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Greece adopts drastic austerity measures
Here, Greek Prime minister Lucas Papademos addresses lawmakers during the crucial vote in Athens.
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Kai Ryssdal: There's a certain wow factor every time the White House comes out with a budget. Three or more trillion dollars usually; $3.8 trillion this year. Staggering deficits, and not much chance of it passing intact in this presidential election cycle.
So let's do this instead, just as a way to make global economic news a little more real. Cut our budget by 25 percent, give or take. Lay off hundreds of thousands of government workers. Stake the entire economy on those cuts and others.
Over the weekend, the Greek parliament did exactly that. Our Washington bureau chief John Dimsdale draws a comparison.
John Dimsdale: Imagine if the federal minimum wage dropped from $7.25 an hour to $5.50, plus the eligibility age for Social Security jumped to 70. And 450,000 government workers lost their jobs and health benefits over the next three years. That’s close to how the latest Greek cutbacks would feel in this country.
Stuart Eizenstat: It would for sure throw us into not only a recession, but a very deep recession.
Stuart Eizenstat was U.S. ambassador to the European Union when the euro was adopted.
Eizenstat: Because if you take that much purchasing power out of several million people who are on the minimum wage and you suddenly lay off 400,000 people, it would put a massive squeeze on unemployment insurance and it would reduce purchasing power dramatically.
Lay that on top of a country already suffering from 21 percent unemployment after five years of recession and he says you can understand why Greeks have taken to the streets. Costas Panayotakis says Americans have little sense of what the Greeks are going through.
Costas Panayotakis: Everybody, if you ask the average American what is the state of the economy now, they will say it’s very bad. And yet, the output in the U.S. is not going down. So, we’re talking about a situation of output shrinking for five years, which has never happened in Greek history.
Panayotakis says educated and talented Greeks have no choice but to leave the country. He’s now a professor at the New York City College of Technology.
In Washington, I'm John Dimsdale for Marketplace.
Mr. Costas Panayotakis has been preached the end of capitalism. Finally his dreams come through, the proletarians are destroying the capitalist system. Maybe they also would like to melt the snow in the sky resorts on The West Coast. So his ego will be fulfilled from New York City College of Technology in Brooklyn
Growth can't come from the government employeing people. It can't. The most a government can do is steal growth from the future by borrowing. What the government can do is let businesses grow. I remember in previous marketplace reports on how the educated in Greece all want government jobs, because they weren't stressfull. Growth is never going to come from a nation with an attitude like that. Americans can't feel what Greeks feel because Americans pay taxes and Greeks have a national pride in not paying taxes.
Mr Dimsdale,
A ridiculous and useless comparison, that adds nothing to our understanding of Greece’s plight. The US is not Greece. The US economy is basically sound and growing (if only at a slow rate). And our public sector is not bloated to near the extent that is Greece’s. Nor do our minimum wage earners receive anywhere close to the level of public assistance that is typical in Greece.
I feel for Greece, but this will not tempt me to abandon objectivity, accuracy, and honesty. Your time and effort would be much better spent doing a little more research and then making a more honest attempt to explain the very complex state of affairs in Greece both past and present.
"Imagine if the federal minimum wage dropped from $7.25 an hour to $5.50, plus the eligibility age for Social Security jumped to 70. And 450,000 government workers lost their jobs and health benefits over the next three years. That’s close to how the latest Greek cutbacks would feel in this country."
Imagine if a drug addict stopped taking drugs to which he had become addicted, he'd feel really sick, and would beg to go back to his previous life of addiction. He'd throw a tantrum, and start breaking things.
We need to rethink this whole idea of why losing your job means losing your health care. We should be buy health insurance just like we buy other kinds of insurance. And coverage for routine things like contraception isn't insurance, thats PREPAID MEDICAL SERVICES.
"Costas Panayotakis: ... So, we’re talking about a situation of output shrinking for five years, which has never happened in Greek history."
It's been all too common for people to confuse economic activity with actual economic productivity. Borrowing and consuming isn't in itself a sign of prosperity, it's the ability to produce goods that is the important thing to measure. If each of us bought and sold our neighbors houses there would be a large spike in economic activity, but we'd be none the richer.
Greece will be in an economic tailspin, even more cruel that what they have seen so far. The EU is totally irresponsible to impose such measures without previously having set up a system where all member economies have a fair share in the benefits and the problems, and with some governance that works for all states. Somehow, after roughly a decade in the EU, Greece has NO EXPORTS. How could this be? And who is talking about the zombie banks (many in Germany) that are insolvent? Again, what kind of economic system has such disparate results? In the US, each state manages its own budget, (and some are in trouble while others are not), but they all pay taxes to the Feds, which manages the economic system overall. To my knowledge, no individual state can be told by the Feds to cut the minimum wage and increase the age for retirement (tho' the Feds can do this for all states), etc. Sounds like no planning at all to me.
I'd be glad to aswer your question. Right now Greece consumes more than it produces. It has been able to do this in the short run by borrowing money from savers in the rest of the world, and using it to buy consumption goods like food and energy. But we know that just as is true for a houshold, is true for a nation, in the long run you can't consume more than you produce. By liberating the resources tied up in non-productive activities, such as government beurocracies, they are increasing the availability of resources for the productive parts of the economy that had previously been crowded out. Labor for example becomes cheaper, and this gives Greece a competative advantage for labor intensive activites such as agriculture. It isn't consumption that is important, consuming is easy, it's production that we need to measure and foster. When a minimum wage is set that is higher than the market wage of that catagoryof labor, you get unemployment and underground employment.
