How will Greece get off the dole?

My NYT column is here, here is an excerpt:

Consider the World Bank’s Doing Business index, which ranks countries according to the quality of their regulatory environment for commerce. The index places Greece at No. 109, just behind Egypt, Ethiopia and Lebanon. For the category of “high-income countries,” the Greek ranking is next to last, ahead of only Equatorial Guinea, which has oil wealth.

Greece has a malfunctioning fiscal system in which the shadow economy is estimated to be roughly 20 to 30 percent of the reported economy and tax evasion may run at $30 billion a year. Simply collecting taxes that are legally due would help bring Greece’s books into balance, yet even this simple remedy does not appear imminent.

As the World Bank index suggests, government funds are often spent hindering production rather than supporting it. This gives one clue as to why the numbers make Greece appear richer than it really is. Public expenditures are valued at cost when measuring gross domestic product, yet arguably the quality of Greek public services, per dollar spent, is less than that of many wealthy countries. Nonetheless Greece plunged ahead and joined the euro zone in 2001, with some unfortunate consequences.

A few scattered points which did not make it into the column:

1. Count the economic collapse of Greece as an intellectual victory for Douglass North and his brand of "institutions matter" economics.

2. I don't see any reason why a narrower Eurozone has to collapse.

3. Greece with a default and a floating exchange rate could do OK (though not spectacularly well).  The real question is how to get from here to there.

4. I don't have any problem suggesting that Greece needed, and still needs, to collect more tax revenue.  Yet many writers on "the left" will bend over backward to avoid uttering these simple words: "The Greek government spent too much money."  It's true, the Greek government spent too much money.  Be worried if you are reading a writer who does not admit (much less emphasize) that upfront.

5. In addition to greater wealth, here are some reasons why California is not like Greece:

The United States has rich and poor regions, but the 50 states are forced to run balanced budgets, and there is greater mobility within the nation, based on a shared language and culture. Major national policies, like President Obama‘s health care plan, are not judged primarily in terms of which states win and lose; in fact the largely opposed “red states” get a lot of the benefits through higher Medicaid subsidies.

Addendum: Arnold Kling comments.


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