Thursday, June 23, 2011

Working Hours Irrelevant For Greek Issue

I got unusually many comments and other reactions, both negative and positive, from my post on Greece the other day, where I pointed out that the Greek protestors are extremely irrational as no alternative exists to some form of austerity measures in Greece and that Greece as a nation has been living beyond its means in an unsustainable way, or in other words have tried to live at the expense of others, as is evidenced by its persistent and very large budget and current account deficits.

I see now in various posts and articles, that proponents of the view that Greeks aren't living at the expense of others have been pointing out that Greeks on average work longer than people of any other nation in the OECD, except South Korea. That is true, but also irrelevant.
Because the relevant issue in a debt crisis isn't how much someone produces, and much less how many hours it takes for the average worker to produce what they produce, it is instead how much they spend relative to how much they produce.  And the bottom line is that Greece has had persistent and large deficits in both its government budget and current account balance, despite being one of the largest net recipients of money from the EU budget.

The Greeks that are employed may work longer than others in the EU, and per capita consumption is below the EU average, but because the Greek employment rate and the productivity level is so low, this still means that Greece is producing a lot less than it spends.

As the rest of the world won't continue to tolerate this for much longer, the only real question is if the reduction in Greek deficit spending is done in the least painful way or the most painful way for Greece. The Greek protestors are because of their cluelessness in effect opting for the most painful way.


Blogger Juan Moczo said...

Puerto Rico had (and still has) the same problem, but it found the solution back in 1953 when it invented the concept of Commonwealth to legitimize its colonial status with the US. Maybe the Greeks should try something like that and let the US taxpayers foot the bill.

3:25 AM  
Blogger Jim Slip said...

If Greece was consuming beyond it's means, then Germany was producing beyond it's means.

4:37 PM  
Blogger stefankarlsson said...

Jim: I don't think it is possible to produce beyond your means. It could however be argued that Germans should have consumed more of what they produced instead of lending it to Greeks and others.

9:56 AM  
Blogger Jim Slip said...

Why, Mr. Karlsson, it was convenient for German producers to not raise wages in Germany to boost domestic demand, but rather to rely on Greek private borrowing (state debt has remained at the same levels for the past 2 decades) to sell their products, wasn't it?

And look where that got us.

And that's why Germany and Greece shouldn't use the same currency. Because it creates external-deficit dislocations.

And no matter what you say, unemployment levels to the tune of 20% (to boost some ill informed notion of competitiveness) are not justifiable for anybody. Not for Greece, not for Spain, not for Latvia, not for anybody.

2:59 PM  
Blogger stefankarlsson said...

Jim, over consumption in countries with freely floating fiat currencies happens all the time, like in the cases of Iceland, Romania, Ukraine, Belarus etc, so that is not the solution.

10:11 PM  

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