Me on Greece, the IMF, and the European Union

Since the Greek situation is heating up again, and not in good ways, I thought I would link to a recent interview I did.  Here is one bit:

Asked about what has gone wrong with Greece’s bailouts, Professor Cowen commented that “the bailout programs were never going to work in the first place. The debt is too high and is more of a political weapon than anything which can be paid back. And the Greek economy requires very serious structural reform, more than the Greek people seem to wish to accept. That is two impossibilities in the situation right there, and then on top of that we have a dysfunctional EU, slow global growth across the board, and the refugee crisis. In that setting, can one expect anything other than failure?”
And:

“It’s all a big bargaining game, and at the end of the day pulling the plug will have to be up to the Greeks. Everyone’s expectations are unrealistic, and everyone knows that, including the IMF and EU and many others too. But who will pull the plug? Tsipras almost did, and then backed away. In my view, sooner or later Greece will leave this arrangement because it simply isn’t workable. I don’t look forward to the resulting economic carnage.”

Asked why he thinks Europe has been unwilling to consider a debt-write off for Greece, Cowen said that “because Italy above all would be next in line, but of course Spain too and others as well.”

Here is the conclusion:

Lastly, when I asked Tyler Cowen what policies he would recommend for Greece so the country can re-boost its economy and put people back to work, [he] said this:

“Do you know the old punchline? “Well, I wouldn’t start from here.” Greece has been deindustrializing for a long time, there isn’t enough to take the place of manufacturing, and tourism just isn’t enough. The interest groups seem intractable. I’d like to see Greece have much more of a free market economy, but that’s begging the question, isn’t it? And there is the ongoing distraction and stress of having to renegotiate the agreements every few years. By the way, I can’t bench press 600 pounds.”

The full interview is here.

Comments

Just shut the Greek government down.
http://www.spectator.co.uk/2016/04/why-the-spanish-may-be-better-off-without-a-government/

And do what? Is the debt voided? Is it not? If it is not then whose collecting the taxes to pay it?

If the debt is voided then why not simply just void the debt now and don't lend anymore.

Simply stop. Whoever shows up to collect the debt will be saddled with the debt? Any bidders for Greece?

Crime syndicates are better than government?

Afghanistan, Somalia, Syria, Iraq, Yemen, Libya, and a number of other "nations" have no government to all intents.

I haven't seen the anti-government people organizing like the Free State Project to move to one of those ideal no government "nations".

I can never figure out why political economists never pay attention to the world around them to see all the natural experiments testing their theories. Must be a total failure of the science for dummies course they take to meet degree prerequisites.

Somalia is a great success story of anarcho-libertarian principles in action!!!!

- Mises.org Senior Fellow

At one time the Puntland was a great example of anarcho-libertarianism, but then religion created group violence I heard. Security is such a problem.

Sure, if one ignores the $300 gdp per capita aspect of it. Great example otherwise!! :)

Somalia, the failed communist state? Ahh yes communism and libertarianism.

Even "structural reform" is underselling the magnitude of the change required. They have to begin with a big rethink of the constitution, its current form is the first layer of defense against reform.

And of course there is nobody in the political scene actually interested in reform. Syriza, PASOK, ND, ANEL all want to retain the status quo, with few differences between them. Potami, the only alternative (other than communists and nazis), are not a believable source of reform.

In other words, Greeks are overwhelmingly conservative.

We should turn back the clock to 1947 and ask the German's whether they would like to be treated just like the Greeks.

How many non-Germans admired Germans, following the war and, and, and, before the war? Markets in everything.

Don't forget the occupation by foreign troops with shoot-to-kill authority, the rewriting of their Constitution by foreign powers, and several years of rule by outsiders.

We don't forget. Clearly it was not enough.

Good book I'm reading: "Year Zero" by Ian Bururma on post-WWII

Cowen is right about Greece. And he's right about America, too. Deindustrialization is just the term used to describe the enormous shift of production and income to places with lower costs. Is that a market failure? No, it's the result of choice, the choice by U.S. and European firms to shift production to places with lower costs in a quest for higher profits. Did it not occur to those firms that those places (China, etc.) are very different, with much higher levels of inequality and savings, and that economic stagnation might result? Don't blame markets, blame those who even now don't have the insight to see what's right in front of them. It's a matter of choice, not altogether different from the choice made following the peace, the Economic Consequences of the Peace to be more precise. Blame people, not markets.

Ray apparently is not aware that US manufacturing is at almost record levels of output.

Ray---Trump/Bernie supporter

https://research.stlouisfed.org/fred2/series/OUTMS

Yup.

I think the comeback would be that there is more manufacturing in terms of value of goods produced, but fewer good jobs.

"Good" jobs?

An accountant's job is much "better" than a press operator's job.

Trump means...good job for dumb people who can't get better jobs than pushing a button on a machine.

Yes, and the curve only goes back to 1987. I bet China shows more 'real value" in manufacturing than the USA--much much more. Machines get more efficient over time = greater value produced.

A decreasing share of industry and increasing share of services is often considered as the most obvious indicator of an economy entering into a highly advanced stage.

There's only 1 solution for Greece: Let Turkey take over again.

Seriously, the Greeks have demonstrated that they are not capable of running their own country. Anyone with two brain cells to rub together left that country for the US or Canada or Australia over a century ago. The rest that remained there were mountain goats.

Why not let Turkey give it another shot?

The difference between Greece and Turkey is that no one expects Turkey to have European-level wealth.

Or a president with thick enough skin to refrain from jailing everyone who makes fun of him, like a big baby.

No one should expect that from Greece either. They are just Orthodox Turks, anyway (or Turks are Muslim Greeks. Either way it works out the same)

Yes, having lived in or visited both countries, Turkey is more primitive than Greece, but they have more youngsters hence greater future (catch-up) growth.

Factoid: during the Ottoman empire, the Ottomans got an estimated 66% of their wealth from Greece, and only 33% from the Arab territories.

Turkey? Johnny-come-latelies. Hand it back to Rome.

It's a win-win-win.

Erdogan gets to bounce all his refugees over to Greece.

The 'fugees get to be in "Europe."

Greece gets nearly free, non-unionized labor to build out the manufacturing centers of the future.

Oh no, once they go back to the Ottoman Empire, they're out of EU. Refugees get to have a prolonged vacation in Chios.

Who said anything about the EU? Ottomans embraced slavery wherever they were, including Europe.

And btw, Syrians were one of the main sources of sex slaves. I think Erdogan's got a little ISIS in him. Just sayin'.

The Ottomans didn't have much of a choice on the sex slave front. Who were they going to f***? Greek women?

As opposed to the morally superior Europeans who, of course, never did anything like that.

It's raycist to mention the bad acts of a brown society without mentioning each white society that did the similar things. It's called equality, and it means that white people must take every opportunity to self-flagellate. Don't you even polite society and cosmopolitan, or are you a detestable provincial?

Jan April 28, 2016 at 5:33 pm

And btw, Syrians were one of the main sources of sex slaves. I think Erdogan’s got a little ISIS in him. Just sayin’.

That there are links between AK and ISIS seems pretty obvious, but Syrians were mostly Muslims and if not Muslims, dhimmis and if not dhimmis armed to the teeth, like the Druze, and so virtually no slaves came from Syria in the Ottoman Empire. They came from the Crimea and were Russian mostly, or from Africa. The famous ones were the Circassians who came from what is now southern Russian territory just north of Chechnya.

30 AIG April 28, 2016 at 6:06 pm

The Ottomans didn’t have much of a choice on the sex slave front. Who were they going to f***? Greek women?

Well Greek boys seem popular. And yes, Greek slave women are constantly mentioned in Muslim literature. Right down to Lord Byron the Turks enslaved Greek women if there was a rebellion.

Greece might benefit from a Pinochet, were there any corps of men with that much sense in the high command.

Sure dude... Pass me the weed!

Obviously Greece needs Donald Trump.

Greece had its Pinochets. It didn't work out as well as in Chile.

I agree with you in theory. In practice, Greeks are mountain goats, and no Pinochet can get mountain goats to stop being mountain goats. Chileans are far superior people.

What's the most superior race, in your opinion? Hint: you can answer which "people" are superior instead, if you're afraid to talk about race. ;-)

The Swiss, of course.

There's no such thing as "Swiss" people. There are Germans, French and Italians living within a buffer state.

Thank you, Dr. Obvious.

There is an objectively true moral framework, as identified by the application of reason behind the veil of ignorance. There are identifiable human cultures. There are identifiable statistical differences in outcome and behavior between the various cultures. These differences can be represented as a number representing the distance between the actual and the ideal. These numbers vary. There are objectively better cultures.

There are identifiable sub-races. These sub-races have statistically identifiable differences. Within a subjective value framework, it is possible to calculate a total value representing the sum of performance in all divergent capabilities multiplied by the coefficient of subjective valuation. It is impossible that these sums equal, no matter what your initial subjective framework - except a belief that all races are equal no matter what. Such that if a previously undiscovered sub-race emerged, and that race had toes 6 inches long and we're incapable of performing algebra, your value to freakishly long toes would now have to drastically increase and your value to performing math, drastically decrease.

Racial and cultural superiority are inescapable facts by virtue of racial and cultural variances and any subjective or objective framework which values things in the abstract. Everything else is a lie told by cowards or an unfortunate demonstration of intellectual inferiority

Yes. Not quite sure why lefties cringe at the thought that...if we are all different...then by definition some are going to be better (along some dimension), then others.

I mean, I have no problem in saying that Africans are better at...hmm...basketball? But clearly at $300/year income, they're not quite good at this whole economy thing.

Of course, these are not static and do change. So Lefties should spend their time figuring out how to make those that...are...worst...become better. Rather then pretend that no one is better.

Switzerland is just better than Swaziland. :) No idiot would argue otherwise (here comes Nathan in 3...2...1...)

As I said at the time of the bailout/restructuring before last: default is inevitable, the only question is the timing. The longer it is put off, the greater and longer the pain will be. But the history of defaulting nations shows it does lead to a chance for recovery, as opposed to the debt which is completely beyond servicing. Default, go back to the drachma, pass such reforms as are possible. There is not only no better solution, there is no other, period.

I am not sure whats the solution for Greece. But the same is valid for: Portugal, Italy, Spain, and maybe others. For now what is happening is that the smartest people in those countries are moving away, which already tells you that the outcome is not going to be good, they are going to remain in terrible shape for years.

Isnt there an analogous situation is US? (for example Puerto Rico, but i am sure there are others...)

Actually no. The smartest people in Greece are running the government.

This is what happens when you let the smartest people and their love of Marxism into power.

Factoid: it is said 33% of the working population in Athens, Greece works for the government. I bet in DC it's roughly the same perhaps.

That's about right, I believe. I think it's about 20% who are employed by the federal government in metropolitan Washington, and about 13% are employed by local governments (or, on occasion, state agencies). The thing is, 27% of Greece's population is in greater Athens. Only 1.3% of the U.S. population is in greater Washington. Most places, ~ 2% of the workforce consists of federal employees.

Is there a national equality argument to be made against brain drain? After all, what is the freedom to move but a selfish decision of individual actors that negatively affects losing country, which previously capture a portion of the individuals productivity? It's unfair for backwards, high tax countries to have to compete with freer countries. Maybe Greece, Spain, et al. should build a wall to keep people in? Maybe they should use standardized trading to identify the top 10% and send them to productivity camps? Whatever the solution, it is imperative that the unproductive masses in these countries continue to live off of the production of others.

Well, Tyler, you do understand the real issue- who gets the blame when Greece defaults.

Spain has a lower debt (98% of GDP) than the US and pays a lower interest rate (10 year 1.59% vs US 1.89 %)

Who will default first ?

History shows default is not a function of debt-to-GDP necessarily. That ratio is just a factor. Countries have defaulted with low Debt-to-GDP ratios. The USA as 'policeman of the world' and 'leading edge economy' gets a lot of support for its dollar, the de facto reserve currency of the world.

Greece should straight-up default. Obviously that ends their principal and interest payments, which is good for them. Perhaps even more importantly, at that point basic arithmetic will overcome internal political constraints on reform: when no one will loan you money, money out can't exceed money in. The rest of the world might even be nice enough to send some humanitarian relief.

The Eurozone has made this option harder by credibly threatening to destroy their banking system if they default, but Greece could overcome this by returning to its own currency. That's certainly an added hurdle, but it can be overcome; with some planning Greece could quickly transition to a national currency and doing so would probably even have some beneficial macroeconomic effects in the medium term.

Europe has just rescued the Greek banks to the tune of 20 billions

The EZB has indeed pumped billions into Greek banks to stave off runs, which is precisely what a central bank is supposed to do. But during the weeks around the Greek referendum, they stopped doing so. They essentially made their support of Greek banks contingent on the Greek government staying in the good graces of its creditors, which is not what a central bank is supposed to do. The Euro treaty explicitly says that Eurozone country governments can default but in the Greek case the EZB allowed itself to be used to provide leverage for the creditors.

There is a theoretical worry that a government could use EZB support of its banks as a backdroor to force the rest of the Eurozone to finance its government, by requiring the banks to buy its bonds. But that's not happening in Greece. At the time of the referendum, the average Greek bank was less exposed to Greek government bonds than the average German bank.

Greece claims it isn't, but in reality it is still running a deficit of somewhere between 5 and 10% of its GDP per year. That is, it has not defaulted because it still relies on the nice German tax payers giving them a lot of money.

Sure, they should default and get out of the Euro. But losing 10% of your GDP is going to sting.

Did Greece actually 'industrialise' in the first place? Is it arguable that for the most part they actually skipped much of the transition from an agrarian society to urbanisation and a manufacturing-based economy?

They did not, you're right.

Their industry consts of cement and related raw materials (to feed their reckless construction of ugly apartment buildings)

And olive oil...which mainly serves as a lubricant for the Greek's instinctive means of reproduction.

Other than that, there's shipping, but that's a "service".

Perhaps one day you could make a list entitled "Groups of people who i do not hold offensive attitudes towards". I assume it would be rather short.

Similarly, you should make a list of "offensive things I home not to be, so as to not offend the groups that disproportionately do those things". Which belief system is better? Which is cowardly? The one which holds racially consistent moral beliefs, or the one which holds only that morality is contingent on phenotype?

Greeks aren't a race. So my position is not "race based" in the least.

It's mostly cultural. Some cultures are better. Some are for mountain goats. Surely culture is a function of other things, among them race. But many many other things too.

Cultures can change, however. If Greeks started acting like Germans, they would no longer be mountain goats. But Greeks and Germans aren't a different race, unless we define race by the amount of body hair.

Greece needs responsible government, but they also need their own central bank. As we see in Greece, there are things worse than moderate inflation for several decades.

Even 600 pounds...sterling?

Everyone seems to concentrate on the Greek debt levels and ignore the political context.

The popular support for the EU is currently at its lowest ebb since its inception. Even some core countries (net payers) such as Austria and the Netherlands support nationalist politicians right now.

Should a country be thrown out of the Euro-club, the whole union could fall apart uncontrollably. I believe that Brussel is trying to suppress the worst until July, when the British referendum will have been history.

The problem in Greece is that everyone wants to retire at age 50 on a nice retirement, but everyone thinks it's OK to evade the taxation which would sustain (unlikely) such a system.

My program for Greece was superior before, and it's still superior.

http://www.prienga.com/blog/2015/2/19/a-program-for-greece

Does it include Dana Carvey dancing?

With Angela Merkel, sure.

I know you're no fan of paying for performance, at least in the political sphere, but right now, I don't think anyone else has a viable plan at all.

Nearly 60% of Greeks work in enterprises with 9 or fewer employees.

In Germany, that figure is 19%.

Small business are lovely but only if they are GROWING. Nothing in Greece is growing. The bureaucratic morass of the Greek state has made growing your small business into an export oriented medium business nearly impossible.

It's a very backward economy and will stay that way unless they make Professor Cower dictator for the next decade.

Greeks lost their mind in recent years. They refuse to protect their borders. They have begun to hate every European nation. Out of pure hostility they support illegal immigration to Europe.

Yes very helpful Mr Cowen.

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