Don’t Try This at Home! Greek Austerity

by JEFFREY SOMMERS and YANIS VAROUFAKIS

This is an op-ed published in initially in the Wisconsin-Milwaukee Journal Sentinel, on 22nd February 2014, and then in CounterPunch, on 26th February 2014. You can read the text here by clicking…

Britain’s iconic Tory Prime Minister Winston Churchill once intoned, “The United States always does the right thing [long pause] ….after exhausting all other options.” It seems this past truth still resonates today.

The US and Europe passed through the greatest economic storm since 1929 and have not yet fully exited from the turbulence. Both the US and Europe addressed the crisis with belt-tightening austerity, with the US having tightened its belt a bit, and Europe a lot more. Several years later, we have the results: the US economy, while not in the best of health, is better off than much of Europe’s.

If all government budgets are gutted, the result is akin to one’s view at a concert if everybody stands to improve their view. When everyonestands nobody sees better. In short, what works for one person can fail if applied to all. Nowhere has this been more evident than in Europe. European governments responded to the crisis by tightening their belts all at once. The result, ironically, was increasing government debts and sluggish economic growth.

In the United States, many governors practiced European-style draconian budget cuts. But, because the US has a true federal government (unlike the EU), its budget cutting states have continued receiving federal payments in the form of Social Security, Medicare, Student Loans, etc. Ironically, the very New Deal legacy that austerians work to euthanize in the US, is the chief thing that prevented the US economy from completely crashing. The EU does not have these federal transfers to its budget cutting member states, and thus, have faired worse.

Politicians in this country frequently warn their opponents’ policies threaten the United States with a fate worse than Greece’s. Americans have a curious view of democracy’s birthplace. They seem to think Greeks have been overtaxed. In fact, the opposite is true. Unlike the United States where only some of the rich evade taxes (as Warren Buffet has mentioned), Greece is more democratic in that nearly everyone evades them. Tax evasion contributed to Greece’s original fiscal mess. Budget cutting then deepened it. Greece tried remedying this by raising taxes at the peak of the crisis, but a crisis is no time to raise taxes. Greece also radically cut budgets and tried another policy supported by some in this country: cutting wages. The result? So far, following the budget and wage cuts national income fell by a massive 25 percent.

While one worker can find employment more easily if she is willing to work for less, when many workers are paid less, there is simply not enough demand for the goods and services they produce to keep them employed. In Greece, job creation stalled under austerity. The clear lesson from Greece is that private and public sector employment are linked. Cutting one hurts the other.

Fortunately, America is not in danger of becoming Greece. For one, a few, but growing number of, conservatives (such as Silicon Valley millionaire, former publisher of the American Conservative, and past GOP California gubernatorial primary candidate Roy Unz) are recognizing that increasing the minimum wage has two merits. First, it can help cut public spending as it reduces the number of Americans on benefits. Second, that low-wage workers spend most of their disposable income on local goods and services, thus 
generating business and profits. By contrast, cutting taxes for the wealthy in the United States typically results in them taking another vacation with their money to my (Varoufakis) country, Greece: good for us, bad for you.

Reflecting back to Churchill’s observation on America exhausting its austerity options, the US could do the “right thing[s].” Americans invest more on research & development (this being done primarily at US universities) than Europe and they will profit if they invest even more. Despite attempts to kill them, the US has preserved “entitlement” spending as a cushion against economic crises. It also seems there is an emerging recognition that higher wages are in fact good for business and for cutting government deficits. The only thing halting this potential prosperity are the austerians.

Thus, the message from Greece on austerity is the phrase I have seen on many American adventure television programs: “don’t try this at home.”

Jeffrey Sommers is Associate Professor of Political Economy & Public Policy in, and Senior Fellow at the Institute of World Affairs at the University of Wisconsin-Milwaukee. He is also Visiting Faculty at the Stockholm School of Economics in Riga. He is co-editor & contributing author to The Contradictions of Austerity: the Socio-Economic Costs of the Neoliberal Baltic Model.

Yanis Varoufakis is Visiting Professor at the Lyndon B. Johnson School of Public Affairs of the University of Texas at Austin.  He is also Professor of Economic Theory at the University of Athens.  He is the author of the Global Minotaur and of A Modest Proposal for Resolving the Euro Crisis with James Galbraith and Stuart Holland.

27 thoughts on “Don’t Try This at Home! Greek Austerity

  1. Yanis –

    Another terrific article on the unfolding Greek disaster! The situation is super-critical, IMO, and cannot wait for conventional or complicated answers. Here is a simple fix to the deflationary depression:
    Increase demand by sending every man, woman and child, a check for the equivalent $10,000 in – critically – debt-free money. The way to counter deflation is with inflation. This would, by definition, stimulate demand, which would lead to employment and even new businesses, and ultimately a boost to the economy and a shrinkage of the output gap (which must be even worse in percentage terms than the U.S.’s trillion/year – according to the Fed).
    Where will this money come from? It can come from the ECB if it is finally willing to make a grant, but with Germany controlling the ECB, I doubt that will happen. So, instead it could come as a new issuance of the Greek Drachma directly into the economy (and/or via public works projects). Even the mere threat of this might be enough to dislodge the ECB from its predatory and too-comfortable perch.
    But, the financiers have taken over the Greek government, so this might not happen either (their ultimate goal seems to be to gut Greece of all its public land and structures and create the world’s first 100% privatized country (will it even be a “country” then, or just a subsidiary of some new conglomerated company?)). So, perhaps Greece could serve as a laboratory for actual American debt-free money – direct from OUR Treasury, in the Lincolnesque model of United States Notes.
    Failure to do this, and soon, and failure to haircut the debt, will leave Greece only one option – a slide into third world status, maybe permanently, or to become the world’s largest “company town.”

    P.S. Your video debate with me and Andy Mazzone is online here:
    http://www.opednews.com/populum/diarypage.php?did=22970

  2. @ Jordan: ah, Croatia.. You certainly know a certain Ivo Josipovic. This guy is not exactly knwon for emotional drama . Until recently. He said that the economy of Croatia does not just mark time, it is even shrinking. The main reason, according to your honorable president: the public sector is much to large and spends to much money. Sounds like Greece, doesn’t it? Josipovic warns that Croatia could collapse due to poverty and social misery. Sounds also like Greece, doesn’t it?

    BTW, I wrote, quote austerity can only become a problem if a country has lived beyond its means during several years unquote. I didn’t write this is ONLY refering to the debt, there are many othe rpossiblities to live beyond ones means. I also wrote that the sorry status of Greece has of course a lot of reasons. A major one being the piled up debt. See, I didn’t write this is the ONLY reason. I wrote explicitly the contrary. Why you guys blind out everything else and focus only on the debt stuff is beyond rationality.

    @ Vasilis: yeah, I know this lamento since years. To blame for the state Greece is in, are powers and people everywhere, but of course not the Greeks themselves, they are just innocent victims.

    @ Hubert: I have no austerity requirements at all, so your question is pointless. The recommendation I have for Greece always was and still is: get out of the misconstructed currency union and default on your debt. I also say since years, that the creditors like Germany, IWF, EU should write off most of the moey the gave Greece, to ease her re-start.

    • Presidency of Croatia is just a formality and it has only emergency powers. Besides that, Josipović is a nonconfrontational person i have ever heard, and never says anything of importance.
      But what president of Croatia has to do with your theory that public debt is the cause of GFC? Is this just outflanking the topics that you have no answer to?
      Do you always deal with your lack of understanding by sidetracking and outflanking?

    • Jordan, wif you don’t mind, please read the whole posting you are commenting, not just a selected part which, isolated, gives the thing a spin the origninal didn’t have. This is a very rude discussion styl, what yuo are shownig here.

      I repeat: I wrote, quote austerity can only become a problem if a country has lived beyond its means during several years unquote. I didn’t write this is ONLY refering to the debt. There are many other possiblities to live beyond ones means.

      I also wrote that the sorry status of Greece has of course a lot of reasons. A major one being the piled up debt. See, I didn’t write this is the ONLY reason. I wrote explicitly the contrary. A lot of factors contribute, and debt is a mjor one of them.

      Why you guys blind out everything else and focus only on the debt stuff is beyond rationality.

    • And i can tell you that austerity can work only if one country per continent does it. Austerity means that recovery will be by exporting unemployment. If all countries try at the same time to export unemployment who is going to take it? USA was taking world’s unemployment and since it is developed country it found venues to employ people in other less productive activities, like entertainment and wars. This is what it means a developed country; it is able to chnge its employment into service sector which is much less productive but still valuable in some other ways.
      Austerity works only by exporting unemployment, can you understand that?
      And by exporting unemployment it keeps chain reaction going, after that country recovers other ona that imported that unemployment the most have to take the same action to pass unemploment on. It is the run to the bottom.
      This is economic system the world is in, why do we bother with it for so long is mindboggling, but dogmas and ideology that rich imprint into their colonies is ovwrwhelming and many are still believing in gold, like you.

    • @VSS

      I admit that I am sometimes too quick to dole out accusations against my fellow countrymen. But the way some of you guys talk just seems rather pitiless and cruel considering the fact that there are millions of people affected by the socio-economic fallout of this ‘war on debt’ that is austerity.
      Especially since we, the germans, don’t have to suffer the consequences as hard as they do – yet. And that – to a large part – is only due to the fact that ‘we’ have been successfully exporting our goods along with some of our unemployment to the rest of the world. And now, the proponents of austerity have come to take this arrangement for granted and especially the german variety of them are treating it like we had some god-given right to expect it to go on forever.

      And before you start on the rising amount of extra-european exports of the german industry, please keep in mind that the EU, and with it the currency union, was created to facilitate a COMMON market. This includes the largest national economy opening up for imports from other countries.
      Over the past ten years, Austerity in Germany has sucessfully prevented that from happening because it ‘tightened the belt’ on aggregate demand, while our industry made more profits than ever before because the EURO did not appreciate as much as it would have, had it been a purely german currency.

      On top of that, if ‘we’ hadn’t financed that kind of ‘living beyond their means’ of the deficit countries, they wouldn’t have had the funds to buy all our products in the first place, which prior to the crisis they had been doing to a much larger extent than they are capable of now.

      Sure, the Euro made it much too easy for some to get hold of cheap credit in hard currency. But even you should have realize by now that credit needs debt to even exist and that creditors usually don’t hand it out for free out of the kindness of their hearts but because they want to make a profit out of it.
      So all this talk about who is to blame for this mess doesn’t really get us anywhere because we would have to blame ourselves just as much as anybody else. We can condemn the common currency as much as we like, and I certainly am inclined to do so as well, but it has welded us together in such a way that severing that connection can now only be accomplished by brute force. And the brunt of that will not only affect the periphery but it will also land on the german middle-class.

      What you and your friends from the AfD – whose policiy you keep advertising here – are demanding is that we ignore all that and – to put it mildly – give Germany back to the germans, icluding their credit based financial assets, which they wouldn’t even have if there hadn’t been so many others willing to ‘live beyond their means’ in the first place.
      Of course they keep trying to soften up their nationalist agenda politically by claiming that this would be in the best interest of Greece and the other deficit countries. But in the end it is all about getting rid of those deemed unworthy of our support. And that is nothing more than another broken promise disguised as economic reasoning.

      The tragedy in that lies in the fact that most of the germans now demanding a return to what they percieve as the good old days don’t even realize that the whole ‘business model’ was never meant to further their own interests. All it does is to help a small minority of shareholders and their lackeys in the executive offices to line their pockets at the cost of everybody else. And people have been fooled into believing that this is the end of history.

    • @ Jordan:

      “many are still believing in gold, like you”

      Do I? This is totally news to me. But I rest my case since it doesn’t make sense to correct your various assumptions and allegations.

  3. Am I looking at an implicit attack on the welfare system or has David McWilliams(the author of this article in the Irish Independent) failed to properly analyse a myriad of social and economic issues .Help!

    *If a person’s better off on the dole than at work, we have a problem February 27, 2014*

    Posted in Behavioural Economics 43 comments

    Sometimes when people write about economics, it is easy to forget that behind every economic statistic is a personal story.

    Each sanitised economic figure when shorn of its personal testimony rarely reveals much. That is the point of aggregated data: it serves to dehumanise. But this process misses the central political point, which is that each economic data publication should move us to think about the society we live in because each figure is a father, mother, husband, wife, daughter, brother or sister.

    Behind this antiseptic world of economic data are the human stories, perhaps most poignant when we are talking about people who have no work.

    In recent weeks I have been getting a lot of emails from people who feel that our welfare system is acting as a disincentive to work. I have been getting emails from people in work and people out of work. I believe this to be a fascinating spot where the welfare system meets the wage structure.

    If, as most of the letters suggest, the system is acting as a disincentive to either go back to work or for those in work to work harder, then we have a major problem.

    At the same time, I also realise that nothing should more anger someone stuck on benefits through no fault of their own, than a reasonably well-off economist who writes in the paper, complaining about welfare rates. So you are not going to get that here.

    Instead, I am going to relate a story, which came in to me from the north-west from an unemployed middle-aged man with children.

    Dear David,

    I am a 54-year-old sales & marketing executive who has now been out of work for just over four years. I have worked for both multinationals and indigenous firms alike. I have been on benefits for the last four years. My wife works part-time and brings home c EURO 250/wk. (c EURO 13,000 p/a). I am getting the jobseekers allowance for me EURO 173/week and FIS (family income supplement) of EURO 168/week.

    I have three teenage kids who have medical cards and we get a bin waiver of around EURO 200/year. One of my daughters is at university and she gets her fees (and registration) paid and has a maintenance grant of some EURO 2,500/yr. Without this, we could not have afforded to send her to university.

    My younger son hopes to attend university. I will also claim the grant and same maintenance support for him.

    Regarding my mortgage, I have an arrangement with my bank to pay EURO 100/wk off my mortgage until my financial situation improves. At an interest rate of 4.4pc, those payments just about cover the interest and reduce my remaining mortage balance of EURO 89,000 by about EURO 1,200/year.

    Now here is the rub – if I were to return to work or take any paying placement job, the family would lose all the university support, all our medical cards, the bin charge waiver, the dole and the FIS. I’ve provided this box calculating what I would lose.

    Then of course the bank would demand full monthly payments on the mortgage of about EURO 1,400/month or about EURO 16,800 a year.

    So David, I calculate that the cost of returning to work is EURO 45,552 and this is the cash value. In order to earn this amount of disposable income, I would require a salary of between EURO 68,000 – EURO 69,000 and subtract my wife’s EURO 13,000 P/A.

    I want to work and I want a job but why would I take a job that ends up with me having less income than I have now and not being able to provide for my family?

    The minimum wage is roughly equal to my jobseekers allowance & FIS and I’d prefer to work, but the loss of benefits (third-level grants and medical cards) is the killer.

    The system doesn’t work!

    We are stuck in a rut with no way out, bar the black economy. There are ways around this impasse, but why should I have to revert to subterfuge, the black market and deceit instead of the Government getting its act together and sorting this mess out?

    Yours

    Can you hear the frustration in this father’s voice? Can you sense the gradual realisation that he is in a financial cul de sac? If he tried to go straight and get a job, he loses so much that he would have to get a very well-paid job for all the sums to add up

    And as he remains out of work, he knows that the chances of getting a very well-paid job begin to decrease because people want to employ people who are already in jobs.

    On the other hand, he knows that he could do a few ‘nixers’ to supplement his income.

    This means working in the black-market, but why should he break the law simply to do the right thing by himself and his family?

    Some may argue that this is an isolated case and doesn’t imply a general problem. But that is not what the people who actually run this country – the Department of Finance – actually think.

    In 2011, the boffins in Merrion Street did some calculations on this problem.

    They divided the gross income when unemployed by the net after-tax income when a person is employed. This is called the replacement ratio. They suggested that anything above 70pc would be a serious disincentive to looking for a job.

    Department of Finance figures reveal that – particularly for a couple with children – you would have to earn a massive salary for there to be a clear incentive to drop benefits and go back to work. Indeed, even at twice the average national wage, most people are still in a position where going back to work isn’t that attractive. These figures would tend to back up the suggestion from the letter writer.

    I realise there are different interpretations put on these figures, but the letter from a father after four years out of work is indicative of a major problem at the core of our system.

    If we choose to carry on as things are, why should he try for a job unless it pays him extremely well? And – another way of looking at things – why would an employer pay these high wages if what is driving up the wages isn’t potential employer productivity but the necessary cushion needed above benefits to make the job attractive?

    We can put our heads in the sand because the answers are too awkward but that’s hardly a strategy.

    • I think that you ask wrong questions. And the wrong questions come from the incorect paradigm that you think in.

      Is the dole levels above what a decent living is? Or is it just enough to provide for decent, human, respectfull living? That should be the first and foremost importance of questions.
      Then, Should we allow people to have less then decent respectfull lives that can offer a good opportunity to their children? Are we advanced rich country or not? If we are then nobody should be allowed to live less then decent life.

      It is obvious that dole provides only enough for decent life and not more. (We) as rich and advanced country can provide that.

      Then the right question is, does work offer such disincentive that provide less then decent life?
      It is not that dole is disincentive, but the pay for work is structured so that pay is not sufficient for decent living.
      It is the miserable life that pay for work offers, while some others receive more then they can ever spend.
      It is not the problem in dole levels but in work incentives, if it is bellow decent, then it offers too low.

      Knowing which is the right question is important before you answer it.
      Reality is that most people would not want to be lasy and live off of the dole, but pay structure is so bad that it offers only miserable lives. If you give a choice, the most people would always choose work.
      Offer him a Dole, all that he gets now and choice to do voluntery work, most people will choose to work too, volunterily. They want to be usefull too.
      With aditional education there would be even more who would do voluntery work.
      This is from historic examples of cooperation, sacrifice for others: “do not ask what country can do for you…..”
      It is this mistrust in other humans that is creating your paradigm with wrong questions.

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  6. Austerity can only become a problem if a country has lived beyond its means during several years. So the real lesson to learn is: in order to avoid austerity and thus the problems that come with it, create a reasonable business model and stick to it. Instead of living an unsustainably high standard of living; on borrowed money.

    • Hm, dont you know that most of the countries live beyond its means? Can you find a country without debt? Debt means that country lived beyond its means.

      Here is the list of countries and their debts

      http://en.wikipedia.org/wiki/List_of_countries_by_public_debt

      Please look at this chart and learn something so simple that an idiot can see. What are the countries that did not live beyond their means? Only oil exporters did not live beyond their means. All advanced countries lived beyond their means.
      Germany 80% public debt, Norway 34% public debt, NORWAY???????
      Just take a look and remove your ideological blindness.

    • What is a reasonable model VSS?
      Is Germany a reasonable model?
      If it is then I have to remind you that Germany’s model is viable as long as there are others that live beyond their means according to you.

    • In case you haven’t noticed, Greece cannot create its “reasonable” business model, it has to be created in Brussels and Frankfurt. No, I am not speaking just of the troika, that was also true during the pre-crisis euro period (2002-2009). This business plan was called “common (agricultiral/industrial/monetary/…etc) policy)” before it was relabeled “memorandum”.

      Of course, the officials (both in Greece and in Frankfurt and Brussels) deny this; the official line is that “the Greeks” (or “we”, depending on who is speaking) “brought this on ourselves”.

    • “the official line is that “the Greeks” (or “we”, depending on who is speaking) “brought this on ourselves””

      Who else? The martians?

      Nobody forced Greece to do what she did. It was her very souvereign decision, just a few examples, to entertain for decades a system of tax evasion for the rich, a grotesquely outsized public sector, bribe and get bribed, do the the olypmics and so on.

      There is nobody to blame for these decisions than Greece, or the so called ‘elites’ of Greece. Democrately elected by the public, BTW. I repeat once again: you Greeks should have revolted 20 years or so ago against these parasites. But since you can’t turn back time: revolt NOW.

      Because, my friends, the truth is: it won’t get better unless you get rid of the swines.

      And Jordan, beg pardon, but unlicke Germany or Norway, Greece is a financial and economic basket case. This has of course a lot of reasons. A major one being that the other two did never heap up nearly as much debt as Greece. Who says that the debt (private and public) has nothing to do with the sorry status this nation is in, ignores reality.

    • As always, when you bring up that argument, I wonder what standard of living might seem appropriate to you for a ‘country’ that used to live beyond its means in order to serve as a lesson for future austerity candidates.
      Is not being able to afford health care, pay the rent or the electrical bill or heat their homes during winter sufficiently low-standard enough for the citizens of such a country? Or would you rather see them starve to death in the streets in order to meet your austere requirements for penance for their alleged collective profligacy?
      And do you think that this would be the proper incentive for them to improve their ‘business model’, just like it does so efficiently for the people of the developing countries? I am just wondering.

    • VSS
      You should know that debt is not a cause but a simptom. Trying to cure symptoms while causes are left untached will create more simpttoms.
      Look at the Croatia’s debt. One of only 3 countries in EU with public debt under 60%.
      If you claim that the level of debt is the cause of problems, then Croatia should have conditions better then in Germany, yet we are second only by Greece in unemployment.

      Then look at othe PIIGS, besides Greece. Their debts are at the levels bellow or at Germany’s level. So it is not debt that says anything about prosperity. I tought that this was clear long time ago, but you never considered it. You never asked yourself any questions, you only believe other, who acctually caused the problems without questioning.
      Ask yourself these questions; how is that no country ever can lower its public debt? Why is that most developed countries have such high debt, yet not developed have lower debts but high unemployment? What it means that country is developed?

      This last question should answer most of your confusions. But only if you try to answer them without thinking about what others tell you. Can you find anything that you think that others did not force upon you?

    • @VSS

      No, not Martians, but definitely the Brusselian and Frankfurtian and Athenian officials, as I clearly state in my message, they created the “reasonable business model” of before and now.

      As for the rest (tax evasion, oversized public sector, bribes, Olympics, private+public debt) please check the facts again. They are not supporting what you seem to think re. business model.

      What would you say re. business model about Spain? (25% unemployment, +50% of GDP in public debt, depression, etc)

      As for “democratically elected”… no, most of these officials (and their choices) were not. I find it amazing that although we have (and certainly mostly want to have) European laws, policies, banks, funds, government, courts, currency, lobbies, etc. etc., “responsibility” is still assigned wholly at national level (in crisis times that is; during good times, it is “Europe” that brought the blessings…).

    • Here is the reasonable model we should all look up to as good boys:

      According to current analyses based on the Socio-Economic Panel Study (SOEP), the total net assets of German households in 2012 amounted to 6.3 trillion euros. Almost 28 percent of the adult population had no or even negative net worth. On average, individual net worth in 2012 totaled more than 83,000 euros; that is slightly more than ten years previously. The degree of wealth inequality remained virtually unchanged. With a Gini coefficient of 0.78, Germany has a high degree of wealth inequality compared to other countries and there is still a wide gap between western and eastern Germany, almost 25 years after unification. In 2012, the average net worth of eastern Germans was less than half that of western Germans.

      http://www.diw.de/en/diw_01.c.438772.en/themen_nachrichten/persistently_high_wealth_inequality_in_germany.html

    • @Jordan
      A clarification is in order. Debt per se does not mean that a person, a company, a state, a country or whatever is living beyond its means. Debt is not bad per se; in fact, in can be very good and without debt, economies would not work well. IT DEPENDS ENTIRELY ON WHAT THE DEBT IS USED FOR!!!

      A country is living beyond its means when it spends more money outside of it than it earns outside of it. The country, i. e. the entire economy, works exactly like a family in its cross-border dealings: if it spends more abroad than it earns abroad, it needs to take up foreign debt and/or get foreign investments (or EU grants, guestworker remittances, etc. etc.). That by itself is still not necessarily bad if the foreign spending of a country is for the import of things which can be put to use for economic value creation in the country (such as machinery & equipment). Borrowing offshore for that purpose is ‘very good borrowing’ because it generates future revenues for debt service.

      Borrowing offshore for the purpuse of importing consumption goods, particularly if that leads to a reduction in domestic production of goods, is the classic ‘living beyond one’s means’. It is reflected in a country’s current account balance.

    • @Klaus
      I really do not know what it means “to live beyond it’s means” so i never have used that term in my arguments. It was only guessing what VSS is using it for.
      I do not use, nor understand such term, since it is not quantifiable or particular to any condition. “To live beyonds their means” is only a morality argument, the judge is imposing his morals onto someone else.
      I do not allow myself such rights to acuse others of wrong morals when i know i sometimes did the same act, nor i allow anyone else to impose such moralistic judgments since everyone did same acts at some points in time.
      Have you heard of solidarity?
      Solidarity is allowing others to “live beyond their means” since anyone can fall behind and i can, and i did fall sometimes.

      False morality of such judgment is not only projection but also projecting punishment onto others.
      In case of arguing with VSS i used the term in order to debunk it, not to argue my propositions.

      “IT DEPENDS ENTIRELY ON WHAT THE DEBT IS USED FOR!!!”
      I really do not think that debt is tangibly separated from normal income, neither for public nor for private debt.
      Can you follow the trace of debt money and regular income as separate from spending? It is your morality that decides how you purpose the money.
      Total budget is spent on such and such, WHY did you decide that only deficit money is spent on safety net and not on defense funds? What conditions did you use to decide how did you purpose which money? Deficit money is marked with a D ??????
      It is false morality that is pushing false ideology to entice people against such and such spending. There is no tangible separation of debt and income money.
      Do they ask you at the cash register:” is that public or private money? Is that money from taxes or from deficit?” They do not ask me, do they ask you?

    • @Jordan
      I trust you know when a family lives beyond its means (i. e. when it spends more money than it earns). An economy functions exactly like a family in its cross-border transactions: when it spends more abroad than it earns there, it is living beyond its means; beyond its own economic value creation. So if you didn’t know that before, you know it now. There is no morality judgment in this at all. It’s just a statement of facts (the US economy has spent more abroad than it earned there for decades and I don’t think anyone is making a morality play out of this. On the contrary, the rest of the world is happy to receive that income from the US).

      You think there is no difference between debt and income as a source for your spending? Well, try it out. You will find that the debt you have taken up to pay for a vacation must be paid back. Had you paid for it out of your income, you wouldn’t have had to pay anything back. Again, there is no morality judgment involved here, either.

      The rest of your argumentation I do not follow. The income side never worries how the spenders finance their spending; they just want to get the income. It is the spenders who have to make judgment how much they can afford to spend and what to spend it on.

    • @Klaus
      Since everybody “live beyond their means”, private and public, every subject lives beyond its means. Even some rich people live beyond their means.
      It is enough to take a look at public debt of all countries, only oil exporters do not.

      To determine if they can pay off their debt, for persons it does not depend on them, but if enough of others will take more debt on. Usually it is simple to determine if a person can pay of its debt but only on conditions that nothing changes. But a person can loose a job, get sick, get the lower wage, anything that lowers the income of debtor.
      The most assumed condition of a person is that income will grow and debt will be easier repaid. What determines if income will grow in a system where economic growth depends on total debt growth. With others taking more debt, there will be more preassure on wages to grow which will make most of the debt easily repayable.
      But today, banks raised cost and terms of debt so they forced debt fall. This is what started making debts unpayable. It is not personal fault, in general, for not paying of their debt. It is conditions in economy.

      The same applys for public debt. It is not up to individual countries to repay their debt. ANd the facts on the ground support that since no country ever lowers its debt, volunterily. So the public debts can only be refinanced and serviced. To service a public debt, no matter the levels it requiers to have low enough interest rates.
      There is the crux of the matter if a country can service its debt.
      Interest rates mostly are determined by a Central Bank. Due to moralistic beliefs and neoliberal dogmas a Central Bank will keep the interest rate at too high level which will in time create public debt to be unservicable.

      Another force of pushing Central banks to keep interest rates high is trade power. Powerfull countries force other countries to sell them goods in power controlling currency. Germany forces Greece to sell for DMark, while Greece can not force Germany the same, to sell goods in Drahma. Greece have to buy from Germany in DM, foreign currency, while Germany buys from Greece in DM too. So power of trade is forcing other countries to exchange in foreign currencies.
      But still, with smart Central Banks they will keep interest rates low, no matter what trade is in if exchange rate is not fixed.
      Just follow Central Banks interest rate setting and you will see that they force up the rate for their own country. Greek CB did force up Government debt interest rates, not from outside. What is getting those CBs to raise interest rates when government is in high debt and high unemployment can be only Gold Standard thinking of Governors.
      There is no reason, economic reason, to have high interest rate with high unemployment, but yet CBs are raising it on their own government.

      Example: Croatian interest rate is around 6%, and that is how much CB is charging its banks for funds. This makes banks charge the same rate when government comes for funds. Taylor rule is clear, interest rate should be controlled by unemployment rate, not by debt of the government, yet CBs do not follow that, they only look at government debts.
      Power countries do not do that, and they force such thinking onto weak countries in order to colonize them economicly. Power countries export their unemployment into weak ones that do not follow Taylor rule.

      So it comes down to morality argument against government debt, and against persons even tough the debt repayment mostly does not depend on them but on the system.
      Can you see that characterization of “living beyong their means” is empty. Because the repayment of debt depends on the system, how is set up and what ideology motivates it.

      You can say that all weak countries are living beyond their means, since they allowed power countries to dictate and set up their money systems.
      But when you look into Ecuador, Venezuela that is attempting to change the game, also Ukraine, you can see outside preassure and bribes that are taking them into chaos, since they resisted the power of other countries.

    • @Jordan
      My exclusive intent was to keep this on an abstract level, i. e. whether or not debt is good depends what it is used for. And that living beyond one’s means, for a family or an economy, means spending more than one earns (unless the spending is for investment). No more, no less. No reference whatsoever to Croatia or Greece of rich peopole or oil countries or whatever.

      I would add one thing, though: when interest rates are artificially low and do not reflect the risk of the borrower, it is unavoidable to end up with enormous misallocations of capital. Here I do make a reference to Greece. If markets had not thrown so much cheap money at the Greek economy, Greece would definitely not be in the pain it is in today.

    • @Klaus
      So what you meant by “living beyond ther means” is acctually missalocation of capital.
      That i can understand and accept. But why is necessery to use such moraly loaded when we have a perfectly good term?
      Missalocation of capital describes perfectly well what is at fault, so even small increase in debt can be missalocated and no level of debt is to blame.
      When can even small increase in debt can be missalocated?
      When all of the debt goes into housing market, while none in investment. This inflates housing prices while nothing increases wages in general. This makes housing unafordable and bubblistic.Why, because wages did not grow, only debt.
      This is strictly a monetary distribution problem and it drives to a conclusion. The level of debts are not a problem but allocation that asymetrically increases wages/ income.
      So it is the missalocation of debt that missalocates income. Or, if you want to call it financialisation.
      So increase of debt in one sector will increase income in that sector which makes debts payable, but all people grow their debt, even those that do not get wage increase, hence bubble.
      Banks predominantly give loans to allready existing assets, while government generaly grow the demand for goods and services through safety net. Both have to equally increase their spending/ crediting, in order to prevent asymetrical increase in debt/income, to prevent missalocation of capital.
      Now enter Croatia and other southern countries that generaly did enter with low housing debt. All studies of equity wealth show southern states as the wealthiest in equity, still after so much housing debt growth. This point into direction of huge equities in housing before foreign capital inflated only housing prices. Especially since Croatia exited communism completaly free of housing debt. Inflation made sure of that even tough before high inflation most of the house building was done with a whole familly effort that will get owner free of debt, and some that did not cleared the debt by high inflation.
      It was the alocation of capital to indebt housing while not enough to inflate wages that created this bubble which is bursting slowly.
      Missalocation of debt comes from a monetary system that prevents government debt/spending but incourages bank created debt/spending. This creates asymetry between housing debt, as the largest debt consumers get into, and their wages.

      And the wages will grow as long as debt is alocated symtericaly between sectors in an economy, and debt will be payable by increase in debt. It is the increase in debt that makes wages grow and that itself makes debt payable. There is nothing about “living beyond means”.
      So when inflation fighting was succesfull, the debt became the problem.WHy? because inflation generaly means WAGE INCREASE. There are recent attempts to remove inflation as marker for Central Banks, and use wage increase instead. They show missalocation of capital/debt too if you compare sector wage increases.

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