“Excuse my “French”, but NYTimes columnist Paul Krugman is either an intellectual lightweight or an ideologue, liberal liar or both. I find it amazing and disturbing to think that he was once awarded a Nobel Prize in economics!”, Mike Perry, July 13, 2015

Krugman says: “Greece did indeed run up too much debt (with a lot of help from irresponsible lenders). But its debt, while high, wasn’t that high by historical standards. Consider Greece’s situation at the end of 2009, when its debt crisis burst into the open. At that point Greek government debt was near 130 percent of gross domestic product, which is definitely a big number. But it’s by no means unprecedented. As it happens, Greece’s debt ratio in 2009 was about the same as America’s in 1946, just after the war. And Britain’s debt ratio in 1946 was twice as high.”, “Greece’s Economy Is a Lesson for Republicans in the U.S.”, The New York Times, July 10, 2015

Perry responds: “In just the few sentences above in this one NYT article, Krugman logically contradicts himself, twice!!!! Krugman says “Greece did indeed run up too much debt” and then almost immediately says ”while high, it wasn’t (Greek debt) high by historical standards.” Make up your mind Krugman, which is it??? And Krugman, like many liberals, blames Greece’s pre-crisis lenders, “with a lot of help from irresponsible lenders.” Yet how were they irresponsible “if Greek debt wasn’t that high by historical standards”, “it’s by no means unprecedented”, and “was about the same as America’s in 1946 and Britain’s debt ratio was twice as high?” And don’t forget, as I understand it, the Greek government lied to the Euro zone about its finances in order to be approved as a member and lied about its finances to the Euro group, its bankers in Europe, and the world, right up until the 2008 financial crisis. They were reporting 4% annual deficits (to GDP) and a new government came in and found they were more like 14% annual deficits! Intellectual lightweight or liberal liar or both?”

Krugman says: “The main point, however, is that the ratio of debt to G.D.P. is up because G.D.P. is down by more than 20 percent. And why is GDP down? Largely because of the austerity measures Greece’s creditors forced it to impose.”, “Greece’s Economy Is a Lesson for Republicans in the U.S.”, The New York Times, July 10, 2015

Perry responds: “Hard to believe that Krugman doesn’t know or understand that pre-crisis Greek GDP was unsustainably high because the Greek’s were using “Other People’s Money” (other European banks and countries) to put too many people on the government payroll and provide unrealistic pension benefits to retirees (both of which artificially increased GDP). I read in the WSJ that one in three Greeks either works for the government or has a relative who does. And from July 20, 2015, Time Magazine the following: “Armed with borrowed fortunes, a series of (Greek) governments began hiring public employees by the hundreds of thousands and plying them with perks.” So, Mr. Krugman, if Greek debts are already high (make up your mind, are they or not?), how could they borrow even more? And without more “Other People’s Money”, GDP had to shrink to a more realistic level (from which it could then grow, with the right policies and culture). Intellectual lightweight or liberal liar or both?”

Krugman says: “What turned Greek debt troubles into catastrophe was Greece’s inability, thanks to the euro, to do what countries with large debts usually do: impose fiscal austerity, yes, but offset it with easy money. Does this mean that austerity is always self-defeating? No, there are cases — for example, Canada in the 1990s — of countries that slashed their debt while maintaining growth and reducing unemployment. But if you look at how they managed this, it involved combining fiscal austerity with easy money: Canada in the ’90s drastically reduced interest rates, encouraging private spending, while allowing its currency to depreciate, encouraging exports. Greece’s formula for disaster, in other words, didn’t just involve austerity; it involved the toxic combination of austerity with hard money.”, “Greece’s Economy Is a Lesson for Republicans in the U.S.”, The New York Times, July 10, 2015

Perry responds: “First, I would point out that Ireland (after Greece’s first European bailout!) also went through an IMF/Euro bailout and austerity, and it was successful. By 2014, Ireland was the fastest growing economy in the entire Euro zone. And like Greece, Ireland didn’t have its own currency to devalue (they both are on the Euro), but unlike Greece, they diligently stuck to the austerity program and their economy improved and the bond market rewarded them by allowing Ireland to refinance nearly all of their IMF/Euro government bailout debt at very favorable rates/terms. How does Krugman explain that? Look, I agree with Krugman that the Euro was a mistake (as structured), but ironically that mistake was a liberal, centralized Euro-government’s mistake (not the people’s or the private sector) and Krugman, like many American liberals, wants the U.S. to be more like Europe. Greece can decide to stay in the Euro and follow the rules or exit the Euro, default, wipe out their debts, and establish their own currency. Greek elites know that “austerity” the past five years has meant tens of billions (net of any outflows/payments Greece made) in other European governments/taxpayers funds coming into Greece. If Greece defaults, wipes out its debts, and exits the Euro, Greek elites know they will have to build a real, sustainable political and economic system and live within their means. And from July 20, 2015 Time Magazine: “The political goal of all of this, says Manos, “was to keep armies of supporters relying on the system.” Intellectual lightweight or liberal liar or both?”

(“I can’t respond to any more of Krugman’s articles, as nearly all of them are intellectually flawed and/or a lie and it takes too much time. Why does the New York Times give someone like Krugman a regular column?” Mike Perry)

The Opinion Pages

Greece’s Economy Is a Lesson for Republicans in the U.S.

Paul Krugman

Greece is a faraway country with an economy roughly the size of greater Miami, so America has very little direct stake in its ongoing disaster. To the extent that Greece matters to us, it’s mainly about geopolitics: By poisoning relations among Europe’s democracies, the Greek crisis risks depriving the United States of crucial allies.

But Greece has nonetheless played an outsized role in U.S. political debate, as a symbol of the terrible things that will supposedly happen — any day now — unless we stop helping the less fortunate and printing money to fight unemployment. And Greece does indeed offer important lessons to the rest of us. But they’re not the lessons you think, and the people most likely to deliver a Greek-style economic disaster here in America are the very people who love to use Greece as a boogeyman.

To understand the real lessons of Greece, you need to be aware of two crucial points.

The first is that the “We’re Greece!” crowd has a truly remarkable track record when it comes to economic forecasting: They’ve been wrong about everything, year after year, but refuse to learn from their mistakes. The people now saying that Greece offers an object lesson in the dangers of government debt, and that America is headed down the same road, are the same people who predicted soaring interest rates and runaway inflation in 2010; then, when it didn’t happen, they predicted soaring rates and runaway inflation in 2011; then, well, you get the picture.

The second is that the story you’ve heard about Greece — that it borrowed too much, and its excessive debt led to the current crisis — is seriously incomplete. Greece did indeed run up too much debt (with a lot of help from irresponsible lenders). But its debt, while high, wasn’t that high by historical standards. What turned Greek debt troubles into catastrophe was Greece’s inability, thanks to the euro, to do what countries with large debts usually do: impose fiscal austerity, yes, but offset it with easy money.

Consider Greece’s situation at the end of 2009, when its debt crisis burst into the open. At that point Greek government debt was near 130 percent of gross domestic product, which is definitely a big number. But it’s by no means unprecedented. As it happens, Greece’s debt ratio in 2009 was about the same as America’s in 1946, just after the war. And Britain’s debt ratio in 1946 was twice as high.

Today, however, Greek debt is over 170 percent of G.D.P. and still rising. Is that because Greece just kept on borrowing? Actually, no — Greek debt is up only 6 percent since 2009, although that’s partly because it received some debt relief in 2012. The main point, however, is that the ratio of debt to G.D.P. is up because G.D.P. is down by more than 20 percent. And why is GDP down? Largely because of the austerity measures Greece’s creditors forced it to impose.

Does this mean that austerity is always self-defeating? No, there are cases — for example, Canada in the 1990s — of countries that slashed their debt while maintaining growth and reducing unemployment. But if you look at how they managed this, it involved combining fiscal austerity with easy money: Canada in the ’90s drastically reduced interest rates, encouraging private spending, while allowing its currency to depreciate, encouraging exports.

Greece, unfortunately, no longer had its own currency when it was forced into drastic fiscal retrenchment. The result was an economic implosion that ended up making the debt problem even worse. Greece’s formula for disaster, in other words, didn’t just involve austerity; it involved the toxic combination of austerity with hard money.

On one side, just about everyone in the G.O.P. demands that we reduce government spending, especially aid to lower-income families. (They also, of course, want to reduce taxes on the rich — but that wouldn’t do much to boost demand for U.S. products.)

On the other side, leading Republicans like Representative Paul Ryan incessantly attack the Federal Reserve for its efforts to boost the economy, delivering solemn lectures on the evils of “debasing” the dollar — when the main difference between the effects of austerity in Canada and in Greece was precisely that Canada could “debase” its currency, while Greece couldn’t. Oh, and many Republicans hanker for a return to the gold standard, which would effectively put us into a euro-like straitjacket.

The point is that if you really worry that the U.S. might turn into Greece, you should focus your concern on America’s right. Because if the right gets its way on economic policy — slashing spending while blocking any offsetting monetary easing — it will, in effect, bring the policies behind the Greek disaster to America.

A version of this op-ed appears in print on July 10, 2015, on page A27 of the New York edition with the headline: Formula for Disaster.

Posted on July 14, 2015, in Postings. Bookmark the permalink. Leave a comment.

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