Quote: (07-20-2015 09:45 PM)Ryre Wrote:
Actually Krugman's primary recommendation for Greece is for Germany/the EU to allow some inflation. There's a thing called price stickiness. It's particularly powerful when it comes to wages. In a frictionless economy, if a nation was overspending and everyone needed to take a pay cut, wages could just be slashed by 10% across the board. But think how that has to work in a real economy. Each boss has to realize that he needs to cut wages. Then he needs to go around to each worker and inform them their pay is being cut. Some people may have contracts that prevent that. Others will go on strike. A messy, cumbersome process.
Now imagine that the EU was allowing 4% inflation (pretty moderate). In a nation that was doing well, like Germany, people would get 4% raises too, and relative buying power would stay the same. Whereas in Greece, wages could stay flat. Everyone's taking a 4% haircut, but without all the messiness of individual wage negotiations, etc.
This is normally what countries do when they get in a little over their heads--they let the currency devalue a little. Everyone's buying power falls a little across the board, prices right themselves, and you move on. Greece's problem is the Euro straightjacket prevents them from doing the natural correction.
Ryre, I won't pretend to be nearly as plugged in as you and there may be something I missed, particularity more recently.
But this is the Krugman quote I was keying off of that he recently said (just after the referendum):
Quote:Quote:
But the key point is that the austerity ended up being not just incredibly painful but completely futile, because it wasn’t accompanied by massive debt relief.
http://krugman.blogs.nytimes.com/2015/07...in-greece/
He's also said, to my recollection, "Greek debt is just a number on a page" held by laregly unethical creditors, who must forgive to achieve some semblance of a return on their loans (couldn't find that quote readily).
To my mind, forgiveness is a powerfully perverse incentive, even in combination with other "reforms", assuming the reforms would ever be accepted by the Greek populace. You're bound to end up in the exact place you started from.
But as before, I am just a layman...