For those readers who have been following Naked Capitalism’s coverage of Greece a significant amount of this will be old news. However, it was good to have the opportunity to make the case to another audience and with a recording that may be more accessible to the uninitiated than our coverage.
One point I make a few times in this talk that I haven’t articulated elsewhere is this: Economists tend to talk about economies using ex post (meaning after the fact) measurements of transactions, whether these transactions are all domestic spending on goods and services (GDP), or a net measure of international purchases and sales of goods and services (trade balance). These are of course important but a danger, which has definitely manifested in discussions of a Grexit, with thinking in terms of ex post measurements is the belief that we can project transactions that have happened in the past into the future.
This is a reasonable assumption some of the time, but is clearly foolish when we’re discussing a Grexit because by definition we’re talking about a radical change to how domestic production, imports and exports are financed. There are transactions people would like to make in the future that they don’t make because they can’t finance it. If your bank account is frozen or suddenly you can’t make international payments with it, production will shut down when you can’t acquire necessary inputs. This is a process that has already begun in Greece and is likely going to be much worse than the dislocations in Cyprus.
Saying that Greece had a balanced current account last year so it has no import financing needs is foolish. Not only can those transactions not be projected into the future, but each one of them was financed whether by working capital (i.e., a deposit in a bank) or through Euro bank loans they could get from their local bank because they were still a part of the Euro then. Even worse, the ability of tourists to finance their spending becomes almost totally impaired without an international payments system. I may hope that tourism spending this year comes to equal or be greater than tourism spending last year but realistically I don’t see how that’s possible given how things have been going. Cancellations have already started en masse and last minute bookings have dried up completely
In short, what matters is ex ante transactions (i.e., the financing of planned transactions) not ex post measurements of transactions that already happened.
The audio quality isn’t as pristine as I’d like to be and it starts off slowly (as well as having a little dead air) but I think overall this was a good exposition of our views on a Grexit and a chance to respond to reasonably informed questions on the topic.
You can also download the file here.
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The really tragic aspect of all this is that the populace of northern Europe has been very successfully brainwashed into the neoliberal “morality play” mindset: that Greece has cheated, borrowed well beyond capacity and squandered the money, that Greece does not want to pay back what is due, that Greece already got a lot of extra money and could not reform its failings, and that Greece should be punished for all those failings or else.
Greeks partying in the streets after the “no” vote just strengthened that false image.
And this isn’t some evil conspiracy: it’s simply a simplistic but false image that plays into existing prejudices, an image that is so easy to believe.
That Greece is a country with a huge social burden, that has gone through massive transformation despite a flawed program forced on it, that Greece has no foreseeable economic future, with record youth unemployment and record youth emigration, with suicides through the roof, does not get reported.
And we are seeing the “or else” punitive stage now, no matter how irrational and harmful it is economically, socially, historically and morally. Many northern politicians are buying this false image, or are sadistically strengthening it for political gain – and even those northern politicians who know better are paralyzed by public opinion at home.
I have a day job in the investment business — one of the stupidest industries on the face of the earth — and its both astonishing and sickening how many highly paid money management pros spout the “deadbeat Greeks” epithet like it’s a sports team chant. Their minds are dead and their souls are dead — or if that’s too strong, since “judge not lest ye be judged” they’re in a coma. You get on conference calls and they start talking global macro trends and the clichés and superficial excuses for mental activity roll from their mouths like drool. They are not stupid human beings in a quantitative sense, they can certainly process ideas in a logical ordered way and capably manage investment portfolios. But they can’t, or won’t — either though some defect of nature or nurture, see reality fully and completely. They have the conceptual ability to comprehend the complete realty of the Greek predicament, but they refuse to exercise that ability. That refusal itself is, in my mind, the primary psychological point of both phenomenlogical interest and spiritual nausea for any fully sane observer. And I can understand how heated emotions can get in Europe among the negotiators and politicians and how that can usurp and darken the perceptive faculties, independent of the narcissistic self interest always present in the thoughtstream of those types. But someone paid enormous amounts of money to achieve, allegedly anyway, an analytical clarity — there the failing is one almost of craft itself, independent of any “humanistic” if that’s not too sentimental, dimension. Yes that’s it, a multidimensionality to the phenomenon and they see flatly and lose all grasp of the reality. And because they have money, simply because of that, they can. You’d think they’d have higher standards for their own professional craft, it’s strange, almost, how they don’t even see that either. .
great post crazy man. I’m an anarchist in SF, and have often had to argue that the top 5% are a different ‘type of people’ to liberals that think demonstrations and emails will ‘change’ the systems. I’ve always said since the 90’s, there is no negotiation possible. I really appreciate , and this is one reason why NC is so important, hearing people way above me, actually confirm that. Take care fella.
People are starting to see how, and to what extent, our mutual vulnerability has been artfully exploded, and how asymmetric that vulnerability has become. Now to see how capably we can develop mutuality and comity. Snort.
For now the Greeks just have to pretend submitting to all the diktats and quietly prepare for a Grexit within 3 years.
If Tsipras really wanted to lose the referendum, he should have told the Greeks it was really about a Grexit. But the kept denying it. So we still don’t know if there’s popular support for it.
It makes some sense that there are two factions within the EU. It seems like a very conservative crowd, but there must be a group that can see clearly that the EU is done for unless it changes it’s fiscal inflexibility. Maybe they all see it, and it has come down to how to do it democratically. Varoufakis offered them the best suggestion with his proposal. They ignored it; called it amateur. Steve Keen was on MaxK yesterday talking about the impossible position that the EU maintains on Greece. He said it is absurd because all the creditors have to do is write off the debt and it can be done without taxpayer hardship because it is double entry bookeeping: so much loaned out v. an income stream. I didn’t follow. The loaned money itself – the money given by Germany to the ECB – is actually borrowed money (I think) and then given to the ECB to give back to the German banks. So what happens when China collects? Does China do double entry bookkeeping too? This raises the question, Can every creditor, in domino fashion, write off every debt and income stream without harm?
Can every creditor, in domino fashion, write off every debt and income stream without harm?
If a daisy chain of bankrupt creditors is not a harm, then the answer is yes.
But in this case, writing off the debt would not “cause” the bankruptcies; it would merely expose them.
“These are of course important but a danger, which has definitely manifested in discussions of a Grexit, with thinking in terms of ex post measurements is the belief that we can project transactions that have happened in the past into the future.”
Thank you for pointing out the a priori nature of that economic argument.
This insight is so important, it should be given a name. I propose: “The Fundamental Error of Economics”.