Ranting about Greece

In his most recent blog post, Prof Yanis Varoufakis, actually one of the more thoughtful and reasonable experts in Greece, published a link to an interview (in fact, more of a round table debate) he gave to German weekly Stern. It wasn't so much what he said there, which was quite laid back for a Greek pundit, but rather what he didn't say and talk about which rubbed me the wrong way. Here's the (lengthy, sry!) response I posted in comments:

Excuse me pls for being very critical, Prof Varoufakis – I see you’re a well meaning guy, but this interview once again makes it obvious that you both shy away from taking an honest look at the Greek misery and from drawing painful conclusions. It’s not that the other pundits are much better, not at all, but you represented Greece in that round, and so the readers have to expect more first hand insights into the problems and possible solutions from you. Sadly, you didn’t really live up to that admittedly difficult task.

Firstly, you put virtually all the responsibility on Germany, ignoring the correct point by the others that this nation simply isn’t big enough to singlehandedly save the Eurozone. Then you emphasize that Merkel should lead, but not in an authoritarian way! You dream of a single leader who refrains from using his power? For heaven’s sake, what nonsense! How shall this work in reality, especially when it’s the rather anarchist Greeks who shall be led? They don’t even voluntarily do what their OWN government wants from them! Really, the other guys, who said there has to be a more concerted effort, made much more sense than you.

Secondly, you obviously see more money as the single way towards improvments, but say nothing about where this money shall come from. The others rightly pointed out that after overspending for so long, the Eurozone nations haven’t much leeway left for Keynesian stimuli, and that this crisis showed the market won’t tolerate more of the same anymore. You stayed totally mum on this argument, not a single idea from you about how to cope with this problem! Sorry, but this almost disqualifies you as a serious advicer. You simply can’t avoid presenting a solution for the financial side and still expect to be taken seriously. That’s like a mechanic calling a race car “repaired” that’s got brand new shocks and tires, but no engine installed. Sorry, but you won’t win any prices with this.

Lastly, and most importantly, you say virtually nothing about what the Greek government, and the Greek people, too, have to do now to contribute to the recovery. Your only point about that is that there should have been more resistance against the cuts. Well, that's spilled milk: Even if there had been any leverage to get a better deal (there wasn’t, that’s just wishful thinking), that’s yesterday’s issue. What matters now is to improve the competitiveness of the nation and to get rid of the countless roadblocks that prevent job creation and turn investors away. Once again, you point fingers at Germany, as if its Merkel’s and the Bundestag’s job to create better conditions in Greece! OMG, really, can’t you Greek people EVER accept responsibility for your own affairs and the reality that it’s YOU, not others, who have to do the hard work of reforming your country? You people largely created the problems (through your votes, false tolerance, and exploitation of the screwed up system), you know the problems best, and you’re in the very best position to solve them, too.

Even if you disagree with the argument that the Greeks collectively bear the responsibillity, you still have to accept the fact that it’s you all who are on the sinking liner Costa Grecia, and that of course your own actions will determine if you’ll sink or swim! Either you plug the leaks, while additional pumping is supplied by the surrounding Eurozone cruise ships, or you evacuate all crew and passengers and board MS Drachme instead. Sitting in the deck chairs, discussing the shipwreck, while waiting for other crews to make your ship afloat again isn’t an option, really! To simply ignore that the corrupt and inefficient administration has to be reformed, the economy revived, the judiciary improved, the legal system overhauled, the special interest groups and unions held responsible, etc etc etc is a luxury you can’t afford now. Time is running short, the first two years have been totally wasted, and the speed of the real modernisation efforts (instead of desperate measures like the property tax) is still too slow. But the Eurozone won’t cover the Greek deficit forever, there’s no political support for that. So, stop daydreaming and focus on what can be done, on all levels, national, regional, municipal, and by entrepreneurs and people forming cooperatives. Greeks faced an even more dire situation during and after the war, why should this generation not be able to master the challenges and create a better future?

Escuse me pls for my outbreak, but the hypocrissy with which many Greeks act in this drama really gets to my nerves. It’s always the others, most prominently Germany, who are to be blamed and who shall magically supply a brand new country for the people, but there’s almost no discussion about what the Greeks shall and have to do for the recovery themselves. With this attitude so obviously widespread, it’s rather understandable, imho, that many here in Germany see Greece as a hopeless case and a bottomless pit for rescue plan Euros. You are aware of the discussions in Germany about the Greek crisis, Prof Varoufakis, so you know that Germans are willing to help. But we want to see Hellas doing her own part in that. That the nation instead simply waits for orders from the troika (only to protest those, then), and puts the whole reponsibility on Germany, isn’t acceptable for us, sorry.

(Disclosure: I corrected some typos and improved some wordings, but there are no major differences to the original comment)

Krugman hit by boomerang

In a blog post today, Krugman tries to refute commenters who pointed to Germany's positive economical performance as alleged evidence for the advantages of reducing the deficit. Sadly, the good Prof seeked refuge to onesidedly using a GDP growth chart as a way to fight back, deliberately omitting the unemployment numbers which show a totally different picture. Just more of his usual badmouthing of Germany. He should have pointed to all the differences between Germany and the US instead, and argued that America can't simply copy single policies, but would have to copy the whole system to get into the same situation. That would have been more fair towards us, and the better argument, too. However, I already wrote about this, and I want to focus on another point now.

And that is that it actually was Krugman who played a most prominent role in providing this ammunition for the austerity advocates! Since the start of the year, he has been picking on Germany, complaining about us not doing enough for stimulus, and painting a picture of doom and gloom about the consequences of our (mostly cosmetic) austerity measures. During all those months, his readers waited for the bad news from Germany to show up in the headlines. But all they found were reports about a positive development month after month after month. Can he honestly blame them now for believing that apparently the rebound can be accomplished without much stimulus, and despite austerity policies? He distorted the situation in Germany for months, and now this turned out to be a boomerang that came back to hit him. Serves him well!

Really, with a lot of respect (and I'm still a fan), but Krugman's picking on Germany was unfair, misguided and strategically wrong. During the time he wasted trying to talk our folks into more of a stimulus, when the development showed them this wasn't necessary, the situation in the US deteriorated. I know, hindsight is 20/20, but didn't he ever have second thoughts that he may be flogging the wrong a**, uh, donkey? D'oh.

(based on a comment at Krugman's blog)

Should the US follow the German "austerity" course?

That question came up in a comment to another Krugman column ridiculing the allegedly "invisible bond vigilantes" (which weren't so invisible here in Europe at all). Brian Bolton from Boston was a bit confused about why austerity would be damaging for the US when others seem to get along with it so great: "I am with you on this but can you explain Germany? They're leading the austerity charge but are experiencing really strong economic growth."

Well, maybe I can put some perspective into this. See, the German calls for austerity in the EU (not for the US!) are based on purely political considerations. The major one is that almost nobody here really likes to use German taxeuros to bail out the PIGS (sry for that discriminating acronym, only using it because it's convenient). Those nations have to go through austerity, nobody wants to subsidize their wasteful spending, and the not-so-invisible "bond vigilantes" have already driven their bond rates up. But since it's not politically practicable to call for the austerity of others while at the same time living the high life on credit card, it was unavoidable that Germany had to lead by good example and implement cost cutting measures of its own, even though it could have afforded and used more stimulus to further reduce unemployment.

And actually, there's even an obligation for members of the Eurozone to keep the deficit under 3% of the GDP, a rule that was established because of German pressure to keep the Eurozone fiscally responsible! So, Germany had to live up both to this major principal and to the consequences of demanding others to spend less. And Merkel reacted on this by coming up with some cost cutting measures, most of which are only cosmetical, and which are dragged out over ten years to make the total amount look bigger. I guess this was seen as the best compromise that would show that we lead by example, without seriously hurting the rebound of our economy. I don't think the pundits and the political leaders can be fooled by that, but as a PR measure it seems to work. But behind the scenes, our social net is still working, stabilizing domestic demand (actually, an ongoing Keynesian stimulus), tax incentives boost investments in important sectors, and the weaker Euro fueled the comeback of our Export industries. Thus, the "economic miracle" here in Germany. Read the excellent roundup in Der Spiegel about this "Keynesian Success Story" for details.

However, the conditions in the US are different. You don't have a similarly strong social net (quite to the contrary, your jobless are threatened to be left pennyless by the Senate every few months), your industries aren't as export oriented (many managers don't care enough about that complicated foreign business) and that the dollar became stronger in relation to the Euro didn't help, too. So, obviously, you can't simply copy German policies, the situation in the States is too different. What is right for some European nations isn't right for you. The US need more stimulus to cope with the unsustainable high unemployment, or else you soon will have riots like in Greece. And as a rich country, with lots of resources guaranteeing credits, too big to fall victim to the bond raiders, you can afford another job program. Hopefully one which will really focus on improving infrastructure and create more employment this time!

(Based on a comment to that Krugman column)

"Anti-Krugmanism" in Germany?

"Anti-Krugmanism is working right now in Germany."
That's what commenter "Samuel" from Orlando wrote at Krugman's blog today, and it's utter nonsense. Yes, we Germans disagree with Mr. Krugman about the need for more stimulus for our economy right now. And we have good reason for this, since everybody can see that our industries are already working near full capacity, and our domestic demand has increased recently, too. The influential German weekly Der Spiegel even speaks of a "Keynesian Success Story"! So, as we see it, Krugman simply didn't pay enough attention to the different conditions here, where our still strong social net automagically stabilizes demand, and dampens recessions. Also, while our government had to come up with some austerity plans, to reduce our budget deficit to the EU standard of below 3%, and because of foreign relation reasons, too (we can't lecture the Greek when we ourselves live beyond our means), in reality the effect of these measures is miniscule. It's more PR than a serious reduction of governmental services.

So, no Anti-Krugmanism here, but actually policies in place that are much more in line with Keynes, and Krugman's advices, than everything in the US! That the good Prof himself somehow still tried to talk us into even more stimulus, despite the data showing this is unnecessary, and despite the political problems attached to this, is only evidence of a temporary disagreement, not of a general rift.

The situation in the US, on the other hand, is totally different. You don't have the same kind of social net working as a safeguard against economic downturn. So, America does need an additional stimulus to boost domestic demand. The horrible employment numbers show the necessity. And to say that the US should act like Germany, even though the conditions are totally different, is really a fundamental misunderstanding. If the US would firstly copy the German social net, then this would be debatable. But I guess if the WH would really try to implement our kind of social market economy in the states, "Samuel" would be among the first to cry "COMMUNISM"!

(Based on a comment at Krugman's blog)

Some points about the US trade imbalance

Paul Krugman today agreed with yesterday's NYT editorial which blamed China and Germany for the trade imbalance of the US. He correctly points out that lecturing the Chinese isn't likely to bring any positive results. Actually, I'm sure this can only backfire, since the Asians have been subject to such selfish interference by the West, including military intervention, for too long of their modern history, and with their newfound power and self-assurance won't react positively on more of the same old. You have to take their national pride and sore points of the past into account when dealing with them. So, I totally agree with Krugman on this.

However, I also think that this important issue merits a deeper look into the issues, especially when a world renowned expert on the field of international trade weighs in. Firstly, I would really like Krugman, of all people, to stop talking about the trade balance, and instead use the current account numbers. He should really know better than to use numbers that provide only part of the picture, excluding import and export of services and other income payments! OK, I have to admit, I have good reason for emphasizing this, since Germany had a negative current account during all of the 90s, which should be mentioned when talking about the positive numbers of the last years. But, regardless, the current account is really more important than the trade balance, that's economics 101!

Then, what about the fact that the US had a positive current account (and trade balance) from 1946 to 1976? That's 30 years where the US made huge profits by trading with the rest of the world. That was a period of national wealth. Isn't it a bit hypocritical for Americans now to blame China, a developing country, for having the same era of success? Where there concerns in the US during that time about the imbalance? Did the WH react positively when trade partners where disturbed about the outflow of money from their countries? Can the US reasonably expect China to be more sensitive than this precedent?

Also, as some other commenters to Krugman's posting have pointed out, shouldn't we also look at the other side of the imbalance? The US not only import too much, they also don't export enough. The export numbers of the current account have been stagnating for many years, for instance 2002 was almost the same as 1999, and 2009 was shockingly worse than 2008. So, shouldn't there also be stronger incentives for producing goods that are competive on the global market, and for encouraging exports? A good friend of mine worked for a US corporation for decades, and told me about a disturbing disregard for exports in the management. Almost all of the attention went into the domestic market, where the most profits came from, and nobody invested much work into exporting goods. The managers obviously thought the more complicated foreign business wasn't that rewarding. That mindset has to change for the US to get back to more balanced numbers again!

All in all, imho the problems has more facets that the shallow reporting in the media doesn't mention at all. I hope that at least Krugman will soon find the time to provide a more wholesome analysis here. This is a delicate issue, and false decisions can lead to a trade war and increased tensions, so much more care should be taken to discuss all aspects of the problem. Simply pointing at this year's trade balance is misleading and hypocritical!

(Blog post based on a comment to Krugman's story at his blog)