Tiny, tiny people
This long post by Steve Randy Waldman has been getting attention in the econ blogosphere and is a slamming bit of writing that's also clear and coherent and seems to explain a lot.
http://www.interfluidity.com/v2/5965.html
The two money quotes, so to speak:
With respect to ( Read more... )
http://www.interfluidity.com/v2/5965.html
The two money quotes, so to speak:
With respect to ( Read more... )
(Tellingly, quite a lot of the Greek oligarchs are pro-Grexit, because they know they can/will make a killing in those circs.)
BUT: at the strategic level, I think the picture is different, and not so pessimistic. Not only have differences publicly emerged within the troika (the IMF publishing the damning report, which the other two prongs of the troika tried to suppress, or at least delay. But - just in the last week - France has at last re-awoken as a counterforce against Germany with the EU, supporting Greece. It’s not yet expressing itself as a particularly radical counterforce, but this doesn’t (necessarily) matter at this stage; what matters is that it's no longer wealthy centre vs beleaguered periphery. This is a grouping within the EU that Renzi can caucus with (as can Spain and Portugal, and probably others). It’s (maybe) the beginning of a (very) sluggish sea-change in the current overall culture of the EU, which is after all a long-term project, begun as a way to counterbalance German and French* interests in Europe so that they didn’t keep going ruinously to war with one another - and in an important way, I think Syriza’s theatre has been the catalyst for this. Not least because there are people in every country who can recognise themselves in the Greek pensioners. Sadly, I think Syriza have sacrificed the short and possible medium-term well being of their own pensioners (and supporters generally) to enable this potential sea-change.
*French diplomats are admired and feared the world over: they understand their opponents perfectly, they are charming and urbane, they dig in and don't budge, they stick at it till they get what they want. France as patron of the southern European faction of course has problems, but it also changes the game.
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About the IMF, and its recent report (which I haven't read but wouldn't have understood if I had): as soon as the report came out there was a battle over how to spin it. The first news account I saw was actually claiming - perhaps correctly - that fundamentally the report was an attack on Syriza for hurting the Greek economy over the last five months, about how things would have been progressing well if only Syriza had not come to power, and that the release was intended to hurt the "No" campaign and help the "Yes." Then I read commentary that emphasized how the report called the current debt burden unsustainable and was an implicit call for debt relief, and the claim (has it been verified, or this just more spin?) that the other two troiks had attempted to suppress the report's release for fear it would encourage a "No" vote.
Can "troiks" be a coinage? I do like your "prongs" as well, implying that the troika are a fork to jab with. Unfortunately, etymology identifies "troika" as being a Russian three-horse open sleigh (or something), the term deriving from the Russian word for "three," not the Russian word for "fork."
In any event, Simon Wren-Lewis thinks the IMF (or its leadership, at any rate) is still stooging (my word) for the other two troiks, and he links Peter Doyle, who apparently thinks the report itself is half-assed (my word); I say apparently because I haven't read the Doyle paper, out of fear of not understanding it. I'd assume there are rifts within the IMF.
As for austerity, Krugman's claim has been that, for its proponents, it's never really been about balancing budgets, but rather about destroying public spending for education and social security, etc., but also that its proponents have no clue what it does to an economy at the zero-lower bound.
Btw, according to news accounts the Greek surrender proposal doesn't even guarantee that the Greeks get actual debt relief, only the promise that debt relief will be discussed; meanwhile, Greece gets money (is it a loan or a gift?) and an extension, right? - the money presumably being for immediate needs and to meet payments to creditors. (I know, this seems weird, the troika forwarding money to Greece that Greece turns around and pays back to the troika, but isn't this what at least some or even a lot of the Greek "bailout" has fundamentally been?) Anyway, where's the path by which Greece grows its economy, rather than continuing to tread water or even to lose more by contraction than it gains by spending cuts? How does unemployment go down? And how does Europe overall get going? Even without Greece, recovery is tenuous throughout, right? (Again, I'm not an economist and anyway haven't been keeping up with the ongoing story.)
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Hmmm. My fear is that the people in other countries who should identify with Greek pensioners, or with Greek school teachers whose savings and employment are at risk or gone, don't get it at all, that, e.g., German and French school teachers and pensioners have no idea that it was potentially their own savings and jobs that were rescued in the first two "Greek bailouts"* but do believe that bits of their own money are being taken away to pay for the profligate Greeks.
And my other fear is that the "people in other countries" (not to mention in Greece itself) most inspired by the "No" vote aren't those who identify with the pensioners but those who think the fundamental problem is immigrants. Not that anti-immigrant populists and nationalists can't also oppose austerity. Fascist parties have historically had socialist wings (suppressed once the Fascists took power, I believe, though I don't really know my history here, esp. of Mussolini and Peron). But the European leadership has recently been as irresponsible regarding immigration as it has been regarding Greece and debts, and of course it's Italy and Greece where most of the immigrants are first landing.
Btw, if Angela Merkel has a pitch to get German voters and politicians to support debt relief and aid, it may be by inserting the adjective "humanitarian."
Oh, and lj is out right now, so I might as well keep typing. Krugman just posted commentary on Oliver Blanchard's defense of the IMF, the key phrase maybe being "given the political realities."
But anyway, Krugman is getting ever more adamant that absent substantial debt relief Greece's only way forward is via Grexit. Presumably he has some idea why others think Grexit would be crushingly bad for Greece. (I gather Yves Smith** is in this camp, and you seem to be too.) I don't think he's ever answered them directly, though. He thinks the current course guarantees a never-ending or at least long-term continuation and even worsening of the ongoing disaster.
*At least that's Steve Randy Waldman's take, which I've decided so far to believe.
**I haven't yet made the time to catch up on her take.
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re the effect of grexit: i don't know enough to know at all myself what the result would be (from what i've read i tend more to be persuaded by the people saying it would worse -- as you say, krugman never seems to have answered this) but up above i was trying to outline what i think syriza's line is, rather than mine
a lot of what i read is basically daniel davies's twitterfeed @dsquareddigest, where he discusses matters with economists, journalists and the like -- he's much more of a pragmatic believer in "kick it down the road" than krugman, esp.with regard to euro-stuff, and i think has a better practical instinct for the difference between what the agreement says right here right now and how it will actually be operating in a year's time
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I assume Krugman's argument would be that the past five years of can-kicking has made things much worse, that the longer you prolong it the worse you make it.
I'd think the poor "kick-the-can" metaphor had been kicked to death by now, but not only did it reappear last week ("It is no longer possible to kick the can any further"), but the apparent agreement does, in fact (or in metaphor, at least), kick the can down the road once more. In the long run we'll be dead, but the can will still be rolling.
I think a lot rides on whether hints and promises of debt relief are actually credible.
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(2) Another version of the Renzi question - who will stand up to Merkel? - might be, what the hell do Mario Draghi and Christine Lagarde think they're doing? I'm assuming, perhaps very incorrectly, that (a) Krugman is more-or-less right in his Keynes-Fisher-Friedman arguments for being anti-austerity, and (b) Draghi and Lagarde would likely agree with him, and agree that recovery of Europe as a whole, not just of Greece and not just of the periphery, are at risk from austerity. If so, what do they think they're doing, and why?
I do gather - but I know fuck all about this, too, as I haven't been paying attention to the Merkel or Germany story over the last couple of decades - that sentimental arguments (think of the suffering Greeks!) and combined sentimental and hard-nosed EU arguments (think of unity!) can sway Merkel and Germany because these appear as stories of Germany and the north sacrificing for the larger good, rather than stories where they admit to having acted like obtuse, greedy fucks. (Again, I don't feel competent to make the latter judgment, but it was fun to type.)
(3) So, in today's New York Times, reporter Andrew Higgins repeats - more explicitly and mindlessly than he had in the earlier article of his that I'd linked in my post - the idea that the argument for being tough with Greece and rejecting its proposal is "economic" but the argument for more-or-less accepting it is "political," based on the need to keep Greece in the eurozone and hence to assure European "solidarity." He doesn't quite say this, actually (just says that the latter argument is political), but fundamentally he doesn't know what he's saying when he uses the terms "economic" and "political." It's not that he's wrong in calling the "solidarity" argument political, but he doesn't know what distinction he's making, or for that matter what the economic considerations are for Europe more-or-less accepting the Greek proposal, or for Europe trying to get "tougher" terms, or for Europe pushing Greece out of the Eurozone.* Not that I know either, but something I would put in an analysis, if I were writing one, is that the distinction between the "economic" and the "political" is not absolute, given that not everyone's economic interests are the same and that there can be power i.e. political struggles as to whose interests prevail, and those two terms "economic" and "political" really do not take care of themselves, when typed into a supposedly explanatory article. In any event, he's not stating what he thinks the economic arguments would be. What are the economic reasons for or the economic consequences of any of the possible policies or outcomes?
*As a matter of fact, he doesn't seem to distinguish between the latter two, or make clear whether the toughies want Greece out of the eurozone or just think they can make Greece accede to even tougher terms. Seems like the toughies want guarantees that Greece will do - or will be forced to do - what it promises. Meanwhile, the toughies themselves don't imagine that they themselves and their prescriptions can come across as unreliable, given the disastrous last five years in Greece. My guess - emphasize guess - is that for voters in Northern and Eastern Europe, pushing Greece into default and off the euro is preferable to keeping Greece in the euro under softer terms, because to do the former feels tougher, even though it means the creditors get nothing more, rather than what they'd get if Greece stayed put.
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*In the long run, Greece is dead.
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(But "people who should know" is not a good source. If they're not willing to go public, you either don't say what they told you or at least you say why they're not willing to go public. Even if you're just blogging.)
Also this, a couple sentences earlier: "Tsipras apparently allowed himself to be convinced, some time ago, that euro exit was completely impossible. It appears that Syriza didn’t even do any contingency planning for a parallel currency (I hope to find out that this is wrong)."
So, Syriza organizes its life even worse than I organize mine.
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[UPDATE: I found Tsipras's actual statement. An excerpt: "The measures include those that Parliament has voted on. Measures that will inevitably create recessionary trends. However, I am hopeful that the growth package of 35 billion euro that we achieved, debt restructuring, as well as securing funding for the next three years will create market confidence, so that investors realize that fears of a Grexit are a thing of the past-thereby fueling investment, which will offset any recessionary trends."]
Meanwhile, our friend Matteo Renzi has been heard from, crediting himself with helping to ensure that the trust fund that the Germans demanded (and got) would be located in Greece, not Luxembourg:
I was pretty insistent in saying that if you have to set up a fund with Greek assets, you cannot even think about putting it in Luxembourg. For me, that would be a humiliation. I was the first to intervene on that, in strong terms.
*"Agreement" should probably be put in quotes; a "deal" (NY Times word) has been officially reached, and presumably the Greek parliament will acquiesce, but I'm reading that continuing negotiations are required even before there's the "bailout," much less "debt restructuring." Those last two phrases in quotation marks are my scare quotes, meaning I don't see how a new loan, most of which doesn't actually end up in Greece, amounts to a "bailout," or what "restructuring" actually means here. NY Times is finding a lot of pessimism for the long-term among financial experts, and further reference to can-kicking, the poor can seemingly unable to kick the bucket.
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will be used for decreasing the debt to GDP ratio and the remaining 50% will be used for investments.
Perhaps "decreasing the debt to GDP ratio" should really read "for paying down debt while the GDP shrinks even more, but what the hell."
the Eurogroup stands ready to consider, if necessary, possible additional measures (possible longer grace and payment periods) aiming at ensuring that gross financing needs remain at a sustainable level...
The Euro Summit stresses that nominal haircuts on the debt cannot be undertaken.
Presumably, Krugman would consider this document delusional.
Also, it actually includes what I would consider insulting language if I were the Greeks. And, language aside, it's basically saying that, contingent upon you Greeks doing what you've shown yourself to be too irresponsible to do before, and instead doing what we tell you, we will consider - not commit to, mind you, but just consider - "possible longer grace and payment periods."
Now, strategically, if I'm Greece and Italy and France - let's say the latter two really are in Greece's corner - I might be willing to take the insults (they don't actually make me look bad) and say to myself, "even if they're not commitments, they're in writing, and will be hard for the creditors to renege on."
But what I don't see, beyond my not knowing what the path is that reduces unemployment and actually really actually really really really does significantly decrease the debt to GDP ratio, is what the path is to getting European voters to abandon austerity. No leader is willing to give them a narrative. Just by looking at comment threads, I'm more likely to see narratives about "Germany got its debt forgiven in 1952, what hypocrites they are now!" and "the bankers got a bailout and are making the Greeks pay." Although I'm guessing these narratives are right, they're really beside the point. They're not an argument against austerity.
Krugman's Keynes-Fisher-Friedman-based arguments against austerity are not hard to understand conceptually. As a laymen, I don't understand and probably never will understand the stuff about multipliers that Krugman uses to justify the arguments, but I do understand the basic concepts. E.g., if we all are cutting expenses at the same time, we lose as much or more in income than we gain in savings and so end up at least as far in the hole as we already were. This is because our income comes from what other people spend, but in these circumstances the other people are cutting back too, rather than purchasing our products, hiring us, etc. Your spending is my income and my spending is your income. Whether the argument is right or not, the concept is easy. Someone with a megaphone has to decide the European voters are not too stupid to understand.
(Yeah, the actual arguments about investment versus savings etc. are more complex, and about why wages are sticky, and why governments can get away with big spending in a liquidity trap; but even those can be simplified to "No businesses are going to increase production when there's no demand, but they will park their money in government bonds, giving the government the ability to spend without crowding out business spending.")
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