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Mm. I'm sure Greece could have theoretically cut more deeply into its government spending and improved the economy. Unfortunately, the people doing these sorts

Mm. I'm sure Greece could have theoretically cut more deeply into its government spending and improved the economy. Unfortunately, the people doing these sorts of cuts aren't a committee of neutral, emotionally detached economists, they're a bunch of politicians, and they have an electorate to answer to. (And they say that the premise of democracy is the belief that said electorate knows what it wants, and deserves to get it good and hard. :P)

gph1 14y ago
You must have an interesting definition of "improve".
- fennecfoxen 14y ago
  Basic economists' definition: opportunity cost. If the government spends a dollar and gets a worse result than the dollar would have gotten if it stayed in the private sector, then the economy is worse off. (That includes what the dollar would have bought, and any damage to incentives to work/save/innovate/invest/buy capital/take risks/etc that came from collecting that dollar from its previous owner.) Of course, if you want to reinvigorate the economy, you'd do better to do something about the bureaucracy first - you know, the bureaucracy that requested stool samples from the guy who wanted to run a (bottled-)olive-oil export website.
  - gph1 14y ago
    No doubt there is plenty of wasteful and inefficient government spending. But I don't think the opportunity trade off works like you suggest. It's not as if the government is removing otherwise productive dollars out of the economy to fund its deficits. Treasuries are generally purchased with excess reserves from the primary dealer banks that would otherwise just sit there. Or foreign governments, corporations, institutional buyers looking to stash their cash holdings where they will accrue risk free interest. We can quibble about multipliers, but deficits represent a net income flow into the private sector and hence have an expansionary effect on demand (even if, unfortunately, those dollars are flowing into the pockets of crony defense contractors and what not).
    - fennecfoxen 14y ago
      Deficit-financed credit to expand demand sounds great, just like using credit card debt to finance an expansion in my own personal spending power sounds great: there are some times it makes sense but by and large you're fooling yourself if you think it leaves you more financially sound. But... Treasuries? Another day, I'd contest your zero-opportunity-cost suppositions (cf. "crowding out") but more importantly, Greece's bonds don't have anywhere near the credibility of Treasuries, and they're having real problems issuing new ones. You can't finance expansion with deficits if no one will lend you money.
      - gph1 14y ago
        Agreed re: Greece. Greece's bonds don't have the credibility because they aren't denominated in a currency that Greece controls. There's no reasonable analogy between the US running a deficit and anyone's credit card. Again, like the commenter at the top of the thread, public and private finance are two different things. The US has infinite spending power. The constraint is not "affordability" but inflation. That's it. A "financially sound" budget for the US is one that maximizes employment with the minimal amount of inflation. It has nothing to do with deficits or surpluses. You need to look at the federal budget as part of a closed loop of spending and income flows with the private, public and foreign sectors. Just like every country can't run a trade surplus, the public private and foreign sectors can't all run a surplus or a deficit. It has to net out. If the private sector runs a surplus (spends less than it earns) of 4% GDP and we have a current account deficit of 4% GDP, the gov't deficit will be 8%. It's just accounting.
pessimizer 14y ago
The point of the "multiplier" discussion in the article is to explain to you that if Greece had cut more, it would have been in an even worse position. Democracy isn't the problem, it's power concentrated in the hands of people who think they can get by on pure ideology and an ignorance of macroeconomics.
barrkel 14y ago
The size of the cuts in Greece could not avoid damaging the economy. No serious person debates this; the only debate that ever was, to the degree there was one, was over how much damage the cuts would do, and how quickly Greece could bounce back. This article is arguing that the damage was worse than anticipated, a lot worse. Many public sector jobs have no private analogue (so people fired from the bureaucracy would be relatively unskilled in the private sector, i.e. likely to become unemployed), and cuts to welfare programs reduce the income of the very people who are most likely to spend all their income, i.e. poor people, with knock-on effects in the rest of the economy. Are you seriously suggesting that this effect could not only have been avoided, but the cuts could have been even deeper?
- fennecfoxen 14y ago
  The best part of political discussions is when people say "no serious person disagrees with me". I would qualify and expound upon my statement in defense, but hey, why bother. Clearly only people who already agree with you are serious.
  - barrkel 14y ago
    I explained the (simple) rationale in the second paragraph. I notice you didn't do the same. That tells me what I need to know.

gph1 14y ago

You must have an interesting definition of "improve".

fennecfoxen 14y ago
Basic economists' definition: opportunity cost. If the government spends a dollar and gets a worse result than the dollar would have gotten if it stayed in the private sector, then the economy is worse off. (That includes what the dollar would have bought, and any damage to incentives to work/save/innovate/invest/buy capital/take risks/etc that came from collecting that dollar from its previous owner.) Of course, if you want to reinvigorate the economy, you'd do better to do something about the bureaucracy first - you know, the bureaucracy that requested stool samples from the guy who wanted to run a (bottled-)olive-oil export website.
- gph1 14y ago
  No doubt there is plenty of wasteful and inefficient government spending. But I don't think the opportunity trade off works like you suggest. It's not as if the government is removing otherwise productive dollars out of the economy to fund its deficits. Treasuries are generally purchased with excess reserves from the primary dealer banks that would otherwise just sit there. Or foreign governments, corporations, institutional buyers looking to stash their cash holdings where they will accrue risk free interest. We can quibble about multipliers, but deficits represent a net income flow into the private sector and hence have an expansionary effect on demand (even if, unfortunately, those dollars are flowing into the pockets of crony defense contractors and what not).
  - fennecfoxen 14y ago
    Deficit-financed credit to expand demand sounds great, just like using credit card debt to finance an expansion in my own personal spending power sounds great: there are some times it makes sense but by and large you're fooling yourself if you think it leaves you more financially sound. But... Treasuries? Another day, I'd contest your zero-opportunity-cost suppositions (cf. "crowding out") but more importantly, Greece's bonds don't have anywhere near the credibility of Treasuries, and they're having real problems issuing new ones. You can't finance expansion with deficits if no one will lend you money.
    - gph1 14y ago
      Agreed re: Greece. Greece's bonds don't have the credibility because they aren't denominated in a currency that Greece controls. There's no reasonable analogy between the US running a deficit and anyone's credit card. Again, like the commenter at the top of the thread, public and private finance are two different things. The US has infinite spending power. The constraint is not "affordability" but inflation. That's it. A "financially sound" budget for the US is one that maximizes employment with the minimal amount of inflation. It has nothing to do with deficits or surpluses. You need to look at the federal budget as part of a closed loop of spending and income flows with the private, public and foreign sectors. Just like every country can't run a trade surplus, the public private and foreign sectors can't all run a surplus or a deficit. It has to net out. If the private sector runs a surplus (spends less than it earns) of 4% GDP and we have a current account deficit of 4% GDP, the gov't deficit will be 8%. It's just accounting.

pessimizer 14y ago

The point of the "multiplier" discussion in the article is to explain to you that if Greece had cut more, it would have been in an even worse position. Democracy isn't the problem, it's power concentrated in the hands of people who think they can get by on pure ideology and an ignorance of macroeconomics.

barrkel 14y ago

The size of the cuts in Greece could not avoid damaging the economy. No serious person debates this; the only debate that ever was, to the degree there was one, was over how much damage the cuts would do, and how quickly Greece could bounce back. This article is arguing that the damage was worse than anticipated, a lot worse. Many public sector jobs have no private analogue (so people fired from the bureaucracy would be relatively unskilled in the private sector, i.e. likely to become unemployed), and cuts to welfare programs reduce the income of the very people who are most likely to spend all their income, i.e. poor people, with knock-on effects in the rest of the economy. Are you seriously suggesting that this effect could not only have been avoided, but the cuts could have been even deeper?

fennecfoxen 14y ago
The best part of political discussions is when people say "no serious person disagrees with me". I would qualify and expound upon my statement in defense, but hey, why bother. Clearly only people who already agree with you are serious.
- barrkel 14y ago
  I explained the (simple) rationale in the second paragraph. I notice you didn't do the same. That tells me what I need to know.