Wednesday, November 30, 2011


November 10, 2011
I'd like to say a few words about the relation of Greece to world economies. I don't understand it fully, but that doesn't deter me because I'm not sure that many politicians and even economists understand it fully either. In fact, I'm not sure that anybody anywhere really understands international economics, which have gotten so complex from globalization over the last several decades that "complex" is hardly descriptive of the magnitude. It's not Adam Smith's world anymore.

In ECON 101, the eye-opener in the first class is the revelation of the obvious — that all economies are driven by countless individual decisions about what to do with money, from whether to buy that candy bar to whether to buy that house, from whether to put your earnings into stocks or under the mattress. Suddenly students recognize they're the muscles and sinews of the Invisible Hand. Today, however, so many of these individual decisions are no longer made by individuals at all but by computers, which is why radical swings in the stock market, attributed daily by the media to tiny upticks in employment and tiny downticks in industrial production, are actually automatically triggered by logarithm, trading billions of shares with little or no human intervention. My so-called portfolio doesn't stand a chance against those forces.

The play of great economic forces on the small includes small countries as well, most poignantly illustrated by the case of Greece. Since adopting the euro as its currency a decade ago, Greece has become a groveling debtor to the big banks. Thinking their loans on the euro standard were ironclad, the banks shoveled money to Greece, despite its history of corruption and political unrest, its top-heavy state bureaucracy, and its lavish social-service spending.

After the world crash of 2008, things turned sour indeed, as Greece's own economy lagged in the euro-zone and the bonds kept coming due. Pressured for "fiscal responsibility" by the European Union, the government imposed "austerity measures" on the country in February of 2010 — salary freezes, benefit reductions, and layoffs of government workers — setting off mass demonstrations and strikes. Those measures weren't austere enough to satisfy the Big Guns of the E.U., notably Germany and France, and over the course of a year, more were imposed, including enormous tax increases coupled with steep decreases in salaries, pensions, and social services. Less money earned and more money taxed — even before taking ECON 101, anybody with common sense sees that's no way to spark an economy. As Keynes turned restlessly in his grave, Greece's GDP declined and the budget remained grossly out of balance, while the public debt continued to grow.

Yet now the E.U. is insisting on still more austerity in return for infusions of cash from its Central Bank and the International Monetary Fund, and for negotiating a 50-percent "haircut" — now there's a term — in outstanding loans from private banks, supposedly to prevent complete default.

Meanwhile, the demonstrations continue with ferocity. The entire country is angry at everybody — the E.U. as instigator, the government as implementor, the banks as the wolf at the door. It's an anger born of impotence, a feeling that Greece's identity as a sovereign state is being swallowed whole by Germany, France, the IMF, and the big banks. Jean-Paul Fitoussi, an economics professor in Paris, told the New York Times that Chancellor Angela Merkel of Germany and President Nicholas Sarkozy of France "were acting as if they were the real government of Greece."

Several weeks ago, as I read about these unfolding events, I thought: Wouldn't the citizens of Greece regain at least a shred of their self-esteem and even embrace some austerities if they were consulted on these matters, drawn into dialogue with their government, invited to work collaboratively to share both present sacrifice and future benefit? Thus I was pleasantly surprised last week when the American-educated Prime Minister, George Papandreou, proposed just that: a referendum on the E.U. bailout plan. Whatever his motivations — and the speculations on them were diverse, from sheer stupidity to a crafty way to garner votes for the bailout in Parliament — I'd like to trust his own explanation: "Let us allow the people to have the last word; let them decide the country's fate."

Of course, Merkel and Sarkozy, enraged at his ungrateful impudence, immediately and almost literally took him to the woodshed, publicly humiliating him and forcing him to recant.

What a pity. In a land that coined the term 2500 years ago, demos-kratia — the people's rule — was quashed by foreign powers. Who knows how the people might have spoken?

One way for Greece to throw off the yoke of the banks and reassert its sovereignty would be to throw off the euro and return to its own currency, the drachma. There are as many projected outcomes of this move as there are economists who make them — which proves my point about complexity, above — but the most hopeful one to me is the comparison with Argentina, which released its peg on the U.S. dollar and reinstated the peso in 2002. After a period of disruption, bank runs, and inflation, export goods selling at devalued prices became attractive, foreign investment returned, conditions stabilized, and Argentina's economy is now growing steadily.

The big banks are petrified at this prospect, and Chancellor Merkel herself recently remarked that the bailout has been fashioned not to save Greece but to save the euro.

Regaining control of the small from the big is the overarching theme of the Occupy Wall Street movement. Occupying Athens, the original seat of democracy, would not be a bad idea at all.

No comments: