Rescuing Greece from itself, its rescuers and the economist’s doctrine

Every now and then a solid soccer team comes as close as to win it all in a given season only to hit a streak of losses early in the next one from which it never recovers. In a typical early phase a team hitting a rough patch of losses will go into some type of homeostatic shock and mobilize forces that counterbalance the problem. The typical outcome is that they will indeed come out of the slump but sometimes it just locks into an “increasing returns” trend which leads straight to the bottom of the rankings. In these situations insecurity, fear, doubt, loss of self confidence all contribute in accelerating the decay and are often reenforced by the fact that every last idiot in the press has a solution for the problem or for what that team is doing wrong. All of the latter then feed into destroying the self confidence of the team and making them perform worse. Whenever this lock in occurs it is awfully hard to get out of.

Greece hit its economic slump as early as in the 70s but running deficits and borrowing allowed the country to procrastinate while the occasional devaluation of the drachma helped slow the decay down here and there. The specter of disaster  did not come until the current crisis was widespread: late 2008 to early 2009. Ever since the country hit rock bottom in an increasing returns pattern not unlike what you see in soccer: every marginal figure can criticize the country on doing just about everything wrong; in the early days even using its own alphabet was proposed as contributing to the “Greek crisis” by it being costly!

An organization like the IMF which maintains little or no contact to reason when it comes to operationalizing what we know, dispatched its voodoo priests to the country who applied (and continue to do so with minor modifications, see here) the naivest recipe of all: make the Greeks poor by artificially bringing wages down so that the country’s economy will become competitive once again. This is a substitute to the now unavailable currency devaluation. That doing so is not totally unreasonable is easy to explain to a four year old (which appears to be the operational intellectual level of the IMF) but that this will be counterproductive if you apply it alone and if you overdo it is something which you can ignore only if thinking is not the business you are in: by increasing taxes and suppressing wages you diminish the state’s revenue chances making public finances worse which then forces you to squeeze more out of taxes and wages killing the economy through asphyxiation.

In the meantime “top economists” and second rate ones alike all know how to “help” the country out of its slump and they all throw around “bullshit bingo” trivialities into the public debate: a Marshall plan, new technologies, Green technologies, solar energy etc. There is no end to the list of banalities thrown around. So on the one hand IMF voodoo priests kill off what is left of the economy treating it as the pseudo Newtonian system of macroeconomic textbooks and on the other hand the reality ignorant economic doctrine lead a country in trouble to shambles.

The economy is a bunch of poor devils trying to make ends meet; as such the economy of a geopolitical entity such as a country is primarily one which needs to produce what is consumed on a daily basis to sustain itself. Greece currently just simply comes up short.  This is to a large extend so because early on the Greeks thought that entering the EU and the EMU meant that they could allow themselves to be what Bremen is to the Federal Republic of Germany: a poor region with high living standards without chances but with transfers to help it sustain itself. The Greeks thus falsely lived above their means and allowed their production to dwindle. To give the country a chance to recover the politicians need to stop thinking exclusively about the banks and start thinking about the economy. Forcing a “do or die” option on 10 million Greeks by suppressing their wages is not going to be enough and cannot continue for ever. The economy needs a chance to start producing again and the most realistic way is to give it a chance to do so. One way to do this is to allow the country to impose import tariffs on products the country can produce or used to produce so that domestic production is kick-started.  If suppressing wages is the tool of choice for reviving exports why wouldn’t temporary import tariffs be the tool of choice for a. reducing imports and b. reviving domestic production. Most economists will display an aversion to interventionism when its name is import tariffs but will treat suppressing wages as a reasonable policy. In fact most of them will mention the Soviet Union at the hearing of tariffs as they all forget G.W. Bush’s steel tariffs or the UK protectionism of their Finance industry. When the shit hits the fan there is no room for religious premonitions from the current economic doctrine. The country needs a chance of relearning the fundamentals. Green energy and similarly colored “bullshit bingo” can wait.

This entry was posted in comment, crisis, opininion, policy. Bookmark the permalink.