, did not really begin in earnest until around 1936. And even if it had been, imagine that by 1939, the Nazis had used all that war production for exports to the rest of the world instead of destroying the rest of the world (Germany including). They might have made tons of money on that and built up a lot of foreign currency reserves…

      The former Chancellor Helmut Schmidt, absolutely innocent of any Nazi-sympathies, once discussed this in an interview with DIE ZEIT. One of his quotes: “If Hitler had been assassinated by 1936, his Finance Minister (Schacht) would have received the Nobel Prize for Economics”. Why? Because, according to Schmidt, Schacht managed the economic miracle of converting record unemployment into full employment through his skillful application of deficit spending. Schmidt called it ‘Keynes to the tilt’.

      There is one thing, however, which I read and which seems important. Schacht apparently followed a clear policy of sacrificing some consumption in the shorter term in favor of longer term investment. When money is printed to build Autobahns, it’s really not spending. It’s more like building up new asset values (and creating employment in the process).

      Again, I don’t see how any of this can be done by a country in the EZ on its own.

    • I agree completely, Klaus. There is nothing that Greece can do on its own when it is part of the eurozone; it is not only about the inability to print money, it is also about management of sovereign debt which is now politically outside of national control.

      I also agree with the comments about the Third Reich economic policy. It is sheer propaganda to claim that spending was for war activities: although these ultimately turned into the priority (as in the UK) the initial spending was largely on the civil sector — including education and healthcare, as well as construction.

      The contrast with Greece over the last two decades — when serious infrastructural investment was not only possible but actually co-financed by the EU — is salutary. Speaking in general terms, most of the externally financed projects were hijacked for personal gain (corruption) and the moneys wasted. Even those projects that were more properly controlled by the EU, such as the Athens metro, had terrible problems of corruption and wastage — to the extent that the total budget was probably double what was necessary, in order to pay off Greek crooks. I have had several discussions with EU auditors on such issues, and they all assured me that roughly 50% of EU moneys were sucked out by powerful Greek business and political interests. Prosecution of these people would take at least a decade, and might not succeed owing to the corruption and incompetence of so much of the Greek judiciary. Similarly, economists have questioned why a road in Greece costs twice as much to build as an identical road in Germany, when Greece has cheap natural resources (such as cement) and cheap illegal semi-legal labour for construction.

      It is very clear that the distortions of the Greek economy have played a key role in placing Greece in its current terrible position — even though the international financial crisis and that of the eurozone were the catalysts for revealing the dysfunctionality of the country. The problem is where to go from here…

    • Lasse – “1 drachma = an amount of work decided by the government.” – Forgive me for my harsh comment but nonsense like this needs to be nipped in the bud immediately. What you said is complete stupidity and shows your complete lack of understanding of the problems in Greece.

      The government deciding how much to pay people is exactly what caused the current problem. Do you not realise that the problem in Greece is 100% down to the government spending too much money ie employing too many people and spending too much tax payer money to pay private businesses?

      The problem has 100% been created by the Greek government, the solution is to take power away not to give it complete control over the economy.

      if you want to see the results of what happens with your idea speak to Albanians who lived in Albania during the Hoxha regime. Albanians are uniquely qualified to tell you the consequences of what you are proposing. We would all do well to speak to them.

      If you are serious about educating yourself then I suggest these 2 books as an entertaining and enlightening starting point.

      http://astore.amazon.co.uk/i4w-21/detail/0446537527

      http://astore.amazon.co.uk/i4w-21/detail/0255365764

    • @Richard: I don’t disagree with most of your comment, although it is too simplistic. However, to understand where the Greek economy is in all of this, your two book recommendations are not appropriate. While I would not discourage anyone from reading them (the Hayek, of course, I know) they are rather specific and partial views.

      To understand Greece and its current crisis, you need to know the history of modern Greece, its socio-politico-economic development since 1832, and the literature on development economics and semi-peripheral economies. (Add to this, of course, the mainstream economics literature) It is a vast literature, and there is no shortcut. This is why so few people, including most Greek economists, do not understand the Greek economy.

    • Crossover – Absolute genius that proves what I have been saying to you for months and something which you have constantly rejected. Greece had a balanced trade account in recent memory! “It is evident that since the mid 90′s, the government deficit was lowered significantly while the private sector balance moved from a surplus of roughly 10% GDP (reflected in corresponding government deficits)” – Hallelujah! http://kkalev4economy.wordpress.com/2012/10/20/looking-into-the-greek-euro-era-from-a-sectoral-balances-approach/

      About the rest of it, let me tell you what I understand and you can tell me if I am correct. Big government is not the cause of the problems because it was the private sector that was responsible for the trade deficit. Is that what it says in a nutshell?

    • Omg Richard….you talk like i have ever rejected the fact that Greece had a growing trade deficit that took place in the last decade NOT EARLIER.I’ve actually supported this and claimed that when Greece had the drachma,trade was and COULD be balanced due to the floating price of the drachma,somethng that cant happen wth the euro.

      “Big government is not the cause of the problems because it was the private sector that was responsible for the trade deficit. Is that what it says in a nutshell?”
      The private sector was able to expand the trade deficit due to the available credit extension.SImple.

    • Crossover – “The private sector was able to expand the trade deficit due to the available credit extension.” Okay sure. But how does this fit in with the fact that the Greek government has so much debt it cannot service it?

    • Crossover – Also about the trade deficit. Again getting passed the propaganda what difference does the currency make in any given year?

      With the drachma wages were cheap, imports were expensive. And why does the Euro stop this from happening?

      Lets assume gov borrowing, taxes and regs stayed the same pre and post Euro for the private sector nothing would change, what would and did happen is that the Greek government could no longer inflate away its debts with 20%+ inflation.

      Again it takes us back to the Greek problem and the problem of socialist countries in general. When a government is no longer able to inflate away its debt by printing money it quickly becomes apparent that it is wasting money ie the money that it spends does not result in ANY return on investment in the form of a lower cost of living for the citizens or an increase in tax revenues for the same level of taxation.

      The only party that was effected by the Euro was the Greek government, Euro or Drachma makes no difference to the private sector. Prices will adapt to the level of currency in circulation.

      Let me expand that point. Assuming the government (with the Euro) was “evil” and that it cut benefit payments before it cut its workforce there would be less money in the economy leading to a smaller GDP but the flip side to this is that prices are not increasing by 20% a year so the next year costs for business and the people would be 20% less, in short any reduction in GDP is more than offset by the fact that things are 20% cheaper next year.

      So what happened in Greece? Things did not stay the same. Government borrowing ballooned even though the Greek government had no way to service this debt. How did this happen? I refer you back to the conversation on this blog about Bloomberg’s lawsuit against the ECB.

      To wrap it up. The private sector would have adapted to the Euro. The private sector could easily have coped with slashing of government spending.

      Unfortunately the Greek government decided not to cut spending and in fact increased spending while cutting benefits and more than that it also increased taxation massively.

      In short, the crisis in Greece was caused by the government and the collapse of the Greek economy is 100% caused by the actions of the Greek government post 2008.

      The country is fundamentally strong, the people are tough, the people are bright, the people have abundant natural resources, the people generally have a large support network of friends and family, the people are hard working, the people are adaptable, the people are savers. In short the people in Greece have everything required to overcome adversity. Unfortunately the government, wittingly or unwittingly has launched an attack on the Greek people which has massively reduced their efficiency through higher taxes while at the same time massively cutting the amount of money it pays back into the economy.

      To give a prime example of this government attack. You still have to pay income tax, even though you may not have job. Social security payments are huge for small business owners and are fixed even if they loose money. You now have to pay 25% income tax from the first Euro of income. VAT is now charged on food at 23%. Pension payments have been cut. The government is not cutting its payroll and the list goes on.

      Everything that could be done to sabotage the Greek economy has been done and is being done by the politicians voted into power, ironically, by the Greek people. If you want to blame Greeks for anything it is for voting for the status quo and expecting something different.

      But what choice do they have? The current government or Syriza a party that identifies the problem but whose solution is Germany being forced to subisidise the country forever or parties that believe bigger government is the solution or a party that believes in Greek strength while at the same time using the Nazi like flag as their logo.

      Honestly, the Greek political landscape is like a sketch out of Monty Python.

      None of the recognised parties have the slightest idea as to what needs to be done or they do but it is not in their personal interest to say publicly.

      And to lift the mood, some comedy http://independence4wales.com/2012/impact-of-taxation-on-the-public-explaining-taxation-to-a-taxpayer

    • @Richard: I am afraid that you do not know enough about Greece. Nor does Pappas, who has no background in political economy anyway. The interconnectedness of private and public sector economics with each other, with political parties, with employment issues, with EU funding, with … everything, makes your analysis invalid.

      The book by About is one of many from the 19th century that I have in first edition, and it is very clear that structural problems — both political and economic — have beset Greece since independence. One written in English is “The Greeks of Today” by Tuckerman (1872); he was the first US Ambassador to Greece. You can find the originals scanned (plus a later translation into English of About’s book) from www,archive.org

    • Guest – A government default with Greece staying in the Euro would solve a lot if not most of the problems you talk about. re “interconnectedness of private and public sector economics with each other, with political parties, with employment issues, with EU funding, with … everything,…”

    • “Okay sure. But how does this fit in with the fact that the Greek government has so much debt it cannot service it?”
      Read the links i provided again.Greek gvt debt has been relatively stable through out the last decade.Its private debt that exploded.
      Yes the budget deficit exploded too after 09 but this only followed the explosion of private debt and the recession.Deficits automatically grow when a recession takes place.

      Last time i checked Japan had its own currency and a larger debt/gdp without nearly the problems Greece has .

      “Again getting passed the propaganda what difference does the currency make in any given year?”
      You dont understand basic economics if you dont understand the difference it made for Greece abolishing its own currency.First of all,Greece effectively has a fixed exchange rate of 1 to 1 with all the eurozone members.Second, the exchange rate of Greece with the rest of the non-ez world is subject to the exchange rate of the euro with the other currencies.Since the euro price does not fluctuate according to the Greek economy fundamentals but rather those of the core of the ez,then the euro cannot act as a trade rebalancing mechanism nor for Greece’s trade with the rest of the eurozone members neither for Greece’s trade with the rest of the non-ez world.
      When we had the drachma,its price would fluctuate accordingly thus trade would be kept in balance with sustainable trade deficits at worst.

      “Lets assume gov borrowing, taxes and regs stayed the same pre and post Euro for the private sector nothing would change, what would and did happen is that the Greek government could no longer inflate away its debts with 20%+ inflation.”
      Persistently high interest rates were the main cause for the double-digit inflation we had back then.

    • crossover – “Greek gvt debt has been relatively stable through out the last decade” What?!?!

      http://www.tradingeconomics.com/greece/government-spending

      “Last time i checked Japan had its own currency and a larger debt/gdp without nearly the problems Greece has .” – Japan had a massive trade surplus so it can service its debt, Japan is also owed more money than any other country on the planet (last time I checked). In short for Japan to default the USA would have to default first.

      The entire paragraph “Second, the exchange rate of Greece with the rest of the non-ez world is subject to the exchange rate of the euro with the other currencies” – It does not matter what the name is on the currency, the only thing that matters is the amount of it in circulation. the fluctuations of the Euro against other currencies is so small as to make no difference.

      “When we had the drachma,its price would fluctuate accordingly thus trade would be kept in balance with sustainable trade deficits at worst.” – And I have stated many times including in my last comment why this only helps the Greek government and hurts the Greek people.

      “Persistently high interest rates were the main cause for the double-digit inflation we had back then.” – I think you are confused. Let me break down what you are saying. You are saying that when it is expensive for people to take out loans, government or private, it increases the amount of money being created through loans compared to when interest rates are low and money is cheap to borrow.

      To state the obvious, your comment is incorrect. Creation of the money comes first through loans to government in the case of Greece, then comes the inflation when the money is spent and then come the high interest rates to suck the money out of the economy by coercing people to save. This process is not in dispute by anyone, Keynesians or otherwise.

    • @crossover: you are wrong in thinking that high interest rates used to be a cause of high inflation in Greece. One of the things that shocked me when I first studied the Greek economy (in 1988) was the existence of negative real interest rates. It took some time for me to work out that the negative real interest rates applied only to bank deposits, for most people. Basically, if you put money into a savings account you lost (through inflationary drag) and if you borrowed money from a bank, they paid you for lending the money to you! How could this be!

      The answer is simply that only party officials and other privileged persons were able to borrow from banks. Indeed, they were paid — this was their political privilege. Banks were created not to service Greek capitalism, to enable economic development, but to suck out money for the political class. Greece more closely resembled the Communist bloc and was definitely nothing to do with the West.

      High inflation was the consequence of printing large amounts of money, to finance government overspending. This led to periodic devaluations of the drachma. Subsequently, Simitis replaced this policy with another of a stable drachma and more constrained money supply, with wage inflation controlled by fake GDP deflator calculations to convince the unions that their wage demands were excessive. Over time, this led in the late 1990s to a massive depreciation in the purchasing power of Greek household incomes (excluding the Pasol mafia, who did nicely thank you.)

      IN both cases, the sleight of hand was performed with uneducated Greek voters (and unions) unable to understand the difference between nominal and real values. In other words, over several decades Greece has been governed by crooks.

    • @Guest

      based on these: http://www.tradingeconomics.com/greece/inflation-cpi

      http://www.tradingeconomics.com/greece/interest-rate

      http://www.tradingeconomics.com/greece/interbank-rate

      There shouldnt be negative real interest rates.Especially if you consider that the rest of the interest rates that exist are higher than the benchmark rates such as the interbank rate or the overnight rate.

      Furthermore, the output gap from the mid80s up to late 90s – early 00s when the euro was adopted,was mostly negative.In other words the main sign of demand pull inflation (that would originate from money printing) which is demand in excess of max. output capacity doesnt seem to be there: http://www.tradingeconomics.com/greece/output-gap-in-percent-of-potential-gdp-imf-data.html
      Similar view here:http://www.tradingeconomics.com/greece/capacity-utilization
      (And even the Monetary Aggregates provided dont show somethng extraordinary happening at those times of high inflation rates).

      I can agree hands down, that a lot of money have gone missing in private pockets while it could have been used for public purpose,but thats far from saying gvt. spending was the main force behind that double digit inflation.

    • Guest – “High inflation was the consequence of printing large amounts of money, to finance government overspending. This led to periodic devaluations of the drachma” Talk about hitting the nail on the head. Awesome comment especially everything below this sentence

    • “Crossover – “Greek gvt debt has been relatively stable through out the last decade” What?!?!

      http://www.tradingeconomics.com/greece/government-spending
      How can you be so dumb seriously?you’re posting absolute numbers and trying to prove a point.What are you 15?

      http://www.tradingeconomics.com/greece/government-debt-to-gdp

      Are you still trying to tell me that government debt wasnt stable in the last decade?Especially compared to private debt?SERIOUSLY?

      “Japan had a massive trade surplus so it can service its debt, Japan is also owed more money than any other country on the planet (last time I checked). In short for Japan to default the USA would have to default first.”
      Japan the economy is indeed a net creditor.That still doesnt change the fact that the PUBLIC DEBT of Japan is at 280% of gdp.Sorry to tell you US or Japan wont ever default involuntarily.You cant default when you issue your own currency.Exactly why Greece didnt default when it had the drachma and its debt still around 100%.

      “I think you are confused. Let me break down what you are saying. You are saying that when it is expensive for people to take out loans, government or private, it increases the amount of money being created through loans compared to when interest rates are low and money is cheap to borrow.”
      No im not confused.You just dont know sh!t.
      I am saying that since businesses and corporations faced higher costs in order to take loans,they increased the prices they charged to make up for it.Isnt this inflation?The high interest rate policy of the CB came first.Because it wasnt meant to tackle inflation in the fist place.The Bank of Greece was pursuing a policy of “ελεγχομενη διολισθηση” i dont know the correct English term.In other words it didnt let the drachma price float freely rather it set a band of prices it would allow it to float between.This caused the CB to lose control of the interest rate and in order to protect the foreign reserves from the gradual devaluation it had to pay a high interest rate.

      “To state the obvious, your comment is incorrect. Creation of the money comes first through loans to government in the case of Greece, then comes the inflation when the money is spent and then come the high interest rates to suck the money out of the economy by coercing people to save. This process is not in dispute by anyone, Keynesians or otherwise.”
      What might be obvious to you is not exactly obvious in reality.Like i said the high interest rates were meant to protect the foreign reserves.Not to tackle inflation.They CAUSED inflation.And YES high interest rates CAN cause inflation at certain cases.They’re not always meant to tackle it.

    • @crossover: I don’t know what this website you use is about. I have always used data from the Bank of Greece and the OECD (and sometimes the IMF)

      In your reply, you completely ignore my observation that ordinary people could not borrow money, and that the interest paid on bank deposits throughout the 1980s and probably for most of the 1990s (since the GDP deflator was a load of rubbish) was negative. But the borrowing rates were also way below the inflation rate — as I explained above.

      In such a context, you are not entitled to start making US-style economic calculations about the causes of inflation. There was never any control of the money supply in Greece, not only because of money printing and other devices to aid government spending but also because banks accepted (and still do, as far as I know) that private cheques can be transferred ad infinitum simply by signing on the reverse. The amount of money involved is unknown and thought to be massive: it is effectively a licence for businessmen to print their own money. Banks were happy, because no real money was ever withdrawn from their coffers; businessmen were happy because they could delay paying bills and also avoid paying taxes; and the State was happy because everything seemed to be working when logically it should not have been.

    • @Guest

      This website provides the sources from where it draws its data:
      CPI is from the Hellenic Statistical Service
      Interest Rate is from ECB
      Interbank Rate is from the Bank of Greece.
      The output gap is from the IMF.
      Capacity Utilization is from the Bank of Greece.

      Unfortunately the earliest year that they provide data about the overnight rate is 98.
      They do provide data since 94 about the interbank rate though.According to that the interbank rate was not below inflation.Still the loan rates were definitely above the interbank rate as is always the case else it wouldnt make sense for banks to loan to anyone.So unless inflation was several units above the one shown on these stats,i cant see how the different loan rates would be below inflation.
      Feel free to post your own data though,if you have some available and they differ from the ones i posted.
      As far as how easy was it for people to obtain loans is concerned, i do know it was harder than later on, but its not like you had to be a government official to obtain a loan.I come from a middle income Greek family and my parents took a mortgage loan in the mid80s to buy an appartment (the tranches are still being paid) and i can assure you they were no government officials or had any good “hook ups” in order to obtain the loan.I understand this has not been the case for everyone but my story really is a bit far from your description.

      I do not know why you are making a distinction between “us-type “calculations and the rest.What i do know though is that for an increase in money supply to become inflationary,it must follow that velocity is stable or increased (while in reality it tends to move opposite from the MS) and that the economy has reached maximum capacity utilization.And thats no us style calculation.Thats universal.
      So unless i see some data that show how Greece had reached full employment while the money supply kept increasing, i cant buy that story.Im sure you know better than me that there isnt a single cause for inflation.

    • Crossover – Inflation by definition is the increasing of the money supply. Increasing prices are the result of the inflation not the inflation itself.

      About inflation in Greece since the Euro. I think it is fair to say the 99.9% of Greeks will tell you things are much more expensive now than they were. Bottled water, property as two examples.

      Yeah, about the loans, you only need to be a “party” member since 2008 to get a loan.

    • @crossover
      well, it is now 24 years since I did my research in OAED and wrote my thesis on employment in Greece. It is pointless arguing about the 1980s Greek economy when you have made no study of it and are using websites with prepared data only from the late 1990s. And as I explained to you, the GDP deflators are fictional in the mid 1990s — so why tell me that these data are reliable? They were clearly fraudulent, as the OECD kept hinting when it noted that the retail price index appeared not to correlate with wholesale inflation rates. The latter could be measured reasonably reliably, the former were fiddled and meaningless.

      As far as “them and us” analyses are concerned, they are entirely apposite. The Greek economy has never followed the patterns of more developed economies, for various reasons. One of them is that the money supply is not controlled, or even measured reliably — as I explained. Therefore all the theoretical equations concerning money supply are useless because the empirical data are absent. This mistake people continue to make with the Greek economy; this includes much of the IMF analysis which is basically wrong. It is a primary cause of the catastrophe that is now the Greek economy: it is not only about the corruption and incompetence of Greek politicians: it is also about the failure of theoretical models and adequate understanding of statistical data collection by econometrists, who rely on these data for their models.

    • @Guest

      Im not sure where this argument can lead us if my data is unreliable and you dont have any other data.And you call the data i provide unreliable (and it could very well be, i have no clue,though first you questioned the sources not the data itself) yet you dont provide a single clue that highlights gvt spending as the main driver of inflation.Im well aware that has been the “talk of the town” all these years, but so is QE in US.Im not going to side with this story just because everybody says so.

      I can agree with everything on your 2nd paragraph except one thing.The notion that money printing = inflation comes from the quantity theory of money equation.Which is not a model but an identity.And this identity precisely states that for an increase in MS to cause an increase in the price level, real output must remain constant or decrease and/or velocity must remain constant or increase.
      Empirically, velocity takes the opposite direction of the money supply.And real output will stop increasing once there’s no more idle resources else i dont know why would anyone increase prices instead of increasing output.Im sure you already know this but im stating the obvious.For the increase in money supply to move prices up,there’s a certain condition that MUST exist.Whether we’re talking about Greece or US i believe it doesnt matter.It takes this special condition for demand pull inflation.
      This becomes more evident if you look at the 2 most notorious boogie men of money-printing induced hyperinflation: Zimbabwe and Weimar.In both cases the money supply caused aggregate demand to surpass the output capacity by far because for different reasons their capacity was under “destruction” and the ms kept growing.

    • @crossover

      I did not dispute the money supply identity: I disputed the measurement of relevant variables. If the effect of both money printing and permitting the use of cheques as a money equivalent is to increase aggregate demand without increasing production, then inflation is the consequence. Don’t forget that in the period I am talking about (1980s), imports were still restricted and import taxes imposed, so domestic production is what counted.

      With the increased integration of the Greek economy into the single market zone of the EU (and especially after the euro) the result of increased aggregate demand was to suck in imports and damage balance of trade rather than to create inflation. The money supply identity and its role in inflation is not valid for very open economies.

    • @Guest

      Do you have any figures on unemployment in the 80s which in your opinion are close to the actual figures ?

      “The money supply identity and its role in inflation is not valid for very open economies.”
      Yes, i guess you say that because imports make a portion of the aggregate demand irrelevant to domestic output with respect to capacity utilization.Yet in such cases its the exchange rate that is affected which in turn causes inflated import prices.And according to most data i’ve seen,even with the protectionist measures we did have persistent trade deficits (ofcourse not as vast as after we joined the eurozone)..

    • @crossover: sorry for my late reply.

      “True” unemployment rates in the 1980s? Well, before the 1981 Pasok government unemployment was stated as under 3%; it crept up to around 8% by 1983-1989, according to Greek figures. The OECD standardised it at 12% female and 5-6% male, but this was merely an adjustment for Greek non-standard participation rates (which included people over 65). Long term unemployment was very high, as was youth unemployment and female. Basically, jobs went to males over 25, through connections, and had nothing to do with skills — although were positively correlated with higher educational level. (Sounds familiar?)

      Basically, the unemployment rate is more or less meaningless when any or all of the following conditions pertains: (1) very low participation rate; (2) substantial underemployment (esp. seasonal workers); (3) a large informal sector, including unpaid family workers. You also have to factor in emigration of workers (not much in the 1980s, but was in earlier decades) and the depressing effect on unemployment rates of military service.

      Greece had all of these. Even if we could factor in a hypothetical “real unemployment rate” by using data on non-participation and informal work etc., it wouldn’t mean much in a context of significant underutilisation of workers in full-time employment — e.g. the typical Ottoman practice of the civil servant doing 3 or 4 hours work a day. Nor does it make much sense to talk about unemployment when multiple job-holding is prevalent: some of those were low-paid workers trying to make ends meet; others were overpaid workers, trying to make a fortune and often working illegally.

      So, if you want to conclude anything from these data, the best conclusion is that Greece has always been in a terrible mess with its labour market. It could never compete in a global context with this mess, and no government has bothered to address it. The Troika has started — which I suppose is one positive thing about their presence…

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