22 ms·

Thomas Piketty: “Germany has never repaid.”

427 points by Thevet 11y ago

tsunamifury 11y ago
24 In the process, one of his debtors was brought in who owed him millions of dollars.[c] 25 He couldn’t pay, so his master ordered that he be sold—along with his wife, his children, and everything he owned—to pay the debt. 26 “But the man fell down before his master and begged him, ‘Please, be patient with me, and I will pay it all.’ 27 Then his master was filled with pity for him, and he released him and forgave his debt. 28 “But when the man left the king, he went to a fellow servant who owed him a few thousand dollars.[d] He grabbed him by the throat and demanded instant payment. “His fellow servant fell down before him and begged for a little more time. ‘Be patient with me, and I will pay it,’ he pleaded. But his creditor wouldn’t wait. He had the man arrested and put in prison until the debt could be paid in full.
chernevik 11y ago
This is just stupid. The German regime that racked up the WWII debts was destroyed and its leaders suicided or executed. The entire country was split in half by the war. The regime in power when those debts were rescheduled was a completely different entity. And Greece enjoyed similar, if not proportionately greater, economic support at exactly the same time. The Marshall Plan started in Greece, after all. And there are enormous differences in the uses of the new debt capacity. Germany used the capacity to rebuild its economic capacity. Greece would use its new capacity to fund further welfare transfers and tax dodgers. Germany did not use the new capacity to repeat the same mistakes that created the old debt (and the vastly more important war). Greece would continue the exact same policies, and arrive at the same point of demanding debt concessions.
- deciplex 11y ago
  > The German regime that racked up the WWII debts was destroyed and its leaders suicided or executed. Yes, but most of the people who enabled that regime to do its work, were still around. It's not as though the entire population of Germany was swapped out for a different one, after the war. The average German was not a murdering genocidal maniac, but he did fall under the sway of idiotic fascism, and while it would have served no one's interest to force him to pay the price, there is nothing wrong with pointing out that he did not, in fact, pay the price. > Greece would use its new capacity to fund further welfare transfers and tax dodgers. Let's talk about those tax dodgers, then. You make it sound as though the Greek government has some sort of policy in place where they encourage people not to pay their taxes. Rather, the Eurozone is set up in such a way that it is very easy for the rich to avoid paying taxes by putting all their asset in tax havens e.g. Luxembourg and with very little oversight. And the wealthier nations in the EU tend to support this status quo, not the poorer ones.
  - chernevik 11y ago
    Greece actually does have such de facto policy, through its miserable and corrupt tax collection mechanisms. Those other countries seem able to collect tax to fund their governments.
    - deciplex 11y ago
      Are you denying the existence of tax havens in the EU?
  - shin_lao 11y ago
    There is a difference between having tax loopholes and being a state that doesn't collect taxes properly and where tax avoidance and black work is everywhere. Greece is the latter. Having been in Greece several times, it is very unsettling to being issued fake bills all the time for everything. A famous example is the swimming pool tax avoidance: http://www.zerohedge.com/article/greek-tax-avoidance-101-cover-your-swimming-pool-tarp-fool-satellite http://www.zerohedge.com/article/greek-tax-avoidance-101-cov... Some more information: http://uk.businessinsider.com/this-is-the-real-reason-greece-has-a-massive-tax-evasion-problem-2015-2?r=US http://uk.businessinsider.com/this-is-the-real-reason-greece...
    - ubernostrum 11y ago
      Without knowing anything about the details of it, I am immediately suspicious of the truth of the swimming-pool allegation simply because of how universally it is mentioned in discussions of Greece's economic situation. Anything which gets used that ubiquitously, in my experience, ends up debunked on Snopes or Politifact sooner or later.
csense 11y ago
According to this guy's argument, we have: - People and businesses who save money instead of spending it, get their wealth confiscated by the state indirectly through inflation or directly through the "special tax on private wealth" - People, businesses, and other countries who help the state out by loaning it money have those loans retroactively converted into outright gifts by debt relief measures. So the solution to fiscal irresponsibility is to turn the fiscally responsible into...I believe the technical term would be "suckers," or maybe "bag holders."
- parasubvert 11y ago
  Economics isn't a morality play. Throughout history there has been debt relief and debtor jail... It depends on circumstance and power.
eudox 11y ago
Now that this thread's on the first spot of the front page, can we admit HN isn't a libertarian echo chamber?
- Maken 11y ago
  Was it supposed to be?
  - eudox 11y ago
    You hear the claim annoyingly often.
    - minot 11y ago
      I am still new here but as far as I understand upvoting is not the same as agreeing.
      - shiggerino 11y ago
        On HN it is. Let's face it, that's the way it works on Reddit too, the difference is that HN aren't sanctimonious pricks about it.
cm2187 11y ago
If you believe Piketty, debt is never meant to be repaid and no one should therefore ever invest in sovereign debt. That would solve the debt debate. No creditor = no need to worry about whether we want to pile more debt. And he has a point. I personally don't believe that any of the US, Japanese and European sovereign debt will ever be repaid. The whole thing is a ponzi scheme. Investors hope that their investment will mature before the music stops. That's worth AAA...
- fiatjaf 11y ago
  It is not a Ponzi scheme if it is not always and necessarily growing.
  - cm2187 11y ago
    Most western countries can't even afford paying the interest of their debt. So as it is, it is kinda necessarily growing. But the ponzi scheme aspect is rather the fact that countries can only pay back debt with new borrowing. If investors stop rolling their debt, even the US would collapse within a few months.
    - NhanH 11y ago
      I thought the whole premise of modern economics relies on the assumption that the economy has to grow. Time value of money implies that the money has to create value -- in more specific term, if bank lend out $100 and want $102 back, without the economy growing the money supply can't have the extra $2 (printing more money without the economy growing cause inflation, then the bank will want more than $2 interest and it's the same, so we can ignore that).
    - haberman 11y ago
      > Most western countries can't even afford paying the interest of their debt. If that were true, the countries would be in default. And yet they are not.
      - 11y ago
deleted 11y ago
[deleted]
- Maken 11y ago
  Because how the Greek's debt conflict is solved will have a severe impact in global economy. And HN community tens to care about economy.
  - tsotha 11y ago
    >Because how the Greek's debt conflict is solved will have a severe impact in global economy. I'm not sure that's true. Greece is a tiny country with a tiny economy. In and of itself it doesn't matter that much. What matters is whether the bond markets think Portugal, Italy, and Spain can avoid similar problems. Personally I think that's why the Germans are playing hardball. They can't afford to bail out Italy, so they're signalling that's not going to happen.
mrottenkolber 11y ago
The interviewer completely oversteps his boundaries here. In case anybody wonders: "Die Zeit" is Germany's tabloid version of a politics paper (similar in lack of quality to "Der Spiegel"). This interview illustrates whats wrong with these tabloids very clearly: Bias, ignorance and uneducated employees. Piketty brings up some good points but the interview is painful to read, like dragging a wet mattress up a stairwell.
- smil 11y ago
  So Die Zeit is on the same level as the New York Times, you mean.
- eseehausen 11y ago
  It seemed to me that the interviewer was setting up the popular German objections so that Piketty could knock them down rather than actually believing those pretty naive arguments. Or is that the issue you have with it in the first place?
  - mrottenkolber 11y ago
    Good point. Still, I would prefer a coherent dialogue instead. I feel like debunking uninformed objections gives those objections more recognition then they deserve. I wish for smarter or at least less stale questions.
- pvg 11y ago
  Die Zeit is not a tabloid, either literally or figuratively. Maybe you don't like Die Zeit which is fair enough but calling it a tabloid is very misleading.
- subpixel 11y ago
  DER SPIEGEL lacks quality? Would you care to back that up? It's one of the most respected publications in Europe, with excellent investigative reporting.
  - schwarze_pest 11y ago
Mikeb85 11y ago
This can't be upvoted enough. It's also ironic that Greece was one of the creditors that forgave a large amount of German debt.
- tomp 11y ago
  Not only that, but Greece was the country that suffered the second most after WWII (in terms of GDP loss, not human life loss), at least according to this article (point 5) http://www.washingtonpost.com/blogs/wonkblog/wp/2015/07/05/7-key-things-to-know-about-greeces-debt-crisis/ http://www.washingtonpost.com/blogs/wonkblog/wp/2015/07/05/7...
obblekk 11y ago
There's one way in which Picketty is right: it's impossible to force a country to repay their debt. After WW1 France tried first through international (England) enforcement bodies, and then ultimately by occupation of the Ruhr valley (Germany's most productive region then). Both approaches failed. Eventually the Weimar inflated their currency until the French debt was worth nothing, workers in the Ruhr valley striked, and extremist political parties promising a return of German dignity flourished. Once the Greeks decide to refuse to pay, there isn't a good way to force them, short of enslavement.
- jqm 11y ago
  "short of enslavement" And that might not work either. My understanding is that some slaves eat more than they produce.
- PuercoPop 11y ago
  There are ways. See the case of Argentina.
  - kchoudhu 11y ago
    To the best of my knowledge, they haven't repaid. Their access to capital markets is very inconvenient right now -- but they haven't repaid.
- caskance 11y ago
  If you are willing to accept payment in land, it's quite easy.
  - cwp 11y ago
    You also have to be willing to kill all the people currently living on it.
    - Dylan16807 11y ago
      Wha?
adventured 11y ago
"The second method is much faster. ... Essentially, it consists of three components: inflation, a special tax on private wealth, and debt relief." So Piketty is advocating a special tax on the poor. The group of people that can least deal with inflation, with no ability to shift assets or income to avoid it, nor deal with the increased cost of goods in relation to their debased incomes.
- eseehausen 11y ago
  The poor don't get taxed if the special tax is progressive (or non-existent at lower levels of income/wealth). Of course, the argument that such a tax being effective is impossible these days due to contemporary mobility of wealth may well be true. That still doesn't amount to a special tax on the poor, and I'm sure you realize Piketty wouldn't advocate for that, whether or not you agree with his positions.
- vruiz 11y ago
  How do you go from "tax on private wealth" to "tax on the poor"?
  - minot 11y ago
    Inflation is tax on the poor.
    - Mikeb85 11y ago
      Except it's not.
      - pooper 11y ago
        I'm sure you can do better than that as a student of economics...
        Mikeb85 11y ago
        Of course I can. But I don't need to. If someone says the sky is green with no justification or explanation, do I need to write a paragraph about why it's not green?
nostromo 11y ago
It's incredibly disingenuous to compare defaults on war reparations, like the Treaty of Versailles, with loans willfully entered into by democratic governance.
EGreg 11y ago
http://www.nationofchange.org/2015/07/05/greece-what-you-are-not-being-told-by-the-media/ http://www.nationofchange.org/2015/07/05/greece-what-you-are...
sgnelson 11y ago
This makes me lose respect for Piketty. There's a very clear difference between a country that comes out of two world wars, with everything all but destroyed, including millions dead. I'm sorry, no matter how bad 2008 was, it was no World War. His inability to grasp this just boggles the mind. There's a very big difference between war caused debt and economic caused debt (note that I'm basically making these two "debts" up, and things are more nuanced obviously, but I'm going to ignore the nuances for now, these are very broad strokes.) When you come out of war, you're either the loser or the victor (one way or another, there are very few true "ties" in war.) And while capital may be destroyed in both cases, an economic crises doesn't necessarily leave your physical infrastructure and entire social system completely unrecognizable. Further, Piketty seemingly completely ignores the Marshall Plan and all that it included in rebuilding Europe. And yes the Marshall plan was a form of debt forgiveness, but as a huge portion of the European continent was a smoking crater, things were different in 1945 than Greece in 2015. Further, some historians/economists will argue that the "German miracle" (and "Japanese miracle" as well) were in part because of the destruction cased by the wars. With all the manufacturing capabilities destroyed, they were able to rebuild with the latest and greatest technology of the time. (and if you take this further, as the US was able to rest on it's un-destroyed capital equipment and make huge profits during the rest of the 1940's, 50's and early 60's, and never re-invested as Germany and Japan were forced too, this eventually lead to the downfall of the US Industrial might, in part.) Personally, I think this has more to do with his French nationalism than anything else, at least as it appears to me in the interview.
- prawn 11y ago
  Personally, I thought his argument was very reasonable, and I also appreciated that the interviewer pressed him where appropriate to draw out some quality discussion.
- leoc 11y ago
  (I am not an expert on anything.) It's probably a bit unfortunate that this Piketty interview is getting prominence, because the whole question of analogies or disanalogies to Germany's war-related sovereign debt problems is mostly beside the point. The most urgent disanalogy in Greece's case is to what happens to just about every other country from A to Z that goes broke and needs to enter an IMF program. The SOP is for their pre-existing sovereign debt to be haircut as far as is necessary (if it is necessary) to make their debt burden clearly sustainable from then on, as a central part of the program designed and supervised by the IMF. This is what the IMF was designed to do from Day 1 and no-one, including Germany or any Eurozone core countries, is running around shouting that the IMF system is morally depraved, or a source of unacceptable moral hazard or a surrender to blackmail etc. etc. because it frequently results in program countries defaulting on a large chunk of their sovereign debts. And compared to the rogue's gallery of mostly developing countries that enter IMF programs Greece is probably not exceptionally profligate, corrupt, structurally rigid, unreformable and so on. Instead Greece was moved onto the special, ad hoc Troika scheme, in which a country with a greatly unsustainable debt burden was given more loans but originally no debt relief at all, and great efforts were made to make the country run primary surpluses so that the creditors would not only get all their money back but make a profit. Greatly inadequate debt relief was only added later on when the original plan had collapsed. I'll let the former head of the Bundesbank explain why: http://www.spiegel.de/international/germany/former-central-bank-head-karl-otto-poehl-bailout-plan-is-all-about-rescuing-banks-and-rich-greeks-a-695245.html http://www.spiegel.de/international/germany/former-central-b... Politically this was a wonder solution for the EU core leadership: bail out their banks by stealth, avoiding the anger of their taxpayers by camouflaging it as a rescue mission for the wayward Greeks. Even better, the whole cost of the EU-wide bank bailout could be sweated out of the Greek taxpayer! Well, not really of course: probably no-one ever expected the official creditors to actually get their money back, but hopefully the defaults would be acceptably far in the future for the politicians, who live hand-to-mouth and election to election. Now that the whole thing has exploded, perhaps sooner and harder than they expected, those EU core politicians are trapped by their earlier lies. There is one further wrinkle: not only was the Troika fix-up job vastly harsher on Greece as a creditor than a normal IMF program, it was specifically forbidden by the treaty of Lisbon (the solemn document I was asked to vote on twice, as an Irish citizen) articles 123 http://euwiki.org/TFEU#Article_123 http://euwiki.org/TFEU#Article_123 and 125 http://euwiki.org/TFEU#Article_125 http://euwiki.org/TFEU#Article_125 while at the same time the treaty had been crafted to allow Euro member countries continued access to normal IMF programs while remaining inside the Euro. Or at least, everyone thought that it was specifically forbidden, until this prohibition was no longer convenient, and the wizards at the ECJ (the same visionaries who recently discovered the "right to be forgotten") helpfully made it go away. But if we do want to talk about the German example, we don't have to go back to the Marshall Plan either. The US Fed's cross-border largesse in 2008 would be a good place to start.
mhd 11y ago
Debt cuts are one thing, but I see no reason to believe that there's a wide enough acceptance for a EU-wide fiscal policy to go along with the unified monetary policy. I might see France and Germany going along with that (mostly because it'll basically be their policy), but the UK won't have none of it -- and I don't think the PIIGS states would accept it either. On the other hand, if things keep going wrong, people might just be forced to accept this as a fact, I just hope it won't be too late by then.
felipeerias 11y ago
That argument gets thrown around a lot, but it is quite a terrible one. After WW2, the only Germany which acknowledged war and pre-war debts was the FDR. This was a state in ruins under foreign military occupation, with about half the territory and population of the former German state that had incurred those debts. If post-war Germany is your standard for debt relief, then Greece is still very, very far away from qualifying.
- ubernostrum 11y ago
  This was a state in ruins under foreign military occupation, with about half the territory and population of the former German state that had incurred those debts. OK. So, the Greek government officials who ran up Greece's debt are responsible for that debt. The current government isn't, and in fact the current Greece is in economic ruin courtesy of years of "austerity" imposed forcefully by foreign powers.
minot 11y ago
The countries that were the Allied powers are in no position to call out Germany for not repaying its debts after the second world war because they originated from the way the Allied powers handled the money situation during and after the Great War. Look at this quote: > We cannot demand that new generations must pay for decades for the mistakes of their parents. The Greeks have, without a doubt, made big mistakes. Until 2009, the government in Athens forged its books. But despite this, the younger generation of Greeks carries no more responsibility for the mistakes of its elders than the younger generation of Germans did in the 1950s and 1960s. We need to look ahead. Europe was founded on debt forgiveness and investment in the future. Not on the idea of endless penance. We need to remember this. In my opinion, this economist just wants to be the next Finance Minister for Greece. If the "older generation" (and I don't know how we can call what happened until six years ago a different generation but we'll let that slide) forged books, then cut them off. Cut their pensions. Cut their retirements. Make them come back to work. You can't blame the "older generation" and still let them retire at 50. It is incredibly insensitive to blame the German victims of the Versailles Treaty. Do people blame Germany for France's greed? I mean it is pretty evident that the growth of Nazis in Germany came directly from what the Allies levied on Germany. Moreover, to say that the situation in 2008-09 was equivalent to the horrors that people faced before and during the second world is nothing short of rewriting history. I don't think the people who lived through the great depression would take very kindly of statements like: > To deny the historical parallels to the postwar period would be wrong. Let’s think about the financial crisis of 2008/2009. This wasn’t just any crisis. It was the biggest financial crisis since 1929. So the comparison is quite valid. This is equally true for the Greek economy: between 2009 and 2015, its GDP has fallen by 25%. This is comparable to the recessions in Germany and France between 1929 and 1935. With all that being said, I must agree with him in one key point: > A restructuring of all debt, not just in Greece but in several European countries, is inevitable. Eurozone must stick together. However, the Greeks must realize a compromise consists of a give and take. They must seek answers from those who were in power in Athens before 2009. In hindsight, even organizing the 2004 Olympics was a horrible idea. But then hindsight is 20/20.
- jqm 11y ago
  "> We cannot demand that new generations must pay for decades for the mistakes of their parents. The Greeks have, without a doubt, made big mistakes. Until 2009, the government in Athens forged its books. But despite this, the younger generation of Greeks carries no more responsibility for the mistakes of its elders than the younger generation of Germans did in the 1950s and 1960s." Agree with your point. While the quote does have some merit, Germany had bottom up drastic structural change forced upon it before the "youth" were excused.
vacri 11y ago
This guy is a reknowned economist? He's conflating "war reparations" with "external debt", and also seems to have missed the big fanfare recently when Germany paid the last of it's WWI reparations - instead he claims they never paid any WWI or WWII reparations. Similarly, 'England took 100 years to repay' he claims as the way forward, yet ignores that Germany took 92 to pay their WWI debt[1]. Not hard, I guess, since he thinks that there was no repayment at all. He also talks of Germany's post WWII debt completely independently of the Marshall Plan and the Allies pouring money in to counter the Soviets. This is clearly just an axe being ground. [1]http://www.dailymail.co.uk/news/article-1315869/Germany-end-World-War-One-reparations-92-years-59m-final-payment.html http://www.dailymail.co.uk/news/article-1315869/Germany-end-...
- Aloha 11y ago
  Germany was given a significant discount on its external debts in 1960, and very generous repayment terms. "The total under negotiation was 16 billion marks of debt resulting from the Treaty of Versailles after World War I which had not been paid in the 1930s, but which Germany decided to repay to restore its reputation. This money was owed to government and private banks in the U.S., France and Britain. Another 16 billion marks represented postwar loans by the U.S. Under the London Debts Agreement of 1953, the repayable amount was reduced by 50% to about 15 billion marks and stretched out over 30 years, and compared to the fast-growing German economy were of minor impact. An important term of the agreement was that repayments were only due while West Germany ran a trade surplus, and that repayments were limited to 3% of export earnings. This gave Germany’s creditors a powerful incentive to import German goods, assisting reconstruction." [1] [1]https://en.wikipedia.org/wiki/London_Agreement_on_German_External_Debts https://en.wikipedia.org/wiki/London_Agreement_on_German_Ext...
  - vacri 11y ago
    "Making 50% of the reparations" is considerably more than "never paid their debts", and while on favourable terms, we're also talking about half of Germany doing this - the country was torn in two, and was at the pointy end of the Cold War. Forgiveness of some of the debt has also been part of the Greek proposals. It's not like debt forgiveness is unique to the German situation. Pretty much any time some entity is in risk of default, there'll be some degree of debt forgiveness; cue news stories of "creditors getting 30/50/70 cents on the dollar". Keep in mind also that Germany underwent massive social changes as part of their recovery process - it certainly wasn't 'business-as-usual'. That Germany managed to do so well speaks to the industriousness of German culture, not that they were 'let off lightly'. If Greece gets handed money without significant reforms, what will be some fundamental social, political, or cultural differences between 2010 Greece and 2020 Greece?
sunstone 11y ago
This has the ring of truth.
netcan 11y ago
It actually reads to me that he is saying something quite similar to what I have been thinking recently: countries go bankrupt, we need a bankruptcy court/procedure for governments. The US needs it for its bankrupt local governments. The EU needs it for member states. The rationale behind bankruptcy is this: if a borrower cannot repay their debts in full, the lender cannot receive them in full. This isn't negotiable. It's an artefact of reality. Given that the lender will not receive their payment in full, it makes sense we may as well have a process that acknowledges this fact and moves things forward. There is no point to debtors prisons. Debt means risk and if bankruptcy happens, that risk plays out. The current Greek situation is exactly that. The troika cannot receive its repayments in full. Greece simply cannot repay them. It's not marginal. It's not possible if only Greece would... It's not going to happen. They owe too much and their economy is in collapse. It is game over for these loans.
- Spooky23 11y ago
  Sovereigns don't need bankruptcy protection, they just stop paying. Somebody will always lend money to states, even poorly managed states. At the end of the day, three people with the most to lose are the richer countries of the world, because they are also in debt, and a sovereign default will screw up all of the debt models. In the U.S., there is municipal bankruptcy. U.S. States cannot go bankrupt, which will be interesting when states run as poorly as Greece (ie Illinois) get hit by a tidal wave of retirement obligations.
- cm2187 11y ago
  For a court to mean anything, you need an authority to enforce its decision. You would need some form of international army. Who would control it? Who will enforce a decision against Russia or China (or the US!).
- netcan 11y ago
  EDIT: (I should have read to the end): I disagree with Pickety on his "maximum allowable budget" committee. It's an unnecessary violation of sovereignty, and I think that sovereignty is important. If bankruptcy norms existed, they could create a market discipline. As government approached the intervention threshold, their bonds would decrease a little in value. Also in my governments-can-declare-bankrupcy world, this can happen a lot sooner and the defaults can be much smaller.
interesting_att 11y ago
Everyone here seems to be criticizing Piketty for weird reasons. He is not saying post-war Germany's debt is the exact same thing as the current Greek crisis. Pointing out parallels isn't same thing as saying two situations are equivalent. His point is that this isn't a "moral" decision between two peoples. It's an economic decision between nations.
- csallen 11y ago
  Thank you. When a specific comparison is made between two things, people are too quick to emotionally point out the obvious and irrelevant fact that some differences exist, too.
  - shrikant 11y ago
    ..especially when he's specifically expanded on that point in the same article. In a situation that certainly warrants more nuance than can be conveyed in a Tweet-sized headline, the supposedly "enlightened" HN crowd should really RTFA.
HSO 11y ago
At the risk of being a moralizing bore, may I remind everybody that "Germany", "Greece" etc. are not people, and that people are not countries? I am surprised by the national coloring, however faint, of some comments here and there https://news.ycombinator.com/item?id=9834721 https://news.ycombinator.com/item?id=9834721. "I am a German" or "Greek here" should have no relevance to the ideas put forth. "Your money" and "your banks" are not really "my money" and "my banks" once I have paid the tax and don't own the bank! The theory of complex systems reminds us that aggregates can have properties that are not traceable to any individuals themselves. Game theory tells us that incentives and constraints can get so messed up that developments take on an eigendynamic which was nobody's intent nor interest. Please, be civilized and don't let yourselves be infected by nationalistic passions. Your moralizing nanny... (No seriously, I am starting to get concerned.)
- serve_yay 11y ago
  Try using that line of thought when you're talking to a customs agent, let us know how it works out.
- i_s 11y ago
  > The theory of complex systems reminds us that aggregates can have properties that are not traceable to any individuals themselves. Game theory tells us that incentives and constraints can get so messed up that developments take on an eigendynamic which was nobody's intent nor interest. I'm interested in those ideas. Can you give a link to any information about them?
  - chadaustin 11y ago
    Some of my personal favorite resources on this topic: http://www.amazon.com/Introduction-General-Systems-Thinking-Anniversary/dp/0932633498 http://www.amazon.com/Introduction-General-Systems-Thinking-... http://www.amazon.com/The-Systems-Bible-Beginners-Guide/dp/0961825170 http://www.amazon.com/The-Systems-Bible-Beginners-Guide/dp/0... http://www.amazon.com/Ackoffs-Best-Classic-Writings-Management/dp/0471316342 http://www.amazon.com/Ackoffs-Best-Classic-Writings-Manageme... I really enjoyed these books, but I am not super well-read in this area, so there may be better ones out there. You could try searching for "systems theory" and see what other resources are out there. Systems theory is a very broad topic, so you'll find it attached to many specific disciplines, but the general idea is that you can take a bunch of simple things, hook them together, and produce a "being" that has totally weird behavior in aggregate.
spikels 11y ago
This guy may be pretty good with data collection but his ability to interpret anything is compromised by ideology. His early academic work was solid with only a bit of political bias but now that he is famous he feels compelled to opine about all sorts of things he barely understands so his politics shine through. This Q&A just confirms this trend. I hope he realizes that he and other progressive economic pundits (Krugman, Stiglitz) are in part responsible for the disaster that is now unfolding in Greece.
lancewiggs 11y ago
The blame here, like the GFC, has to lie with the lenders, who are sophisticated investors making very large profits from loans to unsophisticated or (politically) pressured borrowers. The lenders in this case assumed the loans have sovereign risk, but countries have risk too and judgement day has come. Take your licks, write down the loans so they are repayable and move on. If not then this will likely become a far bigger problem for the world, and the lending institutions.
- chernevik 11y ago
  The lenders presumed that Greek debt would always be acceptable to the ECB as collateral, and thus would always be worth face value. This analysis of ECB collateral policy proved correct. The blame, then, lays in the policies and signals of the ECB, which were transparently dictated by the political urgency of keeping Greece in the Euro. Had the Eurozone and the ECB adhered strictly to their budget rules, and penalized departures through ECB collateral policy, we'd be in a very different place. Of course, had those players had used proper accounting and figures, Greece would never have been qualified for the euro in the first place.
shockzzz 11y ago
Who here is a real economist that has the ability for pointed criticism? Share your thoughts, please.
bedhead 11y ago
Sovereign debt is inherently unsecured. It's a credit card for the government, nothing more. The primary motivation for servicing the debt is that it will enable more borrowing. And like people, countries don't pay off their debts for all sorts of reasons...not every default is created equally. At the least, Piketty is being intellectually dishonest. Personally, I think he is really just trying to appeal to the underdog by pointing out this poor analogue.
yummyfajitas 11y ago
So I've been vaguely following the Greece and Puerto Rico situations (the Greece situation is causing me to put some trading strategies on hold), but there is something I don't understand about it. How come so many left wing advocates (Piketty, Krugman, etc) are coming out advocating for Greek bailouts?
- Daishiman 11y ago
  Greek debt is literally impossible to pay as it is. They're not advocating default; they're advocating for the creditors to accept reality, write down their losses, and move on.
- mike_hearn 11y ago
  Because Greece has a radical left wing government.
- msellout 11y ago
  The term "bailout" is too ambiguous. The lefties prefer some form of debt-forgiveness combined with other measures for eventual partial debt repayment. Most importantly, the lefties don't want to cut Greek pensions and certain other state spending. As Varoufakis explained it, he wants qualitative reforms rather than parametric reforms. Instead of "cut spending by another X percent", he wants reforms such as consistent enforcement of tax collection. In contrast, the IMF, etc. are trying to take the easy way out by asking for parametric austerity increases -- keep doing the same thing, just more harshly -- which is unlikely to succeed.
Tehnix 11y ago
I feel sorry for the Greek people, but I personally favour throwing them out of the Eurozone if they default on the debt. It will be a very dangerous signal to send that you can borrow money, and not pay it back without any retribution. This is particularly important since more countries are going in the same direction as Greece (I think Spain and Puerto Rico are close, but I might be wrong). Besides that, it also hurts the confidence towards the Eurozone if the countries in it can behave this way. Also, am I the only one that finds it weird that they wait until after the deadline, to vote on whether or not to pay the debt back?
- alexqgb 11y ago
  What you don't understand is that a debt represents a risk to the lender, not a guarantee. If a debt were a guarantee, then there would be no basis for charging interest. In a well regulated system, the people who make bad bets are not entitled to retribution. They are "entitled" (read: expected) to go out of business. At the very least, they suffer embarrassing losses that they must explain to their shareholders. "Moral hazard", properly understood, is a term used to describe conditions that encourage reckless lenders. The threat of default is a good thing. That's what keeps otherwise rapacious lenders fearful enough to excercise good judgment and prudent restraint. Indeed, in advanced economies, the power of bankruptcy judges to wipe out debt is seens as an essential component of healthy capital markets. Bad lenders get wiped out, and take the money of their imprudent investors with them. That's what should have happened to the private lenders who originated the Greek debt. Instead, they got bailed out by EZ members who are following up one bad choice with another in promising their electorates that they can collect from a nation manifestly unable to pay.
  - tsotha 11y ago
    >If a debt were a guarantee, then there would be no basis for charging interest. That's going a bit far. The borrower would still pay interest for the use of the money. Just not very much.
  - johngalt 11y ago
    > If a debt were a guarantee, then there would be no basis for charging interest. Time value of money?
andy_ppp 11y ago
Everyone always seems to forget in these discussions how fantastic for German exports having instability in the Eurozone is...
- DasIch 11y ago
  Exports have been an important part of the German economy for decades. People aren't buying German products because they happen to be cheaper now and the won't stop buying them should they get more expensive.
  - andy_ppp 11y ago
    >>> People aren't buying German products because they happen to be cheaper now Well, I suppose you can just make up statements like that if you want. I could say that basic economics disagrees with you, but what would be the point?
    - DasIch 11y ago
      Basic economics don't disagree with me at all. Production in Germany is expensive. If price were the deciding factor German industry would be irrelevant. The reason it isn't is because these products are specialized high quality products. You don't buy them because they are cheaper than some competitor, you buy them because there isn't an alternative product. The current euro situation certainly helps keeps prices down and allows more people to buy German products and that's a big part of why the German economy is doing so much better than anyone else. It wouldn't be much worse with a German currency either though.
      - andy_ppp 11y ago
        Yes, I get it, German exports are fantastic and they have been made even better by the Greeks devaluing your currency! It's great that you agree with me!
serve_yay 11y ago
Wow, he did not ever back down. An enjoyable read.
ChuckMcM 11y ago
I wonder if this will end up being "The Interview" in Piketty's career. I realize it was translated but even so it seems the most inartful discussion of a complex subject by someone considered an expert that I've seen in a long while. I reminds me a bit of Linus Pauling's interviews about vitamins where he goes off the rails.
- tcbawo 11y ago
  Historical context aside, he does have a good point in the end. Greece's credit card is maxed out and it doesn't appear that any amount of restructuring will make it possible to repay in full.
  - ChuckMcM 11y ago
    We will certainly see. Given the rhetoric I expect Greece to simply disavow the debt, leave the Euro Zone, and let them figure it out. It isn't like you can repossess a country. The interesting question then is what happens next. Either they recover their economy (at least briefly) because they aren't carrying any sort of debt costs and the rest of the EU does nothing? Look to see Spain and maybe Portugal jump ship as well. The EU freezes them out, basically letting the black market set the value of the drachma, and we see hyper inflation in Greece where the price of everything goes up several hundred percent a year (maybe even a month) like it did in Argentina. Or maybe we see the Russians bail them out and give them a favorable exchange rate to roubles which can then be converted into dollars or euros. That sort of "help" comes with some strings that perhaps the Greek people will put up with, perhaps not. No matter what we'll get to see what happens when a country does the equivalent of filing for bankruptcy. My guess is that Greece will see economic turmoil like the various South American countries for the next 50 years, but its only a guess as I don't think we've been in this sort of situation in Europe since the end of WWII. I think Piketty could have said that without insulting the Germans.
sdenton4 11y ago
This all reminds me of what we've learned about forest management. You see, for a long time we thought that all forest fires were bad, and set out to extinguish fires whenever even a small one broke out in a forest. After a few decades of almost no fire, a huge amount of burnable debris collected in the forests, and now, when fires break out, they're gigantic and far, far more damaging than normal forest fires. Likewise, central banks have been working very hard to keep interest rates near zero. Any interest is perceived to be a bad thing (the big piles of money held by the large private interests become relatively smaller under inflation), and has thus been held in check. Normally, when things go somewhat badly for a country, they can issue a bunch of bonds and inflate their currency a bit to take up the flack. But with the Euro, there's no opportunity for member countries to inflate their own currencies to smooth out the bumps, and strong pressure from the overall Eurozone to keep interest rates low. The normal control mechanisms are suppressed, leading to bigger explosions when things go really wrong...
- JamesBarney 11y ago
  Hey sdenton, I agree with a lot of what you say about how Greece needs it's own currency to inflate, but sometimes I don't know if someone has a non-mainstream opinion or just needs a little help with consensus economics. So if you are like me a student of economics this post will hopefully help clear some things up. If not then I guess we disagree and the next person to read this post will have a better understanding of the different views of monetary policy present in economics :). The consensus view in economics about issuing bonds is that it moves the needle away from inflation and towards deflation. Think of money in a very simple supply and demand model. More (supply)money means it is worth less. When the government issues bonds it auctions them off and takes money from people(out of circulation) in return, reducing the supply of money. This leads to less money, which is worth more(deflation, or disinflation). The consensus view about lowering interest rates is that it leads to inflation. Imagine a country with a long term interest rate of 10%, then the FED turns the dial down to 0%. Vick the VC, previously had to average 10%+ on all of his start up investments because investors would move their money to banks(and make 10%) if he made less. So Vick previously only invested in the best start ups, all ex-googlers and previous entrepreneurs. But now he only needs to break 0%, so he invests in all the maybes. This leads to more start ups and more dev positions. Now if we go back to supply and demand, more openings(demand) means greater price. This same things happens across the entire economy. Many projects/start ups/buildings get funded that weren't before because of the drop in interest rate. And these projects create openings, leading to higher wages. Since labor composes most of the goods and services we consume, when we pay more labor, we pay more for good and services call it inflation.
tjradcliffe 11y ago
Lecturing Germany on its own history is just about the most useless contribution to this debate possible. Germany and everyone else who foolishly loaned Greece money in 2010--and before--wants to get paid. There is nothing wrong with that. Dredging up the irrelevant past? Not so much. Or: if I owe someone money, it doesn't matter if they are a nice person or not. I still owe them money, and must suffer the legal consequences if I fail to pay. This is what the rule of law is all about. It protects everyone, even people who are not nice. Even people who are hyopcrites. Even people who are Germans. This moralization is childish. By all means dismiss the German government's moralization as silly and irrelevant. But don't engage in far more silly and far less relevant moral hectoring of your own.
- vidarh 11y ago
  He's not engaging in moralising. The entire point is that while there's nothing wrong with wanting to get paid, it's entirely irrational to try to force payment no matter the consequences. Especially when both historical examples of similar steps and numbers from the last few years in Greece demonstrates that such a policy is likely to make matters worse, not better, not just for Greece but for the creditors as well.
kephra 11y ago
One must note, that this interview was given to the German newspaper "Die Zeit". So its important to note, what he did not mention: The repayment of Germans debt is only delayed till Germany has a peace treaty. The 2+4 contract is not a peace treaty, but deliberate "instead a peace treaty" just allows the Russian occupied part to join the US, UK and French occupied parts. The Euro-Zone is facing a dilemma. A debt cut, followed by inflation and taxing of private assets, would require that Greece still has monetary sovereignty. But all Euro states, even Germany and France, gave up their monetary sovereignty. None of them is a complete sovereign state anymore. An obscure bureaucracy in Brüssel is creating laws, that national governments just have to sign. And entering EU is like a roman Catholic marriage. A nation can join, but not leave EU.
Terry_Fan 11y ago
East Germany was forced to pay reparations to the Soviet Union. They were not part of the Marshal Plan. Any functioning industrial assets in the Soviet Sector was appropriated and sent east.
dmichulke 11y ago
Sorry, first the outburst, then the argument: Such a load of bullshit! The reason: What are you talking about? Generous? Currently, Germany is profiting from Greece as it extends loans at comparatively high interest rates. The interviewer suggests with his question that it's about generosity? (come on!) Piketty responds that Germany is profiting. Using the math I learned, adding up say 5 years of 5% doesn't even come close to the 50%-80% haircut that's gonna be needed. So how is there profiting? Even worse: In the end, the creditors of sovereigns are rarely other sovereigns but banks and funds. The former will be probably bailed out by the taxpayer, the latter is usually pensions of taxpayers. Of course, the sovereigns themselves are funded by the taxpayer, too. So no matter the result, it's not about generosity, there is no profiting (except for the few) and someone's got to pay (debts don't disappear) and he (the taxpayer) is not even mentioned. I sincerely get angry when I read such "elitist" opinions that completely contort and ignore facts.
totalcookie 11y ago
"Off-Topic: Most stories about politics, or crime, or sports, unless they're evidence of some interesting new phenomenon. Videos of pratfalls or disasters, or cute animal pictures. If they'd cover it on TV news, it's probably off-topic." HN Guidelines
hoggle 11y ago
This is the time to show solidarity by activating our resources and bootstrap a new economy. The banks together with our rampant financial illiteracy all need to go, are we still not able to scale blockchain transactions? Is there a secure "libbitcoin" written in Rust yet? Do we have super secure and crypto currency focused "micro" operating systems / servers on open hardware? Where are the people working on this? As a global economy - and civilization - we need to stick together and show some love and ingenuity.
jensen123 11y ago
So, Piketty wants to forgive debt, and he thinks it's a bad idea to kick states out of the Eurozone, since that supposedly will hurt confidence. And he wants a new European institution that will determine the maximum allowable budget deficit, in order to prevent the regrowth of debt. But if kicking states out is taboo, then I wonder what he would do if a state exceeds this maximum allowable budget deficit?
restalis 11y ago
"Germany is really the single best example of a country that, throughout its history, has never repaid its external debt. Neither after the First nor the Second World War." Actually I remember an article posted a while ago right here on HN about the last payments for WW1. It is possible that Mr. Piketty may not have updated information, but it is also possible that he deliberately ignores some facts in order to stir a bigger debate.
- hackerboos 11y ago
  This one http://www.bbc.com/news/world-europe-11442892 http://www.bbc.com/news/world-europe-11442892 ? "By the time country was reunified, in 1990, the world had changed dramatically since the days of Versailles, and policymakers decided to write off most of the original sum." So he's still correct.
  - restalis 11y ago
    "This one http://www.bbc.com/news/world-europe-11442892 http://www.bbc.com/news/world-europe-11442892 ?" It was a similar article. "So he's still correct." The Germany's case was very, very different than that of Greece. After the both wars the winning forces just dictated the sum and the loosing forces had very little saying in the mater. It was most likely an exaggerated figure to start with, probably out of PR reasons - "we made them pay, dear people!" Later, when the emotions faded for the most part, a more realistic figure could be put in discussion and sold to the wide public as an act of generosity. Now let's talk about Greece and how many parallels can be drawn here. Greece was not being dictated figures of debt, Greece took the money willingly. Well, one could argue that only a small political elite made the decisions, but the money were actually reaching the average persons too, as budgetary salaries and pensions (and I bet they all enjoyed it). Write off some of the debt? There's no real reason to do that (but if that would be what it takes to bring them to saner fiscal practices, I would be OK with it anyway). So, Mr. Piketty may be "correct" in some twisted view in which paid-in-full war compensations are not actually recognized as such¹ and more importantly - he wants to be correct in an even more twisted context that puts on the same footing a subject of dictated-upon debt and the one of self-inflicted debt. ¹ Because the war winners have chosen later to adjust low the asked war compensation, and by doing that they manage to morally deny the "repaid" status. They could however have managed to achieve just the same by adjusting high (i.e. continuously calling for higher and higher sum so that it could never be paid in full).
socialist_coder 11y ago
Help me understand something. Piketty seems like he is in favor of repaying this debt by "inflation, a special tax on private wealth, and debt relief." But, he is against Greece leaving the Eurozone. So, how can they inflate their currency? Instead of inflation, which is impossible if Greece shares the Euro currency, is he suggesting that some percentage of Greece's debts just get knocked off? That would achieve the same result, I think.
cuillevel3 11y ago
Germany was rescued after WW2 to drive the European economy. Without German exports the continent would have had no chance to recover. It's sure ironic that Germany first destroyed the continent and then profited by rebuilding it, but history doesn't seem to care about irony much. I think the 'Germany never paid'-argument is flawed. The Marshall plan would not have worked if Germany had been indebted. Instead this happened: https://en.wikipedia.org/wiki/German_reparations_for_World_War_II https://en.wikipedia.org/wiki/German_reparations_for_World_W... If Greek defaults without paying their debt Germany (=tax payers) is about to lose 90 billions. I'm not sure how this is profiting...
- socialist_coder 11y ago
  That Wikipedia article says that Germany did not fully pay its debt to Greece. So, I don't see your point. If Greece was not on the Euro, it would simply print money and inflate its currency until it could easily pay off it's debts. That gives you the same result as what Germany did, which was to basically only pay off some of their debt and just forget about the rest. The debtors lose, but hey, that's the risk for loaning money, right?
  - cuillevel3 11y ago
    Sure there is some debate about a possible debt from Germany to Greece for crimes committed in WW2. That's a big discussion by itself. Doesn't change the fact that the original article ignores the Marshal Plan. Anyways if Greek was not in the Euro it could devalue its currency. Which would benefit their exports, if they had any. However their debt would still be payable in Euro and the new currency would have a terrible exchange course. So no win. There are scientist who say the real estate market might boom in such a case. Since most Greeks are home owners that may provide some cash in the short run: International investors and rich Greeks who transfered their assets out of the country before the crash will buy in. It's still unclear if a state can actually default. I guess if you're not dependent on import you could risk not paying back your international partners(/enemies). There are examples of countries regaining some power in isolation. I agree about the risk of lending money, that's probably the reason why so much of this money was used to decouple Greece finance market and ensure existing (private) contracts were honored.
chmaynard 11y ago
I'm not qualified to judge whether Piketty is correct but I can offer this analogy. In the past, when I have loaned money to friends and family, my attitude was "kiss the money goodbye". If the money was spent wisely and served a useful purpose, I was happy. It's nice to get repaid, but it's not essential.
- fredm-de 11y ago
  Here's the problem: Merkel can't politically justify to give Greece more german taxpayer money because it isn't spent wisely. After 5 years of crisis, Greece still has a primary deficit, while maintaining more extensive welfare programs than most EU Members. Even in the case of debt forgiveness, they would still have a massive household deficit and be in the same situation again soon. So it's not about getting money back, it's about not burning more money.
  - the_why_of_y 11y ago
    > After 5 years of crisis, Greece still has a primary deficit, Greece had a primary surplus in 2014. http://finance.yahoo.com/news/greece-revises-down-2014-primary-170017774.html http://finance.yahoo.com/news/greece-revises-down-2014-prima... > while maintaining more extensive welfare programs than most EU Members. What extensive welfare programs would that be? The 12 months of unemployment insurance? They don't even have a means-tested program to ensure a subsistence minimum for people younger than 45 years! http://www.keepeek.com/Digital-Asset-Management/oecd/governance/greece-reform-of-social-welfare-programmes/the-current-greek-benefit-system_9789264196490-7-en#page4 http://www.keepeek.com/Digital-Asset-Management/oecd/governa...
hahan 11y ago
it's not at all anything moral. it's business. the french and german banks lent to Greece not out of charity, but of profit, a profit earn at the risk of insolvency. Now the Greeks can pay back, that is, the french and german banks failed their business. if the EU is to bail out, it's bailing out the BIG BANKS, not the Greek People. Clear ? Business is business. why the banks would do this risky business, because their principle amount and the interest earned are guaranteed by EU. the situation now is that if the banks win, they have it all; if the banks lose, the eu people pay for them. if you cant help blaming someone, blame the BANKS and their ruthless risk taking.
hahan 11y ago
it's not at all anything moral. it's business. the french and german banks lent to Greece not out of charity, but of profit, a profit earned at the risk of insolvency. Now the Greeks can pay back, that is, the french and german banks failed their business. if the EU is to bail out, it's bailing out the BIG BANKS, not the Greek People. Clear ? Business is business. why the banks would do this risky business, because their principle amount and the interest earned are guaranteed by EU. the situation now is that if the banks win, they have it all; if the banks lose, the eu people pay for them. if you cant help blaming someone, blame the BANKS and their ruthless risk taking.
hahan 11y ago
i'm sure that if the Greeks have the potential of killing as many people and as cruelly as the German do, they would be tolerated and excused, whatever they have done. It just happens that Greece is a small and weak nation that everybody can safely point a finger at and accuse them of every problem there is. it does not just happens to the Greek, but to all the disadvantaged.whenever there's a crisis, some group would be targeted. they caused it because they are lazy, they're indulgent, they're irresponsible, they are weak, they're immoral,etc.be it women, colored, the poor,the illiterate, Jews, you name it.
harmonicon 11y ago
The medium page is not viewable for me apparently due to a copyright issue. Here is an alternative site for the full transcript: http://www.zerohedge.com/news/2015-07-06/piketty-germany-has-never-repaid-its-debts-it-has-no-standing-lecture-other-nations http://www.zerohedge.com/news/2015-07-06/piketty-germany-has...

427 points by Thevet 11y ago

24 In the process, one of his debtors was brought in who owed him millions of dollars.[c] 25 He couldn’t pay, so his master ordered that he be sold—along with his wife, his children, and everything he owned—to pay the debt. 26 “But the man fell down before his master and begged him, ‘Please, be patient with me, and I will pay it all.’ 27 Then his master was filled with pity for him, and he released him and forgave his debt. 28 “But when the man left the king, he went to a fellow servant who owed him a few thousand dollars.[d] He grabbed him by the throat and demanded instant payment. “His fellow servant fell down before him and begged for a little more time. ‘Be patient with me, and I will pay it,’ he pleaded. But his creditor wouldn’t wait. He had the man arrested and put in prison until the debt could be paid in full.

chernevik 11y ago

This is just stupid. The German regime that racked up the WWII debts was destroyed and its leaders suicided or executed. The entire country was split in half by the war. The regime in power when those debts were rescheduled was a completely different entity. And Greece enjoyed similar, if not proportionately greater, economic support at exactly the same time. The Marshall Plan started in Greece, after all. And there are enormous differences in the uses of the new debt capacity. Germany used the capacity to rebuild its economic capacity. Greece would use its new capacity to fund further welfare transfers and tax dodgers. Germany did not use the new capacity to repeat the same mistakes that created the old debt (and the vastly more important war). Greece would continue the exact same policies, and arrive at the same point of demanding debt concessions.

deciplex 11y ago
> The German regime that racked up the WWII debts was destroyed and its leaders suicided or executed. Yes, but most of the people who enabled that regime to do its work, were still around. It's not as though the entire population of Germany was swapped out for a different one, after the war. The average German was not a murdering genocidal maniac, but he did fall under the sway of idiotic fascism, and while it would have served no one's interest to force him to pay the price, there is nothing wrong with pointing out that he did not, in fact, pay the price. > Greece would use its new capacity to fund further welfare transfers and tax dodgers. Let's talk about those tax dodgers, then. You make it sound as though the Greek government has some sort of policy in place where they encourage people not to pay their taxes. Rather, the Eurozone is set up in such a way that it is very easy for the rich to avoid paying taxes by putting all their asset in tax havens e.g. Luxembourg and with very little oversight. And the wealthier nations in the EU tend to support this status quo, not the poorer ones.
- chernevik 11y ago
  Greece actually does have such de facto policy, through its miserable and corrupt tax collection mechanisms. Those other countries seem able to collect tax to fund their governments.
  - deciplex 11y ago
    Are you denying the existence of tax havens in the EU?
- shin_lao 11y ago
  There is a difference between having tax loopholes and being a state that doesn't collect taxes properly and where tax avoidance and black work is everywhere. Greece is the latter. Having been in Greece several times, it is very unsettling to being issued fake bills all the time for everything. A famous example is the swimming pool tax avoidance: http://www.zerohedge.com/article/greek-tax-avoidance-101-cover-your-swimming-pool-tarp-fool-satellite http://www.zerohedge.com/article/greek-tax-avoidance-101-cov... Some more information: http://uk.businessinsider.com/this-is-the-real-reason-greece-has-a-massive-tax-evasion-problem-2015-2?r=US http://uk.businessinsider.com/this-is-the-real-reason-greece...
  - ubernostrum 11y ago
    Without knowing anything about the details of it, I am immediately suspicious of the truth of the swimming-pool allegation simply because of how universally it is mentioned in discussions of Greece's economic situation. Anything which gets used that ubiquitously, in my experience, ends up debunked on Snopes or Politifact sooner or later.

csense 11y ago

According to this guy's argument, we have: - People and businesses who save money instead of spending it, get their wealth confiscated by the state indirectly through inflation or directly through the "special tax on private wealth" - People, businesses, and other countries who help the state out by loaning it money have those loans retroactively converted into outright gifts by debt relief measures. So the solution to fiscal irresponsibility is to turn the fiscally responsible into...I believe the technical term would be "suckers," or maybe "bag holders."

parasubvert 11y ago
Economics isn't a morality play. Throughout history there has been debt relief and debtor jail... It depends on circumstance and power.

eudox 11y ago

Now that this thread's on the first spot of the front page, can we admit HN isn't a libertarian echo chamber?

Maken 11y ago
Was it supposed to be?
- eudox 11y ago
  You hear the claim annoyingly often.
  - minot 11y ago
    I am still new here but as far as I understand upvoting is not the same as agreeing.
    - shiggerino 11y ago
      On HN it is. Let's face it, that's the way it works on Reddit too, the difference is that HN aren't sanctimonious pricks about it.

cm2187 11y ago

If you believe Piketty, debt is never meant to be repaid and no one should therefore ever invest in sovereign debt. That would solve the debt debate. No creditor = no need to worry about whether we want to pile more debt. And he has a point. I personally don't believe that any of the US, Japanese and European sovereign debt will ever be repaid. The whole thing is a ponzi scheme. Investors hope that their investment will mature before the music stops. That's worth AAA...

fiatjaf 11y ago
It is not a Ponzi scheme if it is not always and necessarily growing.
- cm2187 11y ago
  Most western countries can't even afford paying the interest of their debt. So as it is, it is kinda necessarily growing. But the ponzi scheme aspect is rather the fact that countries can only pay back debt with new borrowing. If investors stop rolling their debt, even the US would collapse within a few months.
  - NhanH 11y ago
    I thought the whole premise of modern economics relies on the assumption that the economy has to grow. Time value of money implies that the money has to create value -- in more specific term, if bank lend out $100 and want $102 back, without the economy growing the money supply can't have the extra $2 (printing more money without the economy growing cause inflation, then the bank will want more than $2 interest and it's the same, so we can ignore that).
  - haberman 11y ago
    > Most western countries can't even afford paying the interest of their debt. If that were true, the countries would be in default. And yet they are not.
    - 11y ago

deleted 11y ago

[deleted]

Maken 11y ago
Because how the Greek's debt conflict is solved will have a severe impact in global economy. And HN community tens to care about economy.
- tsotha 11y ago
  >Because how the Greek's debt conflict is solved will have a severe impact in global economy. I'm not sure that's true. Greece is a tiny country with a tiny economy. In and of itself it doesn't matter that much. What matters is whether the bond markets think Portugal, Italy, and Spain can avoid similar problems. Personally I think that's why the Germans are playing hardball. They can't afford to bail out Italy, so they're signalling that's not going to happen.

mrottenkolber 11y ago

The interviewer completely oversteps his boundaries here. In case anybody wonders: "Die Zeit" is Germany's tabloid version of a politics paper (similar in lack of quality to "Der Spiegel"). This interview illustrates whats wrong with these tabloids very clearly: Bias, ignorance and uneducated employees. Piketty brings up some good points but the interview is painful to read, like dragging a wet mattress up a stairwell.

smil 11y ago
So Die Zeit is on the same level as the New York Times, you mean.
eseehausen 11y ago
It seemed to me that the interviewer was setting up the popular German objections so that Piketty could knock them down rather than actually believing those pretty naive arguments. Or is that the issue you have with it in the first place?
- mrottenkolber 11y ago
  Good point. Still, I would prefer a coherent dialogue instead. I feel like debunking uninformed objections gives those objections more recognition then they deserve. I wish for smarter or at least less stale questions.
pvg 11y ago
Die Zeit is not a tabloid, either literally or figuratively. Maybe you don't like Die Zeit which is fair enough but calling it a tabloid is very misleading.
subpixel 11y ago
DER SPIEGEL lacks quality? Would you care to back that up? It's one of the most respected publications in Europe, with excellent investigative reporting.
- schwarze_pest 11y ago

Mikeb85 11y ago

This can't be upvoted enough. It's also ironic that Greece was one of the creditors that forgave a large amount of German debt.

tomp 11y ago
Not only that, but Greece was the country that suffered the second most after WWII (in terms of GDP loss, not human life loss), at least according to this article (point 5) http://www.washingtonpost.com/blogs/wonkblog/wp/2015/07/05/7-key-things-to-know-about-greeces-debt-crisis/ http://www.washingtonpost.com/blogs/wonkblog/wp/2015/07/05/7...

obblekk 11y ago

There's one way in which Picketty is right: it's impossible to force a country to repay their debt. After WW1 France tried first through international (England) enforcement bodies, and then ultimately by occupation of the Ruhr valley (Germany's most productive region then). Both approaches failed. Eventually the Weimar inflated their currency until the French debt was worth nothing, workers in the Ruhr valley striked, and extremist political parties promising a return of German dignity flourished. Once the Greeks decide to refuse to pay, there isn't a good way to force them, short of enslavement.

jqm 11y ago
"short of enslavement" And that might not work either. My understanding is that some slaves eat more than they produce.
PuercoPop 11y ago
There are ways. See the case of Argentina.
- kchoudhu 11y ago
  To the best of my knowledge, they haven't repaid. Their access to capital markets is very inconvenient right now -- but they haven't repaid.
caskance 11y ago
If you are willing to accept payment in land, it's quite easy.
- cwp 11y ago
  You also have to be willing to kill all the people currently living on it.
  - Dylan16807 11y ago
    Wha?

adventured 11y ago

"The second method is much faster. ... Essentially, it consists of three components: inflation, a special tax on private wealth, and debt relief." So Piketty is advocating a special tax on the poor. The group of people that can least deal with inflation, with no ability to shift assets or income to avoid it, nor deal with the increased cost of goods in relation to their debased incomes.

eseehausen 11y ago
The poor don't get taxed if the special tax is progressive (or non-existent at lower levels of income/wealth). Of course, the argument that such a tax being effective is impossible these days due to contemporary mobility of wealth may well be true. That still doesn't amount to a special tax on the poor, and I'm sure you realize Piketty wouldn't advocate for that, whether or not you agree with his positions.
vruiz 11y ago
How do you go from "tax on private wealth" to "tax on the poor"?
- minot 11y ago
  Inflation is tax on the poor.
  - Mikeb85 11y ago
    Except it's not.
    - pooper 11y ago
      I'm sure you can do better than that as a student of economics...
      - Mikeb85 11y ago
        Of course I can. But I don't need to. If someone says the sky is green with no justification or explanation, do I need to write a paragraph about why it's not green?

nostromo 11y ago

It's incredibly disingenuous to compare defaults on war reparations, like the Treaty of Versailles, with loans willfully entered into by democratic governance.

EGreg 11y ago

http://www.nationofchange.org/2015/07/05/greece-what-you-are-not-being-told-by-the-media/ http://www.nationofchange.org/2015/07/05/greece-what-you-are...

sgnelson 11y ago

This makes me lose respect for Piketty. There's a very clear difference between a country that comes out of two world wars, with everything all but destroyed, including millions dead. I'm sorry, no matter how bad 2008 was, it was no World War. His inability to grasp this just boggles the mind. There's a very big difference between war caused debt and economic caused debt (note that I'm basically making these two "debts" up, and things are more nuanced obviously, but I'm going to ignore the nuances for now, these are very broad strokes.) When you come out of war, you're either the loser or the victor (one way or another, there are very few true "ties" in war.) And while capital may be destroyed in both cases, an economic crises doesn't necessarily leave your physical infrastructure and entire social system completely unrecognizable. Further, Piketty seemingly completely ignores the Marshall Plan and all that it included in rebuilding Europe. And yes the Marshall plan was a form of debt forgiveness, but as a huge portion of the European continent was a smoking crater, things were different in 1945 than Greece in 2015. Further, some historians/economists will argue that the "German miracle" (and "Japanese miracle" as well) were in part because of the destruction cased by the wars. With all the manufacturing capabilities destroyed, they were able to rebuild with the latest and greatest technology of the time. (and if you take this further, as the US was able to rest on it's un-destroyed capital equipment and make huge profits during the rest of the 1940's, 50's and early 60's, and never re-invested as Germany and Japan were forced too, this eventually lead to the downfall of the US Industrial might, in part.) Personally, I think this has more to do with his French nationalism than anything else, at least as it appears to me in the interview.

prawn 11y ago
Personally, I thought his argument was very reasonable, and I also appreciated that the interviewer pressed him where appropriate to draw out some quality discussion.
leoc 11y ago
(I am not an expert on anything.) It's probably a bit unfortunate that this Piketty interview is getting prominence, because the whole question of analogies or disanalogies to Germany's war-related sovereign debt problems is mostly beside the point. The most urgent disanalogy in Greece's case is to what happens to just about every other country from A to Z that goes broke and needs to enter an IMF program. The SOP is for their pre-existing sovereign debt to be haircut as far as is necessary (if it is necessary) to make their debt burden clearly sustainable from then on, as a central part of the program designed and supervised by the IMF. This is what the IMF was designed to do from Day 1 and no-one, including Germany or any Eurozone core countries, is running around shouting that the IMF system is morally depraved, or a source of unacceptable moral hazard or a surrender to blackmail etc. etc. because it frequently results in program countries defaulting on a large chunk of their sovereign debts. And compared to the rogue's gallery of mostly developing countries that enter IMF programs Greece is probably not exceptionally profligate, corrupt, structurally rigid, unreformable and so on. Instead Greece was moved onto the special, ad hoc Troika scheme, in which a country with a greatly unsustainable debt burden was given more loans but originally no debt relief at all, and great efforts were made to make the country run primary surpluses so that the creditors would not only get all their money back but make a profit. Greatly inadequate debt relief was only added later on when the original plan had collapsed. I'll let the former head of the Bundesbank explain why: http://www.spiegel.de/international/germany/former-central-bank-head-karl-otto-poehl-bailout-plan-is-all-about-rescuing-banks-and-rich-greeks-a-695245.html http://www.spiegel.de/international/germany/former-central-b... Politically this was a wonder solution for the EU core leadership: bail out their banks by stealth, avoiding the anger of their taxpayers by camouflaging it as a rescue mission for the wayward Greeks. Even better, the whole cost of the EU-wide bank bailout could be sweated out of the Greek taxpayer! Well, not really of course: probably no-one ever expected the official creditors to actually get their money back, but hopefully the defaults would be acceptably far in the future for the politicians, who live hand-to-mouth and election to election. Now that the whole thing has exploded, perhaps sooner and harder than they expected, those EU core politicians are trapped by their earlier lies. There is one further wrinkle: not only was the Troika fix-up job vastly harsher on Greece as a creditor than a normal IMF program, it was specifically forbidden by the treaty of Lisbon (the solemn document I was asked to vote on twice, as an Irish citizen) articles 123 http://euwiki.org/TFEU#Article_123 http://euwiki.org/TFEU#Article_123 and 125 http://euwiki.org/TFEU#Article_125 http://euwiki.org/TFEU#Article_125 while at the same time the treaty had been crafted to allow Euro member countries continued access to normal IMF programs while remaining inside the Euro. Or at least, everyone thought that it was specifically forbidden, until this prohibition was no longer convenient, and the wizards at the ECJ (the same visionaries who recently discovered the "right to be forgotten") helpfully made it go away. But if we do want to talk about the German example, we don't have to go back to the Marshall Plan either. The US Fed's cross-border largesse in 2008 would be a good place to start.

mhd 11y ago

Debt cuts are one thing, but I see no reason to believe that there's a wide enough acceptance for a EU-wide fiscal policy to go along with the unified monetary policy. I might see France and Germany going along with that (mostly because it'll basically be their policy), but the UK won't have none of it -- and I don't think the PIIGS states would accept it either. On the other hand, if things keep going wrong, people might just be forced to accept this as a fact, I just hope it won't be too late by then.

felipeerias 11y ago

That argument gets thrown around a lot, but it is quite a terrible one. After WW2, the only Germany which acknowledged war and pre-war debts was the FDR. This was a state in ruins under foreign military occupation, with about half the territory and population of the former German state that had incurred those debts. If post-war Germany is your standard for debt relief, then Greece is still very, very far away from qualifying.

ubernostrum 11y ago
This was a state in ruins under foreign military occupation, with about half the territory and population of the former German state that had incurred those debts. OK. So, the Greek government officials who ran up Greece's debt are responsible for that debt. The current government isn't, and in fact the current Greece is in economic ruin courtesy of years of "austerity" imposed forcefully by foreign powers.

minot 11y ago

The countries that were the Allied powers are in no position to call out Germany for not repaying its debts after the second world war because they originated from the way the Allied powers handled the money situation during and after the Great War. Look at this quote: > We cannot demand that new generations must pay for decades for the mistakes of their parents. The Greeks have, without a doubt, made big mistakes. Until 2009, the government in Athens forged its books. But despite this, the younger generation of Greeks carries no more responsibility for the mistakes of its elders than the younger generation of Germans did in the 1950s and 1960s. We need to look ahead. Europe was founded on debt forgiveness and investment in the future. Not on the idea of endless penance. We need to remember this. In my opinion, this economist just wants to be the next Finance Minister for Greece. If the "older generation" (and I don't know how we can call what happened until six years ago a different generation but we'll let that slide) forged books, then cut them off. Cut their pensions. Cut their retirements. Make them come back to work. You can't blame the "older generation" and still let them retire at 50. It is incredibly insensitive to blame the German victims of the Versailles Treaty. Do people blame Germany for France's greed? I mean it is pretty evident that the growth of Nazis in Germany came directly from what the Allies levied on Germany. Moreover, to say that the situation in 2008-09 was equivalent to the horrors that people faced before and during the second world is nothing short of rewriting history. I don't think the people who lived through the great depression would take very kindly of statements like: > To deny the historical parallels to the postwar period would be wrong. Let’s think about the financial crisis of 2008/2009. This wasn’t just any crisis. It was the biggest financial crisis since 1929. So the comparison is quite valid. This is equally true for the Greek economy: between 2009 and 2015, its GDP has fallen by 25%. This is comparable to the recessions in Germany and France between 1929 and 1935. With all that being said, I must agree with him in one key point: > A restructuring of all debt, not just in Greece but in several European countries, is inevitable. Eurozone must stick together. However, the Greeks must realize a compromise consists of a give and take. They must seek answers from those who were in power in Athens before 2009. In hindsight, even organizing the 2004 Olympics was a horrible idea. But then hindsight is 20/20.

jqm 11y ago
"> We cannot demand that new generations must pay for decades for the mistakes of their parents. The Greeks have, without a doubt, made big mistakes. Until 2009, the government in Athens forged its books. But despite this, the younger generation of Greeks carries no more responsibility for the mistakes of its elders than the younger generation of Germans did in the 1950s and 1960s." Agree with your point. While the quote does have some merit, Germany had bottom up drastic structural change forced upon it before the "youth" were excused.

vacri 11y ago

This guy is a reknowned economist? He's conflating "war reparations" with "external debt", and also seems to have missed the big fanfare recently when Germany paid the last of it's WWI reparations - instead he claims they never paid any WWI or WWII reparations. Similarly, 'England took 100 years to repay' he claims as the way forward, yet ignores that Germany took 92 to pay their WWI debt[1]. Not hard, I guess, since he thinks that there was no repayment at all. He also talks of Germany's post WWII debt completely independently of the Marshall Plan and the Allies pouring money in to counter the Soviets. This is clearly just an axe being ground. [1]http://www.dailymail.co.uk/news/article-1315869/Germany-end-World-War-One-reparations-92-years-59m-final-payment.html http://www.dailymail.co.uk/news/article-1315869/Germany-end-...

Aloha 11y ago
Germany was given a significant discount on its external debts in 1960, and very generous repayment terms. "The total under negotiation was 16 billion marks of debt resulting from the Treaty of Versailles after World War I which had not been paid in the 1930s, but which Germany decided to repay to restore its reputation. This money was owed to government and private banks in the U.S., France and Britain. Another 16 billion marks represented postwar loans by the U.S. Under the London Debts Agreement of 1953, the repayable amount was reduced by 50% to about 15 billion marks and stretched out over 30 years, and compared to the fast-growing German economy were of minor impact. An important term of the agreement was that repayments were only due while West Germany ran a trade surplus, and that repayments were limited to 3% of export earnings. This gave Germany’s creditors a powerful incentive to import German goods, assisting reconstruction." [1] [1]https://en.wikipedia.org/wiki/London_Agreement_on_German_External_Debts https://en.wikipedia.org/wiki/London_Agreement_on_German_Ext...
- vacri 11y ago
  "Making 50% of the reparations" is considerably more than "never paid their debts", and while on favourable terms, we're also talking about half of Germany doing this - the country was torn in two, and was at the pointy end of the Cold War. Forgiveness of some of the debt has also been part of the Greek proposals. It's not like debt forgiveness is unique to the German situation. Pretty much any time some entity is in risk of default, there'll be some degree of debt forgiveness; cue news stories of "creditors getting 30/50/70 cents on the dollar". Keep in mind also that Germany underwent massive social changes as part of their recovery process - it certainly wasn't 'business-as-usual'. That Germany managed to do so well speaks to the industriousness of German culture, not that they were 'let off lightly'. If Greece gets handed money without significant reforms, what will be some fundamental social, political, or cultural differences between 2010 Greece and 2020 Greece?

sunstone 11y ago

This has the ring of truth.

netcan 11y ago

It actually reads to me that he is saying something quite similar to what I have been thinking recently: countries go bankrupt, we need a bankruptcy court/procedure for governments. The US needs it for its bankrupt local governments. The EU needs it for member states. The rationale behind bankruptcy is this: if a borrower cannot repay their debts in full, the lender cannot receive them in full. This isn't negotiable. It's an artefact of reality. Given that the lender will not receive their payment in full, it makes sense we may as well have a process that acknowledges this fact and moves things forward. There is no point to debtors prisons. Debt means risk and if bankruptcy happens, that risk plays out. The current Greek situation is exactly that. The troika cannot receive its repayments in full. Greece simply cannot repay them. It's not marginal. It's not possible if only Greece would... It's not going to happen. They owe too much and their economy is in collapse. It is game over for these loans.

Spooky23 11y ago
Sovereigns don't need bankruptcy protection, they just stop paying. Somebody will always lend money to states, even poorly managed states. At the end of the day, three people with the most to lose are the richer countries of the world, because they are also in debt, and a sovereign default will screw up all of the debt models. In the U.S., there is municipal bankruptcy. U.S. States cannot go bankrupt, which will be interesting when states run as poorly as Greece (ie Illinois) get hit by a tidal wave of retirement obligations.
cm2187 11y ago
For a court to mean anything, you need an authority to enforce its decision. You would need some form of international army. Who would control it? Who will enforce a decision against Russia or China (or the US!).
netcan 11y ago
EDIT: (I should have read to the end): I disagree with Pickety on his "maximum allowable budget" committee. It's an unnecessary violation of sovereignty, and I think that sovereignty is important. If bankruptcy norms existed, they could create a market discipline. As government approached the intervention threshold, their bonds would decrease a little in value. Also in my governments-can-declare-bankrupcy world, this can happen a lot sooner and the defaults can be much smaller.

interesting_att 11y ago

Everyone here seems to be criticizing Piketty for weird reasons. He is not saying post-war Germany's debt is the exact same thing as the current Greek crisis. Pointing out parallels isn't same thing as saying two situations are equivalent. His point is that this isn't a "moral" decision between two peoples. It's an economic decision between nations.

csallen 11y ago
Thank you. When a specific comparison is made between two things, people are too quick to emotionally point out the obvious and irrelevant fact that some differences exist, too.
- shrikant 11y ago
  ..especially when he's specifically expanded on that point in the same article. In a situation that certainly warrants more nuance than can be conveyed in a Tweet-sized headline, the supposedly "enlightened" HN crowd should really RTFA.

HSO 11y ago

At the risk of being a moralizing bore, may I remind everybody that "Germany", "Greece" etc. are not people, and that people are not countries? I am surprised by the national coloring, however faint, of some comments here and there https://news.ycombinator.com/item?id=9834721 https://news.ycombinator.com/item?id=9834721. "I am a German" or "Greek here" should have no relevance to the ideas put forth. "Your money" and "your banks" are not really "my money" and "my banks" once I have paid the tax and don't own the bank! The theory of complex systems reminds us that aggregates can have properties that are not traceable to any individuals themselves. Game theory tells us that incentives and constraints can get so messed up that developments take on an eigendynamic which was nobody's intent nor interest. Please, be civilized and don't let yourselves be infected by nationalistic passions. Your moralizing nanny... (No seriously, I am starting to get concerned.)

serve_yay 11y ago
Try using that line of thought when you're talking to a customs agent, let us know how it works out.
i_s 11y ago
> The theory of complex systems reminds us that aggregates can have properties that are not traceable to any individuals themselves. Game theory tells us that incentives and constraints can get so messed up that developments take on an eigendynamic which was nobody's intent nor interest. I'm interested in those ideas. Can you give a link to any information about them?
- chadaustin 11y ago
  Some of my personal favorite resources on this topic: http://www.amazon.com/Introduction-General-Systems-Thinking-Anniversary/dp/0932633498 http://www.amazon.com/Introduction-General-Systems-Thinking-... http://www.amazon.com/The-Systems-Bible-Beginners-Guide/dp/0961825170 http://www.amazon.com/The-Systems-Bible-Beginners-Guide/dp/0... http://www.amazon.com/Ackoffs-Best-Classic-Writings-Management/dp/0471316342 http://www.amazon.com/Ackoffs-Best-Classic-Writings-Manageme... I really enjoyed these books, but I am not super well-read in this area, so there may be better ones out there. You could try searching for "systems theory" and see what other resources are out there. Systems theory is a very broad topic, so you'll find it attached to many specific disciplines, but the general idea is that you can take a bunch of simple things, hook them together, and produce a "being" that has totally weird behavior in aggregate.

spikels 11y ago

This guy may be pretty good with data collection but his ability to interpret anything is compromised by ideology. His early academic work was solid with only a bit of political bias but now that he is famous he feels compelled to opine about all sorts of things he barely understands so his politics shine through. This Q&A just confirms this trend. I hope he realizes that he and other progressive economic pundits (Krugman, Stiglitz) are in part responsible for the disaster that is now unfolding in Greece.

lancewiggs 11y ago

The blame here, like the GFC, has to lie with the lenders, who are sophisticated investors making very large profits from loans to unsophisticated or (politically) pressured borrowers. The lenders in this case assumed the loans have sovereign risk, but countries have risk too and judgement day has come. Take your licks, write down the loans so they are repayable and move on. If not then this will likely become a far bigger problem for the world, and the lending institutions.

chernevik 11y ago
The lenders presumed that Greek debt would always be acceptable to the ECB as collateral, and thus would always be worth face value. This analysis of ECB collateral policy proved correct. The blame, then, lays in the policies and signals of the ECB, which were transparently dictated by the political urgency of keeping Greece in the Euro. Had the Eurozone and the ECB adhered strictly to their budget rules, and penalized departures through ECB collateral policy, we'd be in a very different place. Of course, had those players had used proper accounting and figures, Greece would never have been qualified for the euro in the first place.

shockzzz 11y ago

Who here is a real economist that has the ability for pointed criticism? Share your thoughts, please.

bedhead 11y ago

Sovereign debt is inherently unsecured. It's a credit card for the government, nothing more. The primary motivation for servicing the debt is that it will enable more borrowing. And like people, countries don't pay off their debts for all sorts of reasons...not every default is created equally. At the least, Piketty is being intellectually dishonest. Personally, I think he is really just trying to appeal to the underdog by pointing out this poor analogue.

yummyfajitas 11y ago

So I've been vaguely following the Greece and Puerto Rico situations (the Greece situation is causing me to put some trading strategies on hold), but there is something I don't understand about it. How come so many left wing advocates (Piketty, Krugman, etc) are coming out advocating for Greek bailouts?

Daishiman 11y ago
Greek debt is literally impossible to pay as it is. They're not advocating default; they're advocating for the creditors to accept reality, write down their losses, and move on.
mike_hearn 11y ago
Because Greece has a radical left wing government.
msellout 11y ago
The term "bailout" is too ambiguous. The lefties prefer some form of debt-forgiveness combined with other measures for eventual partial debt repayment. Most importantly, the lefties don't want to cut Greek pensions and certain other state spending. As Varoufakis explained it, he wants qualitative reforms rather than parametric reforms. Instead of "cut spending by another X percent", he wants reforms such as consistent enforcement of tax collection. In contrast, the IMF, etc. are trying to take the easy way out by asking for parametric austerity increases -- keep doing the same thing, just more harshly -- which is unlikely to succeed.

Tehnix 11y ago

I feel sorry for the Greek people, but I personally favour throwing them out of the Eurozone if they default on the debt. It will be a very dangerous signal to send that you can borrow money, and not pay it back without any retribution. This is particularly important since more countries are going in the same direction as Greece (I think Spain and Puerto Rico are close, but I might be wrong). Besides that, it also hurts the confidence towards the Eurozone if the countries in it can behave this way. Also, am I the only one that finds it weird that they wait until after the deadline, to vote on whether or not to pay the debt back?

alexqgb 11y ago
What you don't understand is that a debt represents a risk to the lender, not a guarantee. If a debt were a guarantee, then there would be no basis for charging interest. In a well regulated system, the people who make bad bets are not entitled to retribution. They are "entitled" (read: expected) to go out of business. At the very least, they suffer embarrassing losses that they must explain to their shareholders. "Moral hazard", properly understood, is a term used to describe conditions that encourage reckless lenders. The threat of default is a good thing. That's what keeps otherwise rapacious lenders fearful enough to excercise good judgment and prudent restraint. Indeed, in advanced economies, the power of bankruptcy judges to wipe out debt is seens as an essential component of healthy capital markets. Bad lenders get wiped out, and take the money of their imprudent investors with them. That's what should have happened to the private lenders who originated the Greek debt. Instead, they got bailed out by EZ members who are following up one bad choice with another in promising their electorates that they can collect from a nation manifestly unable to pay.
- tsotha 11y ago
  >If a debt were a guarantee, then there would be no basis for charging interest. That's going a bit far. The borrower would still pay interest for the use of the money. Just not very much.
- johngalt 11y ago
  > If a debt were a guarantee, then there would be no basis for charging interest. Time value of money?

andy_ppp 11y ago

Everyone always seems to forget in these discussions how fantastic for German exports having instability in the Eurozone is...

DasIch 11y ago
Exports have been an important part of the German economy for decades. People aren't buying German products because they happen to be cheaper now and the won't stop buying them should they get more expensive.
- andy_ppp 11y ago
  >>> People aren't buying German products because they happen to be cheaper now Well, I suppose you can just make up statements like that if you want. I could say that basic economics disagrees with you, but what would be the point?
  - DasIch 11y ago
    Basic economics don't disagree with me at all. Production in Germany is expensive. If price were the deciding factor German industry would be irrelevant. The reason it isn't is because these products are specialized high quality products. You don't buy them because they are cheaper than some competitor, you buy them because there isn't an alternative product. The current euro situation certainly helps keeps prices down and allows more people to buy German products and that's a big part of why the German economy is doing so much better than anyone else. It wouldn't be much worse with a German currency either though.
    - andy_ppp 11y ago
      Yes, I get it, German exports are fantastic and they have been made even better by the Greeks devaluing your currency! It's great that you agree with me!

serve_yay 11y ago

Wow, he did not ever back down. An enjoyable read.

ChuckMcM 11y ago

I wonder if this will end up being "The Interview" in Piketty's career. I realize it was translated but even so it seems the most inartful discussion of a complex subject by someone considered an expert that I've seen in a long while. I reminds me a bit of Linus Pauling's interviews about vitamins where he goes off the rails.

tcbawo 11y ago
Historical context aside, he does have a good point in the end. Greece's credit card is maxed out and it doesn't appear that any amount of restructuring will make it possible to repay in full.
- ChuckMcM 11y ago
  We will certainly see. Given the rhetoric I expect Greece to simply disavow the debt, leave the Euro Zone, and let them figure it out. It isn't like you can repossess a country. The interesting question then is what happens next. Either they recover their economy (at least briefly) because they aren't carrying any sort of debt costs and the rest of the EU does nothing? Look to see Spain and maybe Portugal jump ship as well. The EU freezes them out, basically letting the black market set the value of the drachma, and we see hyper inflation in Greece where the price of everything goes up several hundred percent a year (maybe even a month) like it did in Argentina. Or maybe we see the Russians bail them out and give them a favorable exchange rate to roubles which can then be converted into dollars or euros. That sort of "help" comes with some strings that perhaps the Greek people will put up with, perhaps not. No matter what we'll get to see what happens when a country does the equivalent of filing for bankruptcy. My guess is that Greece will see economic turmoil like the various South American countries for the next 50 years, but its only a guess as I don't think we've been in this sort of situation in Europe since the end of WWII. I think Piketty could have said that without insulting the Germans.

sdenton4 11y ago

This all reminds me of what we've learned about forest management. You see, for a long time we thought that all forest fires were bad, and set out to extinguish fires whenever even a small one broke out in a forest. After a few decades of almost no fire, a huge amount of burnable debris collected in the forests, and now, when fires break out, they're gigantic and far, far more damaging than normal forest fires. Likewise, central banks have been working very hard to keep interest rates near zero. Any interest is perceived to be a bad thing (the big piles of money held by the large private interests become relatively smaller under inflation), and has thus been held in check. Normally, when things go somewhat badly for a country, they can issue a bunch of bonds and inflate their currency a bit to take up the flack. But with the Euro, there's no opportunity for member countries to inflate their own currencies to smooth out the bumps, and strong pressure from the overall Eurozone to keep interest rates low. The normal control mechanisms are suppressed, leading to bigger explosions when things go really wrong...

JamesBarney 11y ago
Hey sdenton, I agree with a lot of what you say about how Greece needs it's own currency to inflate, but sometimes I don't know if someone has a non-mainstream opinion or just needs a little help with consensus economics. So if you are like me a student of economics this post will hopefully help clear some things up. If not then I guess we disagree and the next person to read this post will have a better understanding of the different views of monetary policy present in economics :). The consensus view in economics about issuing bonds is that it moves the needle away from inflation and towards deflation. Think of money in a very simple supply and demand model. More (supply)money means it is worth less. When the government issues bonds it auctions them off and takes money from people(out of circulation) in return, reducing the supply of money. This leads to less money, which is worth more(deflation, or disinflation). The consensus view about lowering interest rates is that it leads to inflation. Imagine a country with a long term interest rate of 10%, then the FED turns the dial down to 0%. Vick the VC, previously had to average 10%+ on all of his start up investments because investors would move their money to banks(and make 10%) if he made less. So Vick previously only invested in the best start ups, all ex-googlers and previous entrepreneurs. But now he only needs to break 0%, so he invests in all the maybes. This leads to more start ups and more dev positions. Now if we go back to supply and demand, more openings(demand) means greater price. This same things happens across the entire economy. Many projects/start ups/buildings get funded that weren't before because of the drop in interest rate. And these projects create openings, leading to higher wages. Since labor composes most of the goods and services we consume, when we pay more labor, we pay more for good and services call it inflation.

tjradcliffe 11y ago

Lecturing Germany on its own history is just about the most useless contribution to this debate possible. Germany and everyone else who foolishly loaned Greece money in 2010--and before--wants to get paid. There is nothing wrong with that. Dredging up the irrelevant past? Not so much. Or: if I owe someone money, it doesn't matter if they are a nice person or not. I still owe them money, and must suffer the legal consequences if I fail to pay. This is what the rule of law is all about. It protects everyone, even people who are not nice. Even people who are hyopcrites. Even people who are Germans. This moralization is childish. By all means dismiss the German government's moralization as silly and irrelevant. But don't engage in far more silly and far less relevant moral hectoring of your own.

vidarh 11y ago
He's not engaging in moralising. The entire point is that while there's nothing wrong with wanting to get paid, it's entirely irrational to try to force payment no matter the consequences. Especially when both historical examples of similar steps and numbers from the last few years in Greece demonstrates that such a policy is likely to make matters worse, not better, not just for Greece but for the creditors as well.

kephra 11y ago

One must note, that this interview was given to the German newspaper "Die Zeit". So its important to note, what he did not mention: The repayment of Germans debt is only delayed till Germany has a peace treaty. The 2+4 contract is not a peace treaty, but deliberate "instead a peace treaty" just allows the Russian occupied part to join the US, UK and French occupied parts. The Euro-Zone is facing a dilemma. A debt cut, followed by inflation and taxing of private assets, would require that Greece still has monetary sovereignty. But all Euro states, even Germany and France, gave up their monetary sovereignty. None of them is a complete sovereign state anymore. An obscure bureaucracy in Brüssel is creating laws, that national governments just have to sign. And entering EU is like a roman Catholic marriage. A nation can join, but not leave EU.

Terry_Fan 11y ago

East Germany was forced to pay reparations to the Soviet Union. They were not part of the Marshal Plan. Any functioning industrial assets in the Soviet Sector was appropriated and sent east.

dmichulke 11y ago

Sorry, first the outburst, then the argument: Such a load of bullshit! The reason: What are you talking about? Generous? Currently, Germany is profiting from Greece as it extends loans at comparatively high interest rates. The interviewer suggests with his question that it's about generosity? (come on!) Piketty responds that Germany is profiting. Using the math I learned, adding up say 5 years of 5% doesn't even come close to the 50%-80% haircut that's gonna be needed. So how is there profiting? Even worse: In the end, the creditors of sovereigns are rarely other sovereigns but banks and funds. The former will be probably bailed out by the taxpayer, the latter is usually pensions of taxpayers. Of course, the sovereigns themselves are funded by the taxpayer, too. So no matter the result, it's not about generosity, there is no profiting (except for the few) and someone's got to pay (debts don't disappear) and he (the taxpayer) is not even mentioned. I sincerely get angry when I read such "elitist" opinions that completely contort and ignore facts.

totalcookie 11y ago

"Off-Topic: Most stories about politics, or crime, or sports, unless they're evidence of some interesting new phenomenon. Videos of pratfalls or disasters, or cute animal pictures. If they'd cover it on TV news, it's probably off-topic." HN Guidelines

hoggle 11y ago

This is the time to show solidarity by activating our resources and bootstrap a new economy. The banks together with our rampant financial illiteracy all need to go, are we still not able to scale blockchain transactions? Is there a secure "libbitcoin" written in Rust yet? Do we have super secure and crypto currency focused "micro" operating systems / servers on open hardware? Where are the people working on this? As a global economy - and civilization - we need to stick together and show some love and ingenuity.

jensen123 11y ago

So, Piketty wants to forgive debt, and he thinks it's a bad idea to kick states out of the Eurozone, since that supposedly will hurt confidence. And he wants a new European institution that will determine the maximum allowable budget deficit, in order to prevent the regrowth of debt. But if kicking states out is taboo, then I wonder what he would do if a state exceeds this maximum allowable budget deficit?

restalis 11y ago

"Germany is really the single best example of a country that, throughout its history, has never repaid its external debt. Neither after the First nor the Second World War." Actually I remember an article posted a while ago right here on HN about the last payments for WW1. It is possible that Mr. Piketty may not have updated information, but it is also possible that he deliberately ignores some facts in order to stir a bigger debate.

hackerboos 11y ago
This one http://www.bbc.com/news/world-europe-11442892 http://www.bbc.com/news/world-europe-11442892 ? "By the time country was reunified, in 1990, the world had changed dramatically since the days of Versailles, and policymakers decided to write off most of the original sum." So he's still correct.
- restalis 11y ago
  "This one http://www.bbc.com/news/world-europe-11442892 http://www.bbc.com/news/world-europe-11442892 ?" It was a similar article. "So he's still correct." The Germany's case was very, very different than that of Greece. After the both wars the winning forces just dictated the sum and the loosing forces had very little saying in the mater. It was most likely an exaggerated figure to start with, probably out of PR reasons - "we made them pay, dear people!" Later, when the emotions faded for the most part, a more realistic figure could be put in discussion and sold to the wide public as an act of generosity. Now let's talk about Greece and how many parallels can be drawn here. Greece was not being dictated figures of debt, Greece took the money willingly. Well, one could argue that only a small political elite made the decisions, but the money were actually reaching the average persons too, as budgetary salaries and pensions (and I bet they all enjoyed it). Write off some of the debt? There's no real reason to do that (but if that would be what it takes to bring them to saner fiscal practices, I would be OK with it anyway). So, Mr. Piketty may be "correct" in some twisted view in which paid-in-full war compensations are not actually recognized as such¹ and more importantly - he wants to be correct in an even more twisted context that puts on the same footing a subject of dictated-upon debt and the one of self-inflicted debt. ¹ Because the war winners have chosen later to adjust low the asked war compensation, and by doing that they manage to morally deny the "repaid" status. They could however have managed to achieve just the same by adjusting high (i.e. continuously calling for higher and higher sum so that it could never be paid in full).

socialist_coder 11y ago

Help me understand something. Piketty seems like he is in favor of repaying this debt by "inflation, a special tax on private wealth, and debt relief." But, he is against Greece leaving the Eurozone. So, how can they inflate their currency? Instead of inflation, which is impossible if Greece shares the Euro currency, is he suggesting that some percentage of Greece's debts just get knocked off? That would achieve the same result, I think.

cuillevel3 11y ago

Germany was rescued after WW2 to drive the European economy. Without German exports the continent would have had no chance to recover. It's sure ironic that Germany first destroyed the continent and then profited by rebuilding it, but history doesn't seem to care about irony much. I think the 'Germany never paid'-argument is flawed. The Marshall plan would not have worked if Germany had been indebted. Instead this happened: https://en.wikipedia.org/wiki/German_reparations_for_World_War_II https://en.wikipedia.org/wiki/German_reparations_for_World_W... If Greek defaults without paying their debt Germany (=tax payers) is about to lose 90 billions. I'm not sure how this is profiting...

socialist_coder 11y ago
That Wikipedia article says that Germany did not fully pay its debt to Greece. So, I don't see your point. If Greece was not on the Euro, it would simply print money and inflate its currency until it could easily pay off it's debts. That gives you the same result as what Germany did, which was to basically only pay off some of their debt and just forget about the rest. The debtors lose, but hey, that's the risk for loaning money, right?
- cuillevel3 11y ago
  Sure there is some debate about a possible debt from Germany to Greece for crimes committed in WW2. That's a big discussion by itself. Doesn't change the fact that the original article ignores the Marshal Plan. Anyways if Greek was not in the Euro it could devalue its currency. Which would benefit their exports, if they had any. However their debt would still be payable in Euro and the new currency would have a terrible exchange course. So no win. There are scientist who say the real estate market might boom in such a case. Since most Greeks are home owners that may provide some cash in the short run: International investors and rich Greeks who transfered their assets out of the country before the crash will buy in. It's still unclear if a state can actually default. I guess if you're not dependent on import you could risk not paying back your international partners(/enemies). There are examples of countries regaining some power in isolation. I agree about the risk of lending money, that's probably the reason why so much of this money was used to decouple Greece finance market and ensure existing (private) contracts were honored.

chmaynard 11y ago

I'm not qualified to judge whether Piketty is correct but I can offer this analogy. In the past, when I have loaned money to friends and family, my attitude was "kiss the money goodbye". If the money was spent wisely and served a useful purpose, I was happy. It's nice to get repaid, but it's not essential.

fredm-de 11y ago
Here's the problem: Merkel can't politically justify to give Greece more german taxpayer money because it isn't spent wisely. After 5 years of crisis, Greece still has a primary deficit, while maintaining more extensive welfare programs than most EU Members. Even in the case of debt forgiveness, they would still have a massive household deficit and be in the same situation again soon. So it's not about getting money back, it's about not burning more money.
- the_why_of_y 11y ago
  > After 5 years of crisis, Greece still has a primary deficit, Greece had a primary surplus in 2014. http://finance.yahoo.com/news/greece-revises-down-2014-primary-170017774.html http://finance.yahoo.com/news/greece-revises-down-2014-prima... > while maintaining more extensive welfare programs than most EU Members. What extensive welfare programs would that be? The 12 months of unemployment insurance? They don't even have a means-tested program to ensure a subsistence minimum for people younger than 45 years! http://www.keepeek.com/Digital-Asset-Management/oecd/governance/greece-reform-of-social-welfare-programmes/the-current-greek-benefit-system_9789264196490-7-en#page4 http://www.keepeek.com/Digital-Asset-Management/oecd/governa...

hahan 11y ago

it's not at all anything moral. it's business. the french and german banks lent to Greece not out of charity, but of profit, a profit earn at the risk of insolvency. Now the Greeks can pay back, that is, the french and german banks failed their business. if the EU is to bail out, it's bailing out the BIG BANKS, not the Greek People. Clear ? Business is business. why the banks would do this risky business, because their principle amount and the interest earned are guaranteed by EU. the situation now is that if the banks win, they have it all; if the banks lose, the eu people pay for them. if you cant help blaming someone, blame the BANKS and their ruthless risk taking.

hahan 11y ago

it's not at all anything moral. it's business. the french and german banks lent to Greece not out of charity, but of profit, a profit earned at the risk of insolvency. Now the Greeks can pay back, that is, the french and german banks failed their business. if the EU is to bail out, it's bailing out the BIG BANKS, not the Greek People. Clear ? Business is business. why the banks would do this risky business, because their principle amount and the interest earned are guaranteed by EU. the situation now is that if the banks win, they have it all; if the banks lose, the eu people pay for them. if you cant help blaming someone, blame the BANKS and their ruthless risk taking.

hahan 11y ago

i'm sure that if the Greeks have the potential of killing as many people and as cruelly as the German do, they would be tolerated and excused, whatever they have done. It just happens that Greece is a small and weak nation that everybody can safely point a finger at and accuse them of every problem there is. it does not just happens to the Greek, but to all the disadvantaged.whenever there's a crisis, some group would be targeted. they caused it because they are lazy, they're indulgent, they're irresponsible, they are weak, they're immoral,etc.be it women, colored, the poor,the illiterate, Jews, you name it.

harmonicon 11y ago

The medium page is not viewable for me apparently due to a copyright issue. Here is an alternative site for the full transcript: http://www.zerohedge.com/news/2015-07-06/piketty-germany-has-never-repaid-its-debts-it-has-no-standing-lecture-other-nations http://www.zerohedge.com/news/2015-07-06/piketty-germany-has...