Tuesday, March 3, 2015

Great Piece on Greece "Austerity"

Highlights from Ricardo Hausmann, Austerity Is Not Greece’s Problem,

  • [T]he recession in Greece has little to do with an excessive debt burden. Until 2014, the country did not pay, in net terms, a single euro in interest: it borrowed enough from official sources at subsidized rates to pay 100% of its interest bill and then some.
  • But by 2007, Greece was spending more than 14% of GDP in excess of what it was producing, the largest such gap in Europe – more than twice that of Spain and 55% higher than Ireland's. In Spain and Ireland, though, the gap reflected a construction boom; euro accession suddenly gave people access to much cheaper mortgages. In Greece, by contrast, the gap was mostly fiscal and used for consumption, not investment.
  • Greece never had the productive structure to be as rich as it was: its income was inflated by massive amounts of borrowed money that was not used to upgrade its productive capacity. According to the Atlas of Economic Complexity, which I co-authored, in 2008 the gap between Greece's income and the knowledge content of its exports was the largest among a sample of 128 countries.
  • Unfortunately, this is not what many Greeks (or Spaniards) believe. A large plurality of them voted for Syriza, which wants to reallocate resources to wage increases and subsidies and does not even mention exports in its growth strategy. They would be wise to remember that having Stiglitz as a cheerleader and Podemos as advisers did not save Venezuela from its current hyper-inflationary catastrophe.

2 comments:

eah said...

Michael Lewis in Vanity Fair from 2010: Beware of Greeks Bearing Bonds

The average government job pays almost three times the average private-sector job. The national railroad has annual revenues of 100 million euros against an annual wage bill of 400 million, plus 300 million euros in other expenses. The average state railroad employee earns 65,000 euros a year. Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true.

AllanF said...

In Spain and Ireland, though, the gap reflected a construction boom; euro accession suddenly gave people access to much cheaper mortgages. In Greece, by contrast, the gap was mostly fiscal and used for consumption, not investment

Stop the bus. Housing is an investment?

If the national policy is one of unlimited 3rd world immigration (Spain <cough> USA), sure, this "investment" can play out for a while, but I'll argue it's no more an improvement in living standards for today's demographic than blowing it on the "consumption," at which Ricardo seems to turn up his nose, AND far more detrimental to the next generation that basically has had no say in the matter.

Paper is pretty easily and cleanly welched on. 20-40 million unproductive foreigners and their progeny demanding a piece of the social contract pie is a hole you won't get out of in 100 years.

I'll also note he's pulled a fast one lumping public and private debt together. I don't agree with that premise either.