Is Greece entering a Death Spiral?
spiegel.de
spiegel.de
The whole article is stuff like that. They go on about the guy who used to work 300 days a year but now can only get 25 or the street where half the shops are closed but gloss over the reality that GDP only dropped 1.5% in the last quarter (2.5% in the last 12 months)
In the end Greece has it a lot better than they could have had it. To me this is like the guy who spent all his money and had to be bailed out by his neighbors complaining that his neighbors aren't doing enough for him.
Arguably it's not merely like that, it is exactly that.
People are anxious and have been through a lot, no doubt, but the exaggeration by the media is extraordinary. Though, I have to admit, I don't blame the ship owners for repairing in other ports. The bureaucracy and union strikes are maddening drains on productivity.
The article overall seems a bit on the sensationalistic side, full of cherry-picked alarmist anecdotes. I would take it with a decent dose of salt.
It doesn't have to be that way. Japan has some of the highest labour rates and expensive electricity. It has to import both iron ore and coal. Yet it is home to the very profitable steel mill: http://en.wikipedia.org/wiki/Nippon_Steel
It'd be painful, but at least it'll be over eventually and things will start to grow again.
Right now it looks like they are on the path to perpetual stagnation.
Unions make themselves relevant by always pushing for a strike. If a union doesn't strike, people stop caring about going union in trades where it isn't mandatory. The careers where unionization is essentially mandatory should be seriously be overhauled (IIRC crane operators is one here where unionization is mandatory).
I never understand this logic. I'll agree that building an economy on payments from the EU is bad. But now that that damage has been done, how exactly do you then make the jump to the concept that government expenses are an instance of not relying on yourself?
You're right, inflating the currency would help (if they weren't on the euro) but if you have high nationwide unemployment, the private sector isn't employing people, and they need to be employed to have health insurance, then the government should start paying these people to dig holes and fill them in again.
Haha.. actually, maybe you don't want to take my economic advise.
That's the big reason why the IMF was willing to bail them out.
The penalties of defaulting are probably already negotiated to far outweigh the penalty of stark austerity measures.
Moreover, the SPV and the bailout plans in the eu seem to be more like smoke and mirrors than concrete stuff (e.g. bailing out greece with money coming from portugal which is in the same position)
Greece debt may be denominated in Euros, but that is the only thing it would have in common with German debt.
If things continue, the US won't be far behind.
The problem is that Greece has very few policy options given its existing debt burden, and inflating out of the crisis is not an option given its need to support the Euro. As with the US government, what Greece can afford to spend on social programs in equilibrium depends largely on what it spends elsewhere.
They are clearly not helping yet either but keep in mind the current cuts were only enacted in May of this year.
What the government is trying to do is send a message to the world that they'll be prudent with their finances from this point on. That's why they've gone above and beyond what was required of them as far as austerity cuts go. It's a long term strategy that will hopefully draw private investment back to Greece in the future.
I do not understand why increasing Greek debt is supposed to be a solution to a crisis of overindebtedness. The conventional solution to debt crises is reducing the size of debt relative to GDP. The problem with Greece is that the country is stuck in deflation. It's GDP is contracting and that is making it even harder to pay off its debt. So the situation is getting worse because the government is pulling money out of the economy.
The more insidious problem with your proposed solution as I understand it is that investment is not highly responsive to interest rates in a liquidity trap. Keynes was the first one to talk about this. He has been proven empirically right: people don't borrow for a host of reasons in protracted economic slumps. This is why Japan can have a nominal interest rate of effectively zero for a decade and yet the private sector hasn't invested enough to create much growth.
The solution for Greece is fairly simple: debt restructuring to reduce its debt burden relative to GDP, so that the government doesn't need to plunge the country into deflation by pulling money out of the economy. France and Germany seem to prefer forcing economic contraction on Greece since this avoids their bondholders taking a cut or opens them to accusations of being soft on Greece. I'm not sure what the best balance of interests here is in part because I don't know how bad it really is in Greece, but however the distributional politics play out, I don't think your post makes much economic sense. So I'm not sure if I'm missing the picture, or if you're trying to get at something else.
You are joking, right? Greece is a good example of what happens when the state fails in two of its most important functions: efficient tax collection and an incorruptible civil service.
http://boingboing.net/2010/05/04/satellite-photos-cat.html
The question though is whether "more efficient tax collection" is really the cure for Greece's ailments. It really boils down to whether you think a centralized government can better allocate your dollars to your benefit, or whether you can.
You could certainly make an argument that people would free ride and/or greatly underestimate the benefit that spending 10 cents of each dollar on (say) the military or roads would provide, and this furthermore justifies taking that 10 cents by force as part of the price of membership in a community.
However, I personally find it less persuasive to argue that centralized allocation programs will produce greater wealth than distributed ones. A remote government simply doesn't have all the information and can't know your preferences.
One thing I find interesting is that many people can come to fairly good agreement on what the problem is (bad economy, low unemployment, etc.) but disagree very dramatically on what the solution should be. frossie is likely a Keynesian and rick888 is probably a Hayekian; in my experience, Keynesianism is in the water supply and the "default belief" for most college graduates, but most entrepreneurs tend to end up Hayekian:
I assure you, that is the least of it.
The fundamental problem in Greece is, as I said, ineffective tax collection and a corrupt machinery of state.
Since people are clearly having trouble understanding what ineffective tax collection actually means, let me explain: the government is unable to tax income or other forms of revenue. There is a huge cash (grey) economy that means that income tax, the primary revenue raising tool for most Western economies, is useless.
If you go into a taverna with your family and blow 100 euros on a big meal, the bill will arrive and only cash will be accepted. At the end of a busy night that brought in maybe 2,000 euros, the proprietor will report to the tax authority an income of 200 - hey, slow night, eh.
Now I realise this may be a struggle for those of you with a certain kind of politics, but believe me - a lack of an effective income tax is a terrible thing. For starters, the state needs revenues somehow - so since they can't reliably tax income, they have to tax secondary things - which unfortunately are things like fuel tax, and goods taxes that hit the poor much more than the rich. Hence a lot of the social tension that you see in the news.
This is why the swimming pools are a big deal. Yes it may sound insane that anybody wants to tax pools - but when the person who owns the beautiful pool in the house by the ocean claims he only earned $10,000 last year, and you are unable to actually bust him on such an atrocious claim, then taxing his easy-to-find pool is the only thing you can do.
This is a country than until very recently didn't even have a land registry; yes, the state had no idea who owned a piece of land.
The point is that Greece is a bad example to use in a debate of fiscal policy, because it works nothing like you US/UK/{Insert your big Western economy here} people think it does.
No startup can point a gun at its customers to force them to give it money. Some startups genuinely do provide a valuable service that people can't or won't pay for. Oftentimes the difference between a viable and nonviable startup is the culture of the people you're selling to (academics are notoriously hard to monetize, while myspacers click on lots of ads).
So if Greeks don't want to pay taxes like Brits then the Greek state should be a lot smaller than the British state. Replace as much as possible with user fees and just scale it down. Do you disagree?
Nobody wants to pay taxes, and nobody wants social programs cut. Therein lies the problem.
From the cafes to big business to retirees who are collecting their meagre pensions but still working (and not paying tax on that income) its a huge issue; not just for the lack of tax dollars but also the fact that things would become very dark and difficult if it was all legit.
The real big problem is the inflated public sector. This of course is a problem because is a big burden to the public finances but more importantly results in >20% of the population that is capable of working being occupied at the public sector producing minimal value for the economy overal.
If anything, it's a bit more free-market than most of Europe, because what regulations exist are not enforced nearly as vigorously as they are in places like Scandinavia or Germany. In Germany, it's pretty hard to ignore building codes and zoning and just build a house, but in Greece people do it all the time, especially outside the major cities--- you just run your own electric line from a neighbor to avoid having to get an official hookup (you settle charges with them privately), hire a local architect and contractor, and you're good to go. Between that and all the small businessmen, it's a surprisingly DIY sort of place, where the government exists but is often ignored.
http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748704...
http://www.nytimes.com/2010/05/02/world/europe/02evasion.htm...
High taxes and expensive social programs seem to work in Germany, Denmark, Sweden, ...
Give them time. Talk to people in those countries. It's very difficult to find a job right now in any of those countries.
Not to mention the fact that 70%+ of our monthly income goes to the government (which means less freedom and choices for you).
The welfare programs in Germany have worked for some time (started around 1900, IIRC).
And I'm not sure were you got that tax rate. Because it's certainly false. I think you are deluding yourself.
I'd say Germany 1900 to 1950 is a pretty compelling argument against government authority and managing of the economy and welfare of the people.
You do realize that many of the states that are failing (California and Michigan) have had some of the highest taxes, largest wages for city workers (Some in California were paid > $200,000/year), and many expensive social programs (Just look at all the money that was pumped into Detroit over the past 20 years).
In Michigan, businesses are taxed on gross income rather than net (A few other states do this too). I don't see how anyone can think this is a good idea. The more difficult you make it for a business, the less likely a business will want to be there (and there will be less jobs).
"And I'm not sure were you got that tax rate. Because it's certainly false. I think you are deluding yourself."
You can't just look at income tax. You need to include VAT, sales, and everything else that you need to pay on a yearly basis.
We had a welfare system since the second world war, and it works well for us. I went to the USA many times, the first I was really surprised to see a lot of poor people. Then I realized how good it is to be a Western-European citizen.
1. Nearly no one lost his job in Germany in the last recession compared with past recessions. So yes, many companies are not eager to get new workers at the moment (especially smaller companies), but most people don't need a new job.
2. It is possible to get a new job in Germany at the moment, and comparing the situation between Germany and USA: It is far easier here than in the USA. The unemployment rate in Germany is more or less constantly going down since the begin of the year.
3. While Germany has pretty high (social) taxes the maximum is around 60%, which is still high, but (far?) less than 70%. This includes basic health care (which gets worse every year, but different topic), state pension (same problem as basic health care) and payment for the unemployed (which is pretty shoddy since they changed the system to something called Hartz IV).
The real problem is that the maximum taxes are around 60k Euro and that this maximum is not adjusted for inflation. This leads to bracket creep, which hits the middle class pretty hard.
edit: clarified statement in 1.
I was chatting with someone on a flight once, and I mentioned that I have my own company, and he said "yeah, but it was, like... your dad's, right?" I said no, "I founded it". He couldn't believe that someone under 40 could start a company...
Denmark is a good example of what happens with an over-reaching government, high taxes, and expensive social programs.