Ricardo Hausmann on Greece and austerity

So the problem is not that austerity was tried and failed in Greece. It is that, despite unprecedented international generosity, fiscal policy was completely out of control and needed major adjustments. Insufficient spending was never an issue. From 1998 to 2007, Greece’s annual per capita GDP growth averaged 3.8%, the second fastest in Western Europe, behind only Ireland.

…Unsustainable growth paths often end in a sudden stop of capital inflows, forcing countries to bring their spending back in line with production. In Greece, however, official lenders’ unprecedented munificence made the adjustment more gradual than in, say, Latvia or Ireland.

There are many other good points at the link.  Hausmann makes this point:

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.

And then the closer can only be described as an “ouch”!:

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.

As I’ve said before, that out of control Greek government spending and borrowing has been converted into a (supposed) cautionary tale about the dangers of fiscal conservatism is one of the greatest (and most unfortunate) public relations triumphs of modern times.  That said, I would have preferred it if Hausmann had paid more attention to monetary policy.

Comments

"As I’ve said before, that out of control Greek government spending and borrowing has been converted into a (supposed) cautionary tale about the dangers of fiscal conservatism is one of the greatest (and most unfortunate) public relations triumphs of modern times."

Preach!

"that out of control Greek government spending and borrowing has been converted into a (supposed) cautionary tale about the dangers of fiscal conservatism"

Has it? That might be an article of faith on the Left, but is that really the mainstream point of view?

It's a tale with multiple lessons - the Greek one about sustainability, but also about the need for banks that make a lot of bad loans (like, say, to Greece) need to restructure those debts - and take a haircut - when the cards go tumbling down.
And that a bit of inflation is a useful thing after a financial crisis.
The Greeks made their mess, but the rest of the EU policies, and the essentially zero inflation targets of the ECB/Germany certainly compounded them.
When you come upon a problem, it is important to have a constructive solution. It's like the Treaty of Versailles making things worse for future peace after WW1.

"Austerity" has become a meme despite being completely meaningless, the mainstream won't stop parroting it.

And from a German perspective, the real problem appears to be that the Greek government is unable to collect taxes.

Which is why Syriza is being given a chance by Germany to show it can do better job of tax collection than the previous generation of corrupt ruling oligarchs. (Which has been received better than the German proposal to send German Finanzamt employees.)

Somehow, the idea that Greece's fundamental fiscal problem is an inability to collect taxes gets extremely short shrift here.

How would this apply to Spain which I believe was running surpluses before the financial crises?

Those surpluses were caused by artificial growth, duh. (sarcasm)

"How would this apply to Spain which I believe was running surpluses before the financial crises?"

If Spain failed to invest in productive assets then it clearly would be in trouble. But I think the evidence indicates that in general, Spain was far more economically conservative (for examples the budget surpluses you mentioned) and also that a portion of it's spending was in capital projects that will increase future productivity.

What J said, but without the sarcasm. Artificial growth is perfectly possible in open economies.

What, specifically, is "artificial growth?"

You used it sarcastically and now you ask for the definition?

Malinvestments. Ever heard that term?
http://www.devilsdictionaries.com/blog/the-spanish-credit-deflation

I was speaking rhetorically, my friend. Challenging E. Harding to explain precisely how the concept of artificial growth works, because I think it's a term that gets thrown around a lot but lacks rigor.

Growth that's not actually supported by the savings from prior production. Rather, it's supported by false savings clawed back from the future. Eventually you run out of future, and the artificial growth is liquidated.

If the ECB had engaged in proper monetary policy, then the growth might have been sustained. In that sense therefore the surplus was sustainable if the ECB had done its job.

Another way of putting this is that no country's current fiscal approach is sustainable if their nominal economy contracts by say 30%. Any country that designed its tax system to cope with this would rightly be thought insane, as with a fiat currency this kind of contraction can easily be avoided. However I guess the ECB surprised everyone.

None of this is to say that reform is not needed in Greece - it is, but it was not the cause of their current crisis, which is the result of a too tight monetary policy.

A great way to go bankrupt suddenly is to establish cost structures that can only be supported by boom time growth.

Much of the cascading effects of downturns are caused by businesses dramatically cutting expenses when sales drop. The real nasty stuff happens when it means buildings get sold, or other fixed expenses have to be shed. The same with countries. Spain was booming, money flowing into government coffers so they spent it. Government spends by hiring lots of people, establishing entitlements etc. Then the money slows down, but the costs don't.

You're not being opaque and confusing enough. It can't be that simple.

The problem with counter cyclical policy is that governments don't act how they should during booms.

Those surpluses were caused by artificial growth, duh. (sarcasm)

If 'artificial growth' can cause surpluses then why couldn't deficits be caused by 'artificial recessions/depressions'?

Anyway this is a nonsensical response. Let's say there's such a thing as 'artificial growth'. Say your boss goes nuts and starts handing out raises based on employee's zodiac sign. You get a big raise as a result. Your raise is 'artificial' in the sense that it is not based on your worth as a worker. Nonetheless you can either increase your spending or use your 'artificial raise' to reduce your debt and build up your savings account.

If you did the latter, then it should not cause you great hardship if your crazy boss is eventually fired and replaced by one who returns your wages to a more 'normal' level. In fact that brief round of insanity would have only helped you since now you have either less debt or a nest egg.

"If you did the latter, then it should not cause you great hardship if your crazy boss is eventually fired and replaced by one who returns your wages to a more ‘normal’ level."

I thought that was the Left's definition of austerity.

Cutting spending and raising taxes in a depression is austerity. The right never seems to actually do that when they have power themselves yet they seem to advise it when they aren't in power.

Regardless, how does that address the problem with this narrative of 'wild and crazy spenders' being the problem? If Spain was running surpluses during the 'crazy period' then artificial or not it should be doing great while Greece suffers for the sins of its wayward politicians. Yet it seems to have been beaten with the same stick only slightly less. What economic advice is offered here other than 'shut up and take your beating'?

"The right never seems to actually do that when they have power themselves yet they seem to advise it when they aren’t in power. "

The last time the US had a balanced budget was because the Republican's in control of Congress reached a deal with Democratic President Bill Clinton. So that's just factually untrue.

The deficit increased most dramatically with Republican power. You had Reagan in the early 80's, Bush in the 00's. The 1/2 Republican Congress at the end of Clinton's era was unable to roll back his tax increases hence the gov't went into surplus. You forget what you side actually says. Bush ran *against* surpluses (taxpayers never said keep the change!) His administration asserted that 'deficits don't matter'. Even before the surplus the deficit declined dramatically when Clinton had both houses of Congress.

I think Thomas Sowell once offered that societies who've suffered a reversal of fortune or had their inadequacies made manifest to them seldom respond to the challenge in a constructive fashion. Recrimination is commonly the order of the day.

That seems to be the way with Obama, too. Can't wait to see how he reacts to Netanyahu's speech.

Safe bet is tantrums, followed by pouting.

Then on his knees to pray to Mecca, then golf, then a nap, then some cocaine, then uncontrollable sobbing.

Yeah! but how will Obama react. My guess is that discovering that he had a co-president who could jet in over his head and give major policy speeches before congress came as a bit of a shock. But that's on him, his pivot to the pacific was to precisely so as to get out of the way of Isreali foreign policy...ooops! U.S. foreign policy in the middle east. He only had to ask all the last five occupants of his job to have learned that Tel Aviv calls those shots.

He only had to ask all the last five occupants of his job to have learned that Tel Aviv calls those shots.

Four of the last 5 occupants of the job are not poisonous anti-semites and would not tell him that. The fifth is dead (and would not have told him that).

One of the remaing four had James Baker as one of his cosest friends and his Secretary of State. So the past often seems rosier than it was.

I think what is missed in most of discussions of Greece is that it's possible for countries to be dysfunctional in two different ways at the same time, and they're not necessarily mutually exclusive, sometimes they're mutually reinforcing.

I do not excuse Greece's dysfunctions, but the architecture of the Eurozone is such that it takes economies that are "merely" dysfunctional and turns them into catastrophic disasters.

And yet most Greece discussions inevitably break out into a "the Greeks are a bunch of lazy corrupt shiftless tax cheats" camp, and a "this is all the mean Germans' fault!" camp. We should recognize that the Greek government and economy are dysfunctional, but also that the setup of the euro is doing great harm to Greece.

Yep, it seems that the ideal would be for Greece to be off the Euro (but still in free trade with Europe and the rest of the world) but also have good governance in both its national government and central bank. Except for reasons of convenience and tourism, it's not clear why lots of not quite up-to-snuff economies decide to get on the Euro.

I think many of the less functional ones hoped the Euro would help them get some discipline. Clearly, it hasn't worked very well for some.

Well yes and no. It is more likely that they saw the Euro as some sort of Cargo Cult. The Germans run a low-inflation economy, therefore allowing the Germans to regulate the Greek, Spanish and Italian currencies would produce the same sort of economy that Germany had.

What they either did not realize or could not accept is that fiscal discipline has a cost. They don't want to pay it. They want to spend like drunken sailors but also have a low-inflation currency. It hasn't worked for them. But their solution - that the Germans should be more like the Greeks - is going to cost everyone even more.

No it wasn't a cargo cult mentality at all. it was as msgkings said a horrible miscalculation about the malleability of human nature. The EU thought it was going to be like a parent giving his new employeed teenage child a little extra money on top of his pay check to reinforce good habits. The hardest part of developing good habits is the first couple of months so the parents make those first couple months especially lucrative to keep the child motivated.

The idea was that the Greeks would get affluence while developing the traits or more specifically discipline necessary--the loose money would make the "pain" of market discipline less arduous. Now this is a risky policy because it can just as easily lead to a "eat your dessert before your vegetables and you don't feel any impetus to eat your vegetables situation." That's what happened in Greece because Greek culture is all about scheming ones way to a vegetable less dessert filled life.

Everyone, including the Greeks, knows that barring artificial subsidy you can't have Greek efficiency and work rate and be as affluent as Germany. The Greeks weren't deluded into a cargo cult mentality, they just thought the could keep the subsidy going forever.

Yes, I think that was a goal. As much as I hate to use a Thomas Friedman expression (oh God what am I doing with my life?), it seems like they were hoping to lock themselves into the "golden straitjacket" of good NW European institutions. And it seems like the PIIGS actually did (well, minus Greece), but ya gotta get yer currency union right or you'll lose it all, I guess.

This was my take on the benefits of the European project at the time too. The assumption was that the straight jacket and other E.U. fiscal as well as legal boundaries would give elites the cover they would need to make politically difficult but necessary policy changes to re-align economies. We've seen this many times here in the U.S.

Oops "straightjacket"

I don't know why I thought the gh goes away.

But Tyler didn't miss this:

"That said, I would have preferred it if Hausmann had paid more attention to monetary policy."

I wasn't trying to accuse Tyler of making that mistake necessarily.

Even great economists like TC make mistakes sometimes... (believing that money is not super-neutral).

In addition the Greek state apparatus of clientage and the Greek commercial culture are both far more dysfunctional together than either would be alone.

When you compound this with the EU dysfuntional family dynamic, where Mommy loudly complains that Daddy is being uneccesarily strict while while egging Him on and Daddy becones convined that since he is always going to be considered the bad guy, he might as well well make an example, after all it is for everyone's own good.

What do you call a doubles match where each side is in a folie à deux?

Ah, I see Stiglitz is another Latin American Idiot. Agree with Tyler on the triumph.

The citation was to something Stiglitz said in---guess what year now---2007. What this shows me is that Hausmann isn't very honest.

How? It wasn't like Chavez was a free-marketeer then. Unsurprisingly, Venezuela's real GDP per capita (PPP) has not grown since 2007.

The exact quote was,
"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"

What exactly do you think is dishonest about this?

Cheerleader. See Bloomberg summary of speech below.

Every country's economic policies, no matter how dysfunctional, look good when their economy's booming. If we're right to criticize what Ireland and Greece boosters said in 2007, why not Venezuela-boosters?

+1 And, don't forget, oil prices were increasing as well.

I don't understand this criticism. At the site Stiglitz opines that high inflation in Venezuela wasn't a problem: 'Stiglitz, who won the Nobel Prize for economics in 2001, argued that relatively high inflation isn't necessarily harmful to the economy." Per this source, here's the inflation rates for 2007 and subsequent years:

2007-----18.7
2008-----30.4
2009-----27.1
2010-----29.8
2011-----26.1
2012-----21.1
2013-----52.7

So, is it your contention that Stiglitz could or should not have foreseen that inflation would have accelerated in subsequent years and that this would be a problem? And, he was advising them---does he not have any responsibility for what later happened? How is this misleading when he provided the link to that article?

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

And, to make matters worse, Stiglitz is quoted in that article as saying that the Central Bank should not have "excessive autonomy":

"In terms of economic development Stiglitz argued it was not good for the Central Bank to have "excessive" autonomy. Chavez's proposed constitutional reforms, if approved in December, will remove the autonomy of the country's Central Bank."

Sounds like part of the problem to me.

Vivian, You seem to presume that he was advising the government when in fact all he did was give a speech sponsored by a local bank. If you have proof that he was an advisor at any time during the periods you quote, let us know with citations.

As to what he said in the 2007 speech, you can find it here: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aYUzqdrconXM&refer=latin_america

Here is a summary from Bloomberg:

"Joseph Stiglitz, a Nobel economics laureate visiting Venezuela, said developing nations must strike a balance between public and private control of the economy.

After meeting in the presidential palace with Venezuelan leader Hugo Chavez, Stiglitz praised the South American country's success at distributing its oil income among citizens. He urged the government to ensure its economic policies are leading to sustainable growth.

``What's fundamental is to have a balance in the role of the market and the government in the economy,'' Stiglitz said at a forum on emerging markets sponsored by a local bank. ``We have to realize it's not just about setting interest rates, but also about supporting growth.''

The Nobel Prize winner said Venezuela's economic growth in recent years has been ``impressive.'' Chavez, a critic of the U.S. government and a self-described foe of capitalism, has cited Stiglitz in speeches this year warning about the U.S.'s ``irresponsible'' economic policies.

Venezuela, the fourth-biggest supplier of crude oil to the United States, had an 8.9 percent economic growth rate in the second quarter, its fifteenth straight quarter of expansion. Increased consumer demand and government spending has pushed inflation to 15.3 percent, the highest in Latin America.

Stiglitz said during his speech today that relatively high inflation isn't necessarily harmful to economic growth, and that central-bank autonomy shouldn't be ``excessive.''

Bank Autonomy

Chavez plans to formally do away with the Venezuelan central bank's independence later this year through a rewrite of the constitution.

Stiglitz praised China's and India's success in reducing poverty and maintaining economic growth, and criticized Brazil's high lending rates during his presentation. He said Venezuela has managed its oil boom better than Russia."

"Stiglitz also met with Venezuelan President Hugo Chavez in Miraflores, where they exchanged points of view on the global economic situation, economic indicators and the behavior of world markets"

That sounds like a little more than just giving a speech sponsored by a local bank.

Zack, Only to the conspiratorial minded. Every day I converse with crazy people on this website. Does that make me crazy too? Exchanging views with you as did Stieglitz.

Bill, you start with this: "You seem to presume that he was advising the government when in fact all he did was give a speech sponsored by a local bank."

And then you go to this: "After meeting in the presidential palace with Venezuelan leader Hugo Chavez, .. He urged the government to ensure its economic policies are leading to sustainable growth."

Those statements directly contradict each other.

Are you kidding? There's no conspiracy theorizing at all. Stiglitz met personally with the president of the country and discussed his views on "the global economic situation, economic indicators and the behavior of world markets." He also praised that same president's policies. Are you seriously trying to equate this with random people conversing with each other on an internet message board?

Also, I'm still waiting to hear you explain what you think was so dishonest about Hausmann's original article.

Zack, It is dishonest to attribute to Stiglitz, or to imply, that he was an advisor to Venezuela or Chavez. Furthermore, it is also dishonest to call him a cheerleader either. Clear enough? It wasn't clear to Vivian, as I challenged her for any evidence that he was an advisor to Venezuela. Now, what do you think, if this isn't dishonest, is evidence that he was a cheerleader? Nothing from the Bloomberg record of the speech, if you read it.

What is Bill's position on Chicago economists advising Chile?

"After meeting in the presidential palace with Venezuelan leader Hugo Chavez, Stiglitz praised the South American country’s success at distributing its oil income among citizens"

"Joseph Stiglitz, praised Venezuela's economic growth and "positive policies in health and education" during a visit to Caracas on Wednesday."

"Stiglitz also welcomed Venezuela's initiative to create the Bank of the South"

"Venezuela's economic growth has been very impressive in the last few years," Stiglitz said

"Venezuelan President Hugo Chavez appears to have had success in bringing health and education to the people in the poor neighborhoods of Caracas, to those who previously saw few benefits of the countries oil wealth," he said.

None of those statements support the claim. He stated that health conditions had improved. Factually true. He stated there was going to be a regional bank. Factually true. Venezuela's growth prior to this time had been impressive. Factually true.

Do you want me to go to some IMF materials at the time saying the same thing?

Bill,
A basketball player scores two points. Factually true. The women on the side line cheer as a result of the two point basket. The cheering is, in effect, praise of the factually true event. These women are nominally considered cheerleaders. Therefore, when one praises another, it isn't far fetch to qualify them as a cheerleader. Particularly, in the figurative sense.

Bill,

Your first objection to that Hausmann article was that he referred to a *2007* speech. Apparently, referencing a speech from 2007 and providing a link to an article about it was considered "dishonest". When confronted, and that did not stick, you've now changed the argument to "he was not an advisor" (or "cheerleader"). Which is it? Who, exactly, is being dishonest here?

As to being an "advisor"--my term--others beat me to it. The link provided in the original article says that he met with Chavez himself and they exchanged views on economic matters. Do you seriously think that Stiglitz would meet with Chavez if it were not to advise him on economic matters? Why do you think he met with the President? To advise on his wardrobe? So that Chavez might teach Stiglitz a thing or two about economics?

And, what's your point about "Bank Autonomy"? Stiglitz argued in that speech that "excessive" bank autonomy was not a good thing. That sure looks like cheerleading to me in the face of Venezuela's proposed change to its constitution to take away central bank autonomy (with disastrous consequences, I might add).
And, here's one of Hugo' proposed Constitutional change (among other power grabs) in August 2007, just before the Stiglitz visit in (Stieglitz) warned about "excessive" central bank autonomy:

"Other key changes in the economic sphere include the removal of “any vestige of autonomy” for the Central Bank of Venezuela and the elimination of the Macroeconomic Stabilization Fund under articles 318 and 321. Chavez has previously described the autonomy of the BCV as “a neoliberal idea.”

http://venezuelanalysis.com/news/2553

Those remarks were made in the middle of the debate over those proposed measures. That's not cheerleading from an economist with a medal?

Here's Richard Fisher, writing in 2008, on the consequences of high inflation and not having an independent central bank in Venezuela:

"One would think that Venezuela would be enjoying the prosperity that comes from oil priced above $80 a barrel. But Venezuela’s government has taken effective control of the central bank and printed trillions of bolivars to finance ambitious social programs. The result has been an official inflation rate of 22.7 percent. However, the official figure includes a broad basket of items for which the government has declared price controls, so it is more likely that the real purchasing power of the bolivar is being cut in half or more each year. The Venezuelan consumer has been decimated."

http://www.dallasfed.org/news/speeches/fisher/2008/fs080207.cfm

Chavez is incompetent at fostering a working economy but he's a thug par excellence. And Stiglitz served not only as his advisor but also his enabler. And, both of them have been disastrous for the people of Venezuela.

Vivian,

1. Both..dishonest, not a cheerleader and not an advisor. Nothing you said prooves otherwise, and in fact demonstrates weak or no logic.
2. Re bank autonomy: go read one of his books on the IMF, where he served as chief economist to understand his position. You clearly don't understand it.
3. Since he wasn't an advisor, or cheerleader, but did comment to that point, what Chavez did is what Chavez decided to do. Not what Stieglitz, or any western economist, told him to do.
4. I would suggest you read some of his books.

Stiglitz is pontificating on the immorality of Greece' debt every other day. Lately in http://www.project-syndicate.org/commentary/greece-eurozone-austerity-reform-by-joseph-e--stiglitz-2015-02

Wow! Stiglitz excretes another whopper:
"Austerity had failed repeatedly, from its early use under US President Herbert Hoover, which turned the stock-market crash into the Great Depression"
-Anyone with an ounce of knowledge knows that Hoover only engaged in "austerity" (tax increases) when the U.S. economy bottomed out during the G.D. and had fairly lax spending policies before that.

I can't say I'm surprised. It amazes me how often that Hoover nonsense gets repeated by people who should know better.

Also, the Greek economy has not grown more in per capita terms since 1998 than Denmark, Cyprus, or Portugal.
https://www.google.com/publicdata/explore?ds=d5bncppjof8f9_&met_y=ny_gdp_pcap_cd&idim=country:GRC:ITA:GBR&hl=en&dl=en#!ctype=l&strail=false&bcs=d&nselm=h&met_y=ny_gdp_pcap_pp_kd&scale_y=lin&ind_y=false&rdim=region&idim=country:GRC:ITA:GBR:DNK:CYP:PRT&ifdim=region&hl=en_US&dl=en&ind=false

"I’m sorry, reasonable, thoughtful comments like this are not welcome here. You completely forgot to blame Obama and the Jews."

I find that comment amusingly ironic.

Apparently the brass here thought it was dangerous.

I saw it and appreciated it, for what it's worth.

Seems like Tyler is muddling the difference between fiscal conservatism and austerity. I don't think anyone would say Greece has been fiscally conservative. Do you really deny there has been austerity in Greece?

No doubt the country had and still has some serious underlying issues, but to simply brush off the massive and sweeping sacrifices that others have demanded and that Greece has made is ridiculous.

"Do you really deny there has been austerity in Greece?"

No one can answer that question satisfactorily because there's no standard widely agreed upon definition of austerity.

Well if Greece doesn't meet the definition now, what country does?

Maybe no country at this time. Leftist like Jan play this "that's not real communism/ social leftism/ feminism so you can't judge the movement" game all the time.

What definition?

The Greek government has been running massive deficits and is now spending 60% of GDP. What aspect of this situation strikes you as "austere"?

Thew new leftists have already begun hiring friends and relatives, giving big raises to the thieves working at the state-owned enterprises, etc. The anti-corruption talk didn't last two months.

It's striking that Greece is considered Western Europe by the author.

I agree. It's population density is far too low to be considered WE.

It has a population density just a little lower than Spain and 2 to 3 times greater than Sweden, Finland or Norway.

Population density in northern Scandinavia is real low, like northern Minnesota low.

The bulk of the Greek government debt was built up in the 1980's.
http://www.devilsdictionaries.com/blog/greece-old-sins-that-have-a-long-term-impact

"Unsustainable growth paths often end in a sudden stop of capital inflows, forcing countries to bring their spending back in line with production"

Can anyone spot the tautology?

Unsustainable hyperbole often leads to hyperbolic unsustainability.

The long-run never comes: let German goods flow in to Greece forever and for free.

Hey it's got my vote. Greece has a high amount of Socialism and Germany has a high amount of 'other people's' money. It looks like the perfect match to me. ;)

http://coppolacomment.blogspot.in/2015/03/greek-myths-and-legends.html

Tyler, please explain what monetary policy story re: Greece you think deserves attention.

I know of one very important ECB policy, but it's hardly core monetary policy. The ECB caps the volume of home-government sovereigns that national central banks can accept as collateral, to prevent back-door monetary financing (in the secret ANFA agreement, the amounts of the caps are also secret). But the ECB does not so far as I know have any relevant caps on how much of one government's bonds can be accepted as collateral by other countries' NCBs.

So what happened with Greece is that it sold its bonds mainly to non-Greek Euro Area banks, which posted them as collateral to their respective NCBs. The banks were still on the front line of exposure to Greek default, but the huge amounts of Greek sovereigns held as collateral by the Eurosystem surely helped persuade banks that Euro Area governments would never let Greece default.

The only other relevant line of defense is the Maastricht treaty and the excessive deficit procedure. Which Greece breached by deliberately lying to Eurostat. This is the one point where Hausmann is wrong. "Markets" didn't say "enough" in 2009. As late as early April 2010 they were still buying new Greek sovereign issues and posting them to their NCBs. It was Eurostat and then the EU that cracked down and forced Greece out of an officially supported market.

It is fair enough to point out that Greece was living well beyond its means until 2009, and that its productive structure needs upgrading. That inevitably implies a painful adjustment. But the pain has been unnecessarily great - a cumulative loss of more than 100% of GDP over the past five years - because Greece has laboured under unpayable debts, with most of the "generous" EU loans used to pay private-sector creditors (notably, German and French banks) who should have taken a big hit in 2010. Had Greece's debts been restructured in 2010, austerity would have been less brutal, the private-sector investment recovery swifter and the slump less deep than they have been. Even now, Greece's massive debt overhang - and the uncertainty about Grexit and the chill to investment that this creates - is a huge obstacle to recovery *whatever reforms* Greece does. See my book European Spring for more info: http://is.gd/euspus

"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."

That describes pretty much the entire Western welfare state system of the last 20 or so years. The situation with Greece was merely a difference of degree, not of kind.

In Stiglitz's books on globalization, Venezuela is so far hard to find (I may have missed something): Globalization and Its Discontents seems not to mention Venezuela; Making Globalization Work repeats the line about "health and education" but says little more (He does say, significantly, that pre-Chavez Venezuela's low spending on education resembled Nigeria's and Saudi Arabia's). Fair Trade for All: How Trade Can Promote Development mentions Venezuela only in passing. If Stiglitz made a sustained case for Chavez anywhere, it should be cited, and the context -- Stiglitz' concerns about other measures that were damaging economies -- should be included. We might even get a comparative chart of how resource wealth relates to spending on education and welfare in several countries. Without context, comparison, or recognition of how small a role Venezuela appears to have played in Stiglitz' thinking, relying on one news report from 2007, Hausmann and Cowen risk looking merely captious.

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