3 ms·

Yes, basically. Pension payments and debt repayments are both part of the general "national deficit." Printing money directly plugs the hole. Printing money ca

by netcan 11y ago

Yes, basically. Pension payments and debt repayments are both part of the general "national deficit." Printing money directly plugs the hole. Printing money causes inflation, so it also also makes the hole smaller. A Keynsian might say that salaries (and other prices) are "sticky" and can't be adjusted down like the price of petrol. Prices need to go down in a business cycle low point (which often happens simultaneously to debt repayment problems). So the inflation is a good thing in addition to the more commonly quoted Keynsian suggestion that government spending shouldn't be cut (austerity). A classical liberal perspective would just see this whole manoeuvre as default or a tax equivalents. Paying back debts with debased currency is a default and printing drachmas is a tax on whoever holds drachmas. Both agree that if you do this too much the currency becomes unreliable and contracts start to be denominated in a foreign currency or inflation adjusted. This makes the inflation problem worse because nominal prices and debt repayments go up when inflation happen. You need to print more to get the same effect, causing more inflation... With regard to pension payments, I am a little more cynical. I think the Greek Government was happier to write the contract than make good on it. The pensions were promised many governments ago, and the political gains have already been had. Paying them was left to future generations. Taken together, all these promises add up to more money than they have. The current debts are a manifestation of this "pass it forward" politics. To be both ideological and realistic, they could have set aside money as the liability accrued rather than promising that future generations would pay it without worrying about how. I don't like these "Emperors Clothes" slogans. They are too easy for politicians to sound like they are making a point without (necessarily) having any content. We should hold leaders to a higher standard, not accept rhetoric that skips over important questions with slogans. An ideological position is good, but it also needs a plan for how to make it happen. Also, I think if the Greek government could print money, devalue the pensions and get out of this mess they would. They did it when they could. For a different (and very valid) perspective, see the vide linked by wsc981. For a very simplified synopsis: Germany loaned Greece money so they could buy german goods. Greece consumed the goods. Germany accumulated the wealth as debts owed to them by Greece. EU policies were encouraging this dynamic. My personal feeling is that this is not a victim/culprit situation. Greece's political imperative was consumption , they wanted loans for this. Germany's was exports (and subsequent economic benefits like jobs, accumulating bank wealth..) worth watching.

TheOtherHobbes 11y ago
>To be both ideological and realistic, they could have set aside money as the liability accrued rather than promising that future generations would pay it without worrying about how. Governments everywhere tend not to do this, so it becomes impossible to sort out a rational picture of the economy when economics is inevitably highly politicised. >Also, I think if the Greek government could print money, devalue the pensions and get out of this mess they would. This will happen if Greece leaves the Euro. I don't doubt plans are in place. But the underlying problem is that Germany and the IMF are simply loan sharking. And you can't loan shark in the Eurozone, because if you call in a debt too aggressively the whole project falls apart, with potential to seriously damage the Euro area economy, and possibly unwind the entire world economy too. The only justifications for austerity are political - specifically to put the Greek government and the people who voted for it in their place, and to show them how little political power they have. Austerity is not an economic solution. There is no possible way imposing austerity can make debt repayment more likely. Even the IMF has accepted this. Austerity is simply a punishment for taking a loan from someone who's now trying to do the state-player equivalent of breaking a debtor's limbs because they're trying to pay late. "Reform" is econo-Kremlin code for "We don't like it when public money is spent for the benefit of the public." So this is purely about face now, not facts or futures. The real question from a game theory point of view is how much damage a Grexit would do. Some people in the game realise that it has the potential to spread and become a major market meltdown. Tsipras and Varoufakis are certainly aware of this, and are playing accordingly. It's not obvious how well the other negotiators understand this.
- netcan 11y ago
  Governments everywhere tend not to do this I agree, but tendency is not inevitability. Some countries (eg Australia and to an extent the US) have decent systems where instead of promise-pensions you have an actual bank account, with some amount of personal control. This specific is solvable, though moving from one system to another is very hard.
- netcan 11y ago
  On austerity.. I think you are overstating the point about justifications for austerity. The Greek government's finances were such that they consistently spent more than they took in, that is ho the debt accrued. Austerity/reform got it to the point where it spends what it takes in, without enough left to pay back loans. I doubt that it would have been politically realistic for Greek to do this without EU forcing them (and taking the blame). This is a terrible thing even if it had ended here. Improving efficiency in this environment is nearly impossible, unless "inefficiency" means big chunks of fraud and theft. So, reform means reducing services, and creating unemployment. Say you have 10 firemen. You can fire 5, halving the firefighting you can do. 5 become unemployed, but unemployment costs are less than fireman salaries so you save the difference. There is a political catch 22. These reforms are not too bad if done during economic good times, but they are politically impossible without some sort of unbearable pressure like insolvency (IE, can't pay salaries this month).

by netcan 11y ago

TheOtherHobbes 11y ago

>To be both ideological and realistic, they could have set aside money as the liability accrued rather than promising that future generations would pay it without worrying about how. Governments everywhere tend not to do this, so it becomes impossible to sort out a rational picture of the economy when economics is inevitably highly politicised. >Also, I think if the Greek government could print money, devalue the pensions and get out of this mess they would. This will happen if Greece leaves the Euro. I don't doubt plans are in place. But the underlying problem is that Germany and the IMF are simply loan sharking. And you can't loan shark in the Eurozone, because if you call in a debt too aggressively the whole project falls apart, with potential to seriously damage the Euro area economy, and possibly unwind the entire world economy too. The only justifications for austerity are political - specifically to put the Greek government and the people who voted for it in their place, and to show them how little political power they have. Austerity is not an economic solution. There is no possible way imposing austerity can make debt repayment more likely. Even the IMF has accepted this. Austerity is simply a punishment for taking a loan from someone who's now trying to do the state-player equivalent of breaking a debtor's limbs because they're trying to pay late. "Reform" is econo-Kremlin code for "We don't like it when public money is spent for the benefit of the public." So this is purely about face now, not facts or futures. The real question from a game theory point of view is how much damage a Grexit would do. Some people in the game realise that it has the potential to spread and become a major market meltdown. Tsipras and Varoufakis are certainly aware of this, and are playing accordingly. It's not obvious how well the other negotiators understand this.

netcan 11y ago
Governments everywhere tend not to do this I agree, but tendency is not inevitability. Some countries (eg Australia and to an extent the US) have decent systems where instead of promise-pensions you have an actual bank account, with some amount of personal control. This specific is solvable, though moving from one system to another is very hard.
netcan 11y ago
On austerity.. I think you are overstating the point about justifications for austerity. The Greek government's finances were such that they consistently spent more than they took in, that is ho the debt accrued. Austerity/reform got it to the point where it spends what it takes in, without enough left to pay back loans. I doubt that it would have been politically realistic for Greek to do this without EU forcing them (and taking the blame). This is a terrible thing even if it had ended here. Improving efficiency in this environment is nearly impossible, unless "inefficiency" means big chunks of fraud and theft. So, reform means reducing services, and creating unemployment. Say you have 10 firemen. You can fire 5, halving the firefighting you can do. 5 become unemployed, but unemployment costs are less than fireman salaries so you save the difference. There is a political catch 22. These reforms are not too bad if done during economic good times, but they are politically impossible without some sort of unbearable pressure like insolvency (IE, can't pay salaries this month).