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Great answer to a complex question. Follow up question: if using the euro has tied the monetary hands of Greek policy makers (they cannot create currency), ca

Great answer to a complex question. Follow up question: if using the euro has tied the monetary hands of Greek policy makers (they cannot create currency), can they accomplish the same goals of currency devaluation using fiscal policy (taxes/spending)? (i.e. instead of everyone losing wealth through currency devaluation, everyone loses it through increased taxation). And I guess the obvious follow up to that is, is that basically what these austerity measures amount to?

Lazare 12y ago
Sort of. But consider: If you wake up tomorrow and the drachma is worth half what it was, then everyone is half as rich. CEO or janitor; you're paid half what you were, you have half as much savings, and you have half as much debt. If you try and balance things with higher taxes and spending cuts, then the pain will be very unevenly distributed. You can't cut spending very much without hurting the poor; you can't raise taxes very much without sending the rich overseas, which means you have to raise taxes on the middle class instead. What do you call a society that cuts the safety net of the poor while taxing the middle class? I can think of a lot of negative phrases. But here's one: "likely to elect a bunch of fascists like the Golden Dawn on a platform of doing whatever it takes to stop the pain". Even if you think it's fair, it's not a realistic proposal. (Politics is about the art of the possible. Greece is in a situation where internal devaluation may no longer be possible.)
- ginko 12y ago
  >Sort of. But consider: If you wake up tomorrow and the drachma is worth half what it was, then everyone is half as rich. CEO or janitor; you're paid half what you were, you have half as much savings, and you have half as much debt. If the CEO wakes up to find the drachma is worth half what it is, he's likely to be only slightly affected. That's because he's unlikely to have large parts of his savings in cash.
  - Lazare 12y ago
    If the cash is in drachmas, those savings are also worth half of what they were. (That being said, no, it's unlikely that the archetypal CEO will be hurt as badly as the archetypal janitor. On the other hand, the obvious alternatives are no better, and internal devaluation is clearly worse. One of the reasons being poor sucks so much is that it's so hard not to be hurt by every fluctuation, regardless of direction.)

Lazare 12y ago

Sort of. But consider: If you wake up tomorrow and the drachma is worth half what it was, then everyone is half as rich. CEO or janitor; you're paid half what you were, you have half as much savings, and you have half as much debt. If you try and balance things with higher taxes and spending cuts, then the pain will be very unevenly distributed. You can't cut spending very much without hurting the poor; you can't raise taxes very much without sending the rich overseas, which means you have to raise taxes on the middle class instead. What do you call a society that cuts the safety net of the poor while taxing the middle class? I can think of a lot of negative phrases. But here's one: "likely to elect a bunch of fascists like the Golden Dawn on a platform of doing whatever it takes to stop the pain". Even if you think it's fair, it's not a realistic proposal. (Politics is about the art of the possible. Greece is in a situation where internal devaluation may no longer be possible.)

ginko 12y ago
>Sort of. But consider: If you wake up tomorrow and the drachma is worth half what it was, then everyone is half as rich. CEO or janitor; you're paid half what you were, you have half as much savings, and you have half as much debt. If the CEO wakes up to find the drachma is worth half what it is, he's likely to be only slightly affected. That's because he's unlikely to have large parts of his savings in cash.
- Lazare 12y ago
  If the cash is in drachmas, those savings are also worth half of what they were. (That being said, no, it's unlikely that the archetypal CEO will be hurt as badly as the archetypal janitor. On the other hand, the obvious alternatives are no better, and internal devaluation is clearly worse. One of the reasons being poor sucks so much is that it's so hard not to be hurt by every fluctuation, regardless of direction.)