MAKING SENSE -- May 23, 2012 at 11:50 AM ET
If Greece Were a Binge Drinker
A Greek flag flies next to a statue of Socrates in Athens. IMF chief Christine Lagarde on Wednesday warned of the risk of "contamination" if Greece quits the euro and said the eurozone might therefore see the value of paying more to keep Greece in. Photo by Aris Messinis/AFP/Getty Images.
A pair of responses to my austerity/stimulus post of a few days ago illustrate the current conflict in economic ideology quite nicely.
tedmc writes on behalf of austerity:
"Doesn't the medicine of austerity arrive only after the binge? It is the 'binge' that puts the death spiral into action. Ie: group A gets [government benefits] provided by funds removed from group B -- and the promises that more is available...just vote for it. If you don't binge you don't wake up with a hangover. Now you have the hung over brother (ie: Greece) asking their more prudent brother (Germany) for just one more drink (stimulus) to get over the shakes. If they don't give them the money, Greece cries that Germany is cold hearted and evil. What is needed is tough love and the courage to say 'No. No more stimulus, No more free lunch. Nothing in life is free.'"
In contrast, consider the comment from Invisible Backhand, who defines his/her role as "Exposing Cafe Hayek, Don Boudreaux and Russ Roberts for all their Koch funded propaganda":
"Austerity is not about growth, it's about making the bondholders whole. The campaign to convince the little people it's to their benefit is just advertising funded by the rich and their paid lackeys."
Let me respond to "Invisible Backhand" first, if only because the moniker is so memorable.
Austerity is surely about "making the bondholders whole." You do see their POV, don't you? Suppose you had loaned money to a friend from Greece? Would you not expect to be repaid? Would you do nothing but shrug? I don't know you, so the answer might be forgive and forget, but you can understand how such compassion, universally practiced, might undermine the lending process, can't you?
Futhermore, the "campaign to convince the little people it's to their benefit" is not just "advertising." It's the genuine conviction of many, like "tedmc" above, who may legitimately fear a total and devastating end to all lending if bondholders are wiped out. Any country with a budget deficit must borrow to close it. The only alternative is to print more money, at the risk of disastrous inflation. But if the country can no longer borrow, the budget will have to be cut and those most dependent upon it -- those living closest to the bone -- will suffer. Their health and education will suffer. Therefore, the human capital of their country won't develop. Economic growth will be stunted.
On to "tedmc."
While your inebriation analogy will be odious to some, let's run with it. Greece is the binge drinker. But it could only afford the hooch because "Grosse bruder" loaned it the money. Greece became an alcoholic and will now suffer the shakes if forced onto the wagon. Are you telling us that Germany bears no responsibility for Greece's dependency?
More to the point, is it in Germany's national interest to see Greece crumble? Should it not be worried about Portugal, Spain and Italy -- the other prominent members of the AU (Alcoholics Unanimous)? If they all go cold turkey, will German exports not take a hit? Worse, will extremist parties not make further headway in Europe? And what happens to the ideal of a trading bloc, united both economically and -- do not forget -- politically? Does no one remember World War II? World War I? The Franco-Prussian War? Napoleon? The Thirty Years War?
Dear emailers (and the rest of you):
Binges do tend to beget austerity. But it's not at all obvious that they should. Economics is the discipline of weighing costs against benefits, not some moral exercise. Because its actors are human beings, uncertainty rules. Economic policy is thus the process of weighing costs against benefits, never being sure of the outcomes. There are rarely simple answers. There are almost never sure ones.