Monday, February 20, 2012

Are Markets to Blame for the Greek Crisis?

Greece’s experience these past two years has made me into an even stronger believer in markets and in capitalism. Here’s why.

It is easy to paint a picture where poor, defenseless Greece is fighting against the forces of global capitalism, where evil banks and greedy markets want to profit from Greece’s demise, and where the urge to “rise up” and “resist,” so wedded into the Greek psyche, puts our current crisis on a morally equivalent basis as the Revolution or the Resistance. Certainly many Greeks feel that way, as did our former prime minister who often lashed out against speculators and the markets. But such a reading of the crisis is deeply misleading and it is ultimately wrong. If this crisis is to produce real change in Greek society we need a correct diagnosis of what happened and why. And markets are hardly to blame for our current condition.

In a way, the Greek crisis is a typical sovereign debt crisis. A profligate government was able to sustain excessive spending through continuous borrowing; at some point, faith in its ability to repay debt is shaken and so it can no longer borrow at reasonable rates. At that point, an international coalition gets together to offer a solution – at first, this comes in the form of a financial lifeline (bailout); if that does not work, the country may either seek another bailout, it can negotiate a debt exchange with its creditors or it can outright repudiate its debts. This is exactly the path that Greece has followed.

The background of the global economic crisis and Greece’s participation in the Eurozone only affect the particulars of that trajectory, but they do not alter its fundamental character. Some of these forces have actually aided Greece. The exposure of European banks to Greek debt has been a constructive force in favor of an orderly resolution, as has been the fear that Greece could be another “Lehman Brothers.” Greece’s membership in the Eurozone has raised the stakes of failure and has given the creditors a level of patience that they might not otherwise have had. And the fact that Greece does not have an independent currency has shielded the country from pressures that put enormous strain on Asian or Latin American states during their own crises.

In other ways, however, the international financial environment is making life harder for Greece. After years of lax lending standards, investors have become very risk averse, which means that it is harder for almost anyone to borrow, not matter what their credentials. And by virtue of its membership in the Eurozone, Greece cannot create growth the way that countries in its position tend to create growth: by devaluing their currencies. As a result, Greece’s exit path is somewhat more complicated.

But the big picture is straightforward: Greece’s fiscal problem is its inability to borrow at low rates in order to finance its budget deficit and to roll over its maturing debt. The reason is that markets demand a prohibitively high premium to lend money to Greece. Of course, markets can be sheepish, fickle and whimsical; and they can move wildly based on sentiments rather than fundamentals. But in this case, markets are delivering a message that is identical to the message that the majority of the Greek people are delivering: “leaders of Greece,” they are saying, “we don’t have faith in your promises, we doubt your commitment to change and we question your competence.” How many Greeks really disagree with that?

The difference is that when markets deliver a message, it is heard. While people complain about “undemocratic markets,” in this case, markets have forced lots of democratic discipline in a state that had little. We finally know how many people the state employs; we have some semblance of honest numbers; we have some effort to rein in exorbitant salaries in the broader public sector; we might finally sell or utilize some state assets (which everyone agreed were being wasted until the IMF said so); we are under pressure to tackle tax evasion; and we have a demand that closed professions be opened. One could only wish that our democratic institutions could deliver so much pressure for change so quickly! Of course, in a country where democracy often means mob rule, market discipline is an inconvenience. But it’s such a welcome relief from the sclerotic politics that have paralyzed Greek society for years.

The truth is, we did not get into is mess because of capitalism. We got into it because for three decades we have systematically bent every rule of capitalism; we have bought into a leftwing philosophy that says markets are bad, companies are evil, and profits are dishonorable. We have become a terrible place to do business and we have broken the relationship between work and reward, which lies at the center of the market system. We have given the state an exorbitant amount of power – power which it has abused, often in tandem with corrupt private interests.

In a country where corruption is so endemic, an infusion of capitalism would be a potent counterforce. As Clive Crook once wrote, “limited government is not worth buying. Markets keep the spoils of corruption small. Government that intervenes left and right, prohibiting this and licensing that, creating surpluses and shortages—now that kind of government is worth a bit.” The demand for corruption comes from the fact that the normal path to success – making good products and selling them – is so laden with problems. You only cozy up to politicians because they have so much power. Take away their power, and corruption would fall.

Support for markets, of course, is not the same as support for big business, much as it sounds like that to many people. To quote The Economist again: “Economic liberalism, much like political liberalism, puts great weight on checks and balances, on limits to power and hence to abuses of power. In economics, the most potent checking force bar none is competition. Bosses, shareholders and pro-business politicians all loathe it. They stand to gain, in one way or another, from conspiring to gull the public into regarding competition as a threat to the greater good, rather than to themselves.”

Greece’s experience is a painful reminded that when so many decisions pass through government hands, we end up with lots of corruption, waste and injustice. The markets that people bedevil are, in fact, a force for change. Not only are markets forcing change in Greece but they are securing reforms that successive electorates have been unable to for years. Markets are asking for a less corrupt society, a more competent leadership, and a more competitive and meritocratic economy. Who can argue with that?

44 comments:

  1. "we have bought into a leftwing philosophy that says markets are bad, companies are evil, and profits are dishonorable."
    Nikos, that's actuallly an EXTREME leftwing philosophy! Modern social democrats don't support such stupid ideas at all. But in Greece this stoneage type of socialism still seems to have a strong standing. Consequently, the communist pparty stands at about 14% in the polls.

    So, really, more nunaces pls, and don't throw all of us into the same drawer. Greece is extreme and apparently hadn't learned anything from the lessons of the last decades, especially the crash of the communist economies. That's the problem. The rest of Europe is different, thank the Lord.

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    1. The problem is not so much that the left is left but that the right is left, if you get my drift.

      Even when Greece has elected a so called conservative government it has lacked the guts for a fight and been every bit as corrupt and wasteful as the left.

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  2. Very good article! Should be read by everybody in Greece - and maybe also elsewhere.

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    1. Thinking further about the matter, I still fully agree that markets are not to blame for the financial problems of Greece. I also agree that market forces are beneficial in general. However, there is perhaps a caveat. If market forces were left to themselves, in other words without the strong (and very costly)intervention of the EMU countries, Greece would now be in default (and out of the euro zone?). That might have some advantages, but if I understood your earlier posts correctly, you would not welcome that (or not yet?), even though it would be the result of the market.

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    2. Actually, if market forces had operated properly after 2000, Greece would have experienced a fiscal crisis much sooner and the adjustment would not have been so dramatic. So it was the failure of markets to enforce fiscal discipline after 2000 that made the adjustment, when it came, to be much greater than it would otherwise have been. I wrote a little about that theme in http://www.greekdefaultwatch.com/2011/12/eurozone-crisis-market-correction.html

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    3. I remember that post and the ensuing discussion. I was not quite in agreement on your view that markets failed at that time; after all they acted on the basis of the (as we know now: flawed) statistical information that was available then; they did not have the information we have today. But, it is true, one might also blame market participants for not taking a closer and more critical look.
      The question that I am asking myself is: If markets were left to themselves today, I assume Greece would not get financing at affordable conditions, or rather it would not get financing at all. That is probably not due to a malfunctioning of the markets, or would you say so? And if markets are now right in their judgement, should European governments at some point accept that verdict of the markets and let Greece default? I am not sure what the right answer is; maybe it is wise in the present situation to correct the result of the market forces, but if so, I doubt that it can be done indefinitely.

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    4. I think the markets acted based on the flawed statistical information that were available AND the wrong assumption that Europe would guarantee and pay Greece's debts in case of trouble. The markets overlooked the "No-bailout-clause" and perceived Eurobonds to exist even though they didn't and don't.

      Thank God they don't exist because now the markets do their job, have their signalling function again and force Greece to clean up its mess.

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    5. If the markets are now right in their judgement European governments would have had no choice but have the banks revalue their outstanding government loans to market value(this includes all other PIGS etc) and would be calculating their true net asset value. In some cases some banks were silly enough to right insurance on these loans making a 50billion aggregate exposure to a loss a multiple of that amount. Then this would be nothing more than what it is, a banking bailout.
      If the markets were really free Greece could raise a private fund of say 10billion plus through their electricity and phone bills etc and start buying all their obligation less than 30cents on the Euro.
      Instead, contrary to popular belief, the European governments plans revolve around using their tax payers money to try and extend Greece's outstanding debt via rollover, to longer and albeit at way below market interest rates...in exchange for fiscal constraint that Greece needs to enact. Actually, Greece can survive with a default and raise money via electricity bills to pay for any extra. In fact if they could not borrow they would be forced to live within their tax revenue or raise more money via some way. Instead, relying on a bailout, in a way makes Greece like a child with a "rich" daddy...in this case maybe an uncle or just a friend.

      The situation is complex, but as Nikos point out whatever happens Greece needs to change the way it runs things.

      Also staying in or going out of the Euro zone makes no difference. It makes the difference only in the way that Greece can confiscate more money from people who actually save in that currency...ie USD until they day the savers lose faith in that currency. Currency devaluation is no magic wand and I doubt if there is any perfect economic system(ie the gold standard or anything else).

      I dont know, and do not believe anyone knows, how the situation will end up. But the only thing that matters is if the country as a whole can run things with financial sensibility going foward.

      Thank you for your blog.

      Otherwise a loan extension or default, euro zone or drachma should not make a difference.

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    6. stop blaming markets. that means nothing. blame an unchecked eurozone. serves euros right for including greece in eurozone without checks. I hate the occupy people, lazy nuts who resent wealth they envy. If you want a job support markets and HARD WORK AND THRIFT.

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  3. Niko, well done for your analysis.
    I agree with your post, but the current situation is worrying nonetheless and I am afraid that the result won't be positive at all. This is pain without gain.
    I personally feel that this double dip recession is a result of market failure (that's why many other EU countries suffer) and political failure (I think Greece is a perfect specific example).

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  4. I certainly agree that capitalism and free trade is the path to sustained economic prosperity.

    However, one should not overestimate the efficiency of markets. If markets were efficient and rational, we would not see these massive misallocations of capital. I'd say history has proven that financial markets are generally not that good in appreciating the build-up of unsustainable capital flows. The problem is that when markets finally do realize inbalances, it's too late and the damage is already done. The Greek economy had adjusted to large in-flows of capital and therefore now faces an enormous structural change. One can only imagine the dimensions of the crisis that would have ensued if EU/ECB/IMF loans had not been available.

    Greek politicians like to put the blame on the market, but do it all for the wrong reasons. Because the only valid criticism of the markets is that they didn't react to the incompetence, corruption and populism of Greek politicans much earlier.

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    1. A more complex situation will be if Greece is forced to default and is forced to convert to drachma on short notice. Imagine how they are going to deal with all the outstanding contracts when one currency is introduced at a much lower purchasing power.

      However, I do not agree that the dimensions of the crisis would have been unimaginable if Greece was not able to borrow from EU/ECB/IMF and defaulted. This is because the Government of Greece has almost enough tax revenue to pay for its primary expenditures and as I have pointed out it might be the case if they were not able to access the markets they might even start becoming more efficient in collecting taxes and controlling expenditures.

      I am not blaming the banks or the markets. That is an old trick used by politicians world over to win populist votes either intentionally or unintentionally.

      I think you have correctly pointed out that massive misallocations of capital as one of the culprits. However it is not a phenomenon caused solely by markets. It is also a phenomenon of major mistakes of government fiscal and monetary policy and market interventions made by not more than 50 ministers around the world. Of course I am the first to admit I could not give you a strait answer if you asked me which if the two is the greater evil.

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    2. @Anonymous

      Your argument is based on the assumption that Greece's public finances is the only problem. Unfortunately that's not the case. The Greek economy has huge structural problems because it adjusted to the large in-flows of capital and many jobs were created in sectors of the economy (e.g. imports) that relied on Greece's ability to take on more debt.

      A Greek default in 2010 would have caused mass-unemployment and social unrest reaching levels unseen in any developed country for generations. In comparison, the EU/ECB/IMF programme is a soft cushion to land on.

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    3. Anders,

      Thank you for your point. You might be right. Either way in economic conjectures none of the hypothesis could ever be tested except the one that actually took place.

      I hope this new bailout would hold for a couple of years and the recent events might jump start the political economy to move in the right direction.

      Otherwise a failure after bailout # 2 might bring about mass-unemployment and social unrest unseen in developed countries for generations...as you say.

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    4. If it is true that large capital inflows were due to over borrowing and a good portion of the economic sector were dependent on this over borrowing which in turn was based on wrong monetary policy then this is a good example of misallocation of capital.

      If so, this might be the case that the EU/ECB/IMF program is only sustaining this misallocation.

      As far as I can tell this is a soft cushion to land on for the banks and its bondholders....not the Greek government or the people. The Greek government is being made to make whole what the "free market" is hinting that there is almost no value. In the meantime, this portfolio is held as if it will have 100% value in the banks books.

      It certainly does not look like markets and capitalism in action.

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    5. Sorry, if bondholders have to write off 70 per cent, where is the "soft cushion"? Is it the difference to having to write off 100 per cent?

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    6. As for the bond holders write off no details has come out except some top line figures like banks posting several billions of losses in earnings.

      I am reviewing the figures, since bank earnings releases can hide lots of things which cannot be detected by a simple bloomberg news clip.

      Also Greece is not really off the hook. It seems that the "swap" involves EU/ECB/IMF taking on all the risk now.

      As far as I know the details of these "swaps" has not been released in details....so I could not really say.

      Please post if it is released.

      With IIF negotiating the deal, you have to take it with a grain of salt on look into the details of the deal.

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    7. Yes, the EU/ECB/IMF programme sustains the inflow of capital, and that's why I called it a "soft cushion". Without EU/ECB/IMF-loans the Greek economy would have had to adjust to a new reality overnight. It's difficult to imagine exactly what that reality would have been, but I don't think it would have been pretty considering that the capital inflow every year was larger than Greece's income from shipping and tourism combined.

      From 2008 to 2011, the yearly current account deficit has been reduced from €35 billion to €21 billion. I don't think an overnight adjustment would be very pretty at this point either.

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  5. Hi Nikos, what do you think about the new deal?

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  6. Markets work if the national economy is setup correctly to deal with market failure. With the necessary balances to prevent panics and depressions that were relatively common in the 19th and early 20th century.

    National economies need currency sovereignty and their own central bank to have the necessary escape tools if an economic crisis hits. Greece is lacking these tools and is therefore doomed to depression and probably mass emigration that will take decades to recover from, if recovery is even possible.

    Reform is obviously necessary but will surely be impossible in such a negative hostile atmosphere with unemployment rocketing. Until Greece re-established its own sovereignty there is little hope for the Greek people.

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    1. The only real set up to deal with market failure is some forms of savings/buffer which can be used when calamity strikes.
      Its really no different from archaic society where it was necessary to have food stock piles for the winter or bad weather.

      Most governments and mega banks operate like there is no tomorrow...or maybe a perfect tomorrow .

      If it is true that some form of central banks with powers to print its own currency existed during the relatively common panics of the 19th ad 20th century then although it might be able to alter the outcome a bit the final verdict has almost always resulted in massive losses in the currency's purchasing power.

      Only when Greece becomes relatively cheap to live, with lower taxes and a competitive business environment with law and order it can attract back people and necessary capital.

      Currently it has become a place where Athens is just as expensive as Paris and London, with a complicated business rules and quickly losing its law and order.

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    2. The most important factor for any business to return to Greece is a sufficient degree of predictability of the future. Greece offers great potential in many areas such as tourism, energy, logistics etc., but certainty and stability matter a lot for investors!

      No company will invest in Greece as long as there is the threat that Greece might return to the Drachma. The whole discussion about that started with Papanderou's blunt referendum idea and the subsequent clarification of Merkozy that Greece cannot eat the cake and have it too... or better: Don't look a gift horse in the mouth. Since then, the hard bargaining, the lack of compliance and reforms, the tensions between creditor countries and Greece and so on haven't made things better. Politicians and "experts" everywhere should stop talking about a Greek return to the Drachma, they should improve cooperation with each other instead. Real efforts would increase Greece's chances to stay in the EZ and also the willingness of creditor countries to help out with even more money and reform assistance if necessary. Greek politicians should start taking the help which is offered instead of labeling it as "colonialisation." If you are a EU member state, you are not fully souvereign any longer, that's how it is.

      Papandreou is claiming proudly that he saved Greece from going bust in the last second. The truth is that he might have broken Greece's neck!

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    3. At the least one good thing about the last 20 years was that now Greece has a network of roads in the mainland and the islands to places where almost nobody goes to.
      These were dirt roads back in the 80s.

      Often you can notice a sign post of projects details...with its total cost and funding source. These projects were usually funded by the EU Regional development fund. I remember, driving from Athens to AG.Constantinou, and adding up the total cost of various projects on the way. Casually counting the total tab was over a billion euro.

      At least they do not have to start with a massive investment in infrastructure.

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  7. Hi Nikos

    great piece of writing - its as relevant in any other country as Greece.

    Here in Ireland - I know exactly what you are talking about when it comes to the state and the possibilities it offers for corruption - and maybe Greece has something to learn from Ireland in regard to that.

    It is interesting looking at the trajectories of both countries, Greece and Ireland since they joined the EU. Ireland joined in 1973 and Greece in 1980 - but Greece was a much richer country than Ireland at the time of its accession - Ireland was the lagard of the EEC - we had the same problems - large bloated public sectors and state and semi-state companies - all presided over by, as we say in Ireland, parish pump politicans - whose patronage and access to the state for funding and employment ensured their re-election year after year - no matter how incompetent they were. We also suffered from massive tax evasion and an inferiority complex where we blamed foreigners ( the brits in our case)for all our problems etc etc etc

    In a way - Irelands default moment came a lot sooner than Greeces - in the late 70s and early 80s - fianna Fail ( our equivalent of PASOK) brought the country to the brink with populist politics like massively expanding the state sector, caving in to the unions all the time,abolishing taxation on property and utilities and borrowing massively to cover the gaps - we were on the edge of bankrupty by the early 80s - Ireland was also a rotten place to do business - all presided over by a populist charasmatic rogue in Charles Haughey (our very own Andreas Papandreou)- a man who lived a millionaires life style on a salary of 50,00 euros!!

    but Ireland changed - the EU and IMF laid down the markers - while Haughey denounced all the reforms brought in the FG/Labour government in the mid 80s - when he returned to power in 1987 - promising to do away with all the reforms - he turned over a new leaf and embraced reform and fiscal toughness, supported by our equivalent of ND - Fine Gael - it laid the foundations for Irelands recovery in the 90s - taxes were cut - but ruthlessly enforced - public sector employment was frozen and public sector pay was frozen for 5 years state assets were either privatized or let go bankrupt - or were given new management with a commerical ethos -and the unions were tamed to a degree - and starting a business became a lot easier

    Continued below

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  8. Continued from above

    It wasnt easy and it wasnt all plain sailing - but it made a massive difference - by 1997 - unemployment had fallen, the country was running a surplus and US and international companies were flooding into the country - it was a good place to do business.

    Sadly we forgot a lot of what we learned and went mental using borrowed money to fuel a massive propery bubble - which when it collapsed - the tax revenues collapsed - and we went from a 3 billion euro surplus to an 19 billion deficit each year. On top of that we guaranteed the banks which has cost 50 billion so far.

    that said - we are working thru it - because of the structural reforms that took place over the last 2 decades - Ireland is second to Hong Kong as a good place to do business -nearly everybody pays their taxes - you dont mess with the revenue - but also taxes are realistic - far better to get 20% of something - rather than 50% of nothing. Its still going to be hard - the public sector got too large during the property bubble and it still hasnt returned to a sustainable level and that is a hard nut to crack - but there is public support for cracking down on waste and spending.

    its not great here - but we can see a future -it will take time to turn things around - our exports are booming - we are one of the few countries in Europe to run multi- billion euro surpluses with both Germany and China, and unemployment has stablised to a degree - there have been big job announcments from the likes of Google, Paypal among others recently.

    Irelands main problems at the moment are re-educating and reskilling all those workers who were employed in property related businesses into viable prospects for employment in the export sector - in IT, pharma, chemicals and high value agri-business sectors - it wont be easy and there will be a long slog ahead - if we can get a deal with our EU partners on our banking sector debts - it would go a long way to loosening up credit and getting the domestic economy going again after 4 years of cutbacks, deflation and austerity - which most people recognise were needed -as we totally lost the run of ourselves in the property boom years.

    I have a lot of sympathy for Greece - but I've also seen this coming for a long time - Greek are a very resourceful people and Greece should be a pivotal entrepot between europe and the middle-east - but it has to clear away a lot of dead wood and let its most talented and ambitious people thrive at home and bring business home to Greece.it will take years of reform - as it did in Ireland - and it never ends - you have to keep doing it -as we have found out in Ireland - but it can be done

    I dont envy the road you have ahead you Nikos - but have courage and patience and you will get there.

    Best regards

    Edo

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  9. So when a rating agency downgrades overnight Greek debt, it is an example of how markets work democratically? Unelected troika officials in Athens Kratos, to hold accountable, right? Meaning that demos, people, have a say over how politicians influence their life? But with politicians being completely powerless in the face of markets, it may actually be much easier to argue that markets, or at least the markets as they function today, or in essence undemocratic. And we could go on and on:
    What about the bribes Siemens paid for a monopoly position during the Olympic games, but Germany being completely silent about it. Or Germany and France forcing Greece to continue with purchasing German and French military equipment: in 2009, already in the middle of the crisis, for 7,9 bn euro.
    In 2007, Greece produced five times as much as in 1990. But while the GDP increased fivefold, the profits increased with a factor of 28. Profits on which there was almost no taxation.
    How many people the state employs? 768 009 in 2009, including temporary staff, detachments, etc. That is 11,4 pct of the working population. In comparison: France (21 pct), Sweden (30 pct).
    JP Morgan and Goldman Sachs assisted Greece for years in hiding its real debt and budget numbers. Vice president and managing director at the latter bank when this happened? Mario Draghi. The president today of the ECB with the support of Merkel and Sarkozy? Exactly.
    Josef Ackerman, Deutsche Bank, is known to have played a central role in the first bail out package. Ackerman telling Schäuble what needs to be in it, democracy indeed.
    Deutsche Telekom AG has now 40 pct of OTE shares. In 2011, it purchased 10pct for the ridiculous price of 400m euro. Other Greek state companies, or parts of them, were similarly sold for bargain prices: the port of Thessaloniki, the Hellenic postbank, gas provider DEPA, etc.

    Not Greece is in a crisis, but capitalism itself is. The victim is democracy. You may try to deny that and show the opposite, but the only thing you are proving is that market capitalism has been undermining democracy for much longer than we are willing to admit. People didn't know, but now everybody does. That the democratic deficit is most visible where the crisis hit hardest is obviously no coincidence and means the end of capitalism and markets as we know them.

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    1. I think that what Nikos was saying in general is that the Markets managed to force reforms that the Greek politicians dared not even adress, let alone wish to see implemented. And in record time, no less!

      Of course there is corruption worldwide and on many levels but i feel that shielding the Greek economy from the "evils" of capitalism for so long, has rendered it incapable of competing and fighting back. And if someone takes advantage of the country's lowered defences to make a profit, well, that hardly new nor is it specific to Greece.

      In my eyes at least the Markets are forcing Greece to do the obvious which IMO is to get rid of the "cancerous" elements that have reduced the country to its current state.

      Also, Greece has not been a democracy in a very long time, unless mob rule by vocal minorities (syndicates, taxi drivers, public sector fat cats etc.) at the expense of the people, is considered modern democracy.

      Demonizing the Markets for the wrongs that have befallen Greece seems out of place when most of these wrongs have been caused by Greek policitians themselves.

      Don't forget, it takes two to bribe...;)

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    2. This counts for the most ridiculous defense of capitalism and markets I've ever read. You want to make this a Greek specific situation as that suits those defenders of market capitalism very well. But unfortunately, the Greek crisis obviously points to much deeper lying fundamental limits of this economic system.

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    3. Agreed! I could not put it more eloquently than Jones did. It is also worth noting that no real arguments were presented here against those facts, apart from repeating the original idea that was given in the post.

      If you follow the media, you will see that, 99% of the time, only one point of view is presented, with no substantial counter-proposals. What I show in this post is mere repetition of what we are fed by them every day, and an inability to present your ideas concerning other important issues, which is only natural since there is no real dialogue going on out there from which you can copy "replies".

      I was deeply sad to see a Greek person talking about Greece as if he lives in another planet and could not care less about its people. You should really talk more with Greeks that actually live in Greece.

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    4. Since you want a more proper response, kints, is it democratic that credit ratings agencies downgrade Greek debt overnight? No, they should have done it long time ago and markets should have beaten them to the punch. The demos has rights – they can vote for a party that doesn’t support the memorandum. But let’s not confuse what passes for “democracy” in Greece for real democracy. Bribes? Yes, bribes are bad. Bribes tend to be paid to politicians – as I note in my post, “limited government is not worth buying.” Profits rose faster than GDP? Yes, not because of markets – you have to have a twisted view of the world to think that “markets” function in Greece. Excess profits are due to monopolistic and oligopolistic structures that are courtesy of politicians. And how is not paying taxes a market issue – it’s a state weakeness issue. It’s not just about the level of state employment but it’s salaries and its production – we pay lots but don’t get much in return. Yes, Greece concealed its numbers – but we didn’t need JP Morgan and GS for that. We’ve been distorting our numbers for years – courtesy of the lack of accountability in our political system. Ackerman influencing folks – ok, that’s just trivial. Intellectuals, bankers, union leaders, professors – everyone tries to speak to politicians. Sold for bargain prices? How is that a market failure? All you’re saying is that powerful politicians are corrupt!

      Markets don’t undermine democracy – in Greece democracy has been undermining democracy. If you call what Greece has “markets” and “democracy” then you probably don’t really understand the meaning of either.

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    5. Me and my twisted view of the world would very much like to point out the contradiction in your words in the form of two questions: (a) How exactly would politicians fight monopolistic and oligopolistic structures from taking advantage of the less advantageous without overtaking left-ish practices that you so much condemn, or even without going against the... capital! and (b) What are these "rules" of Capitalism? And if they exist wouldn't their mere existence make the "markets" less ...free?

      What I understand about "democracy" the way you present is that we loose it whenever businesses of excessive profits intervene in state affairs because they can (they have both the money and an abundance of corrupt officials to choose from) but it is perfectly acceptable for both big and medium businesses to take advantage of poor people's labour for their gain, leaving them barely making ends meet. I have only one other that meets your idea of democracy and that is -hypocrisy-.

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    6. Politicians should fight monopolies and oligopolies by removing the regulations and barriers to competition that allow them to become monopolies and oligopolies. They can take advantage of people when they have too much power and that power usually comes courtesy of politicians whose job should be to ensure the smooth functioning of markets.

      The problem is that people are so scared of companies having too much power but seem completely willing to give the same and more power to governments - even though they are more likely to abuse it and to abuse it worse.

      No sane person will say that "free" markets means markets without any rules. That's why i talk about markets rather than "free markets."

      As for your comment on democracy, I am not defending excess profits if those profits are the result of barriers to competition that politicians have put in place.

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    7. Could you name the "barriers and regulations to competition" that you mention?

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    8. Of course. You can call them closed professions for one - which is basically state sponsored stealing. If I can mandate that you have to buy my product for a specified price or that no one else can do what I do, I am artificially inflating prices and forcing you to pay me more than you would have under a market system. That's stealing but we don't call it that. We call it protect the consumer or protest the product or ensure safety, etc.

      Or you can talk about regulations - my experience, for example, trying to get permits for a non-conventional cruise and basically having people tell me they had no idea if and how one would get a permit to do that. Or the ridiculous undersupply of convention space in Athens (again speaking merely from experience). When you make it hard for markets to function, you keep prices up and you hurt consumers. Monopolies hurt people more than markets do.

      Some more thoughts on that here:

      http://www.greekdefaultwatch.com/2011/07/need-for-reform-in-greek-private-sector.html

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  10. I would say that the crisis is about 5 decades of misguided government policy within an overall capitalistic economic model. Democracy, as it is practiced, only work in relatively eventless times. As you can see often important policies are not adequately debated upon in an open forum for anyone group to make a sound judgement as it turns to an emergency and usually handed over to a group of people with no more than 10 people.

    As an aside, monetary policy is run by officials unelected by a democratic process. It is also run mostly by academics/bureaucrats/banking insiders who have almost zero experience or track record in implementing central bank or fiscal policy.

    One end result of such interaction, is what we have now, a large public debt exposure.

    I personally do not think uneven wealth distribution is curable. However the repayment of public debt has to be even. This is bound to create mass anxiety as most wealth in most countries are held by a small percentage of people. In Greece, as in other countries, this group is highly international and probably most people rich enough is already diversified geographical to legally avoid any confiscatory tax policies which is bound to be enacted going forward.

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  11. Who can argue with a more meritocratic society? Many serious people do, in case you haven't noticed and still believe - you clearly do reading what you write - that you are where you are and what you are only because the system has given you the chance and other people who aren't only have themselves to blame. Sad to see a Greek (?) person is writing this nonsense. Luckily the unfortunate majority, blameless victims of a plutocracy thriving on market capitalism, thinks otherwise.

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  12. come on, they had it to cushy living off the germans for all practical purposes. You cant work very little and have an amazing pension. somethings gotta give. I dont think anyone sensible would starve. why all this debt?

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  13. to anonymous on meritocracy, so basically you want smarter or harder working people to do what they do and split everything with you. thats called communism except that the smart hard working stop being so smart and hard working naturally.

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  14. so much for the eurozone. you cant cobble together a common currency with govt independence when different countries have harder working people, more thrifty people than others. duh.

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  15. kints, so basically youve decided that anyone who works for a living is exploited. thats a good way to get people employed.

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  16. Here's an idea- dont spend money you dont have when you dont have any way of paying it off. what you borrow should be a function of what you earn and project to earn. the greek government is greedy as was its citizens. you cant live the fat happy life working short weeks and expecting huge pensions you havent paid into. why do you think other euros are doing better than you and asian countries are the future? they actually work. america is ok because of immigrants who work and england is ok because they never joined this crazy eurozone,

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