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Greece And The Worst Possible Way To Correct Trade/Productivity Imbalances
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Piling on more debt is the worst possible way to correct structural trade and productivity imbalances.
In Greece and the End of the Euroland Fantasy, I suggested the trade imbalances at the heart of Greece's debt crisis could only be resolved by Greece returning to its own national currency. Correspondent Michael Gorback observed that there are other mechanisms for correcting imbalances in trade and productivity:
"There is not one but 4 ways to address international productivity imbalances: currency revaluation, fiscal transfers, labor migration, and changes in local wages.
If you peg one of those the others must adjust. In the case of the Eurozone and Greece, the adjustment was largely through fiscal transfers with a bit of migration. Wages are not so much sticky as fossilized.
I submit that the reason the US does well under monetary union (ED NOTE: that is, all 50 states use the same currency, the U.S. dollar) is not so much its fiscal union as it is the strength of compensatory mechanisms that are far less developed in Europe. American states and localities still engage in their own fiscal policies and productivity is by no means homogeneous.
The US enjoys excellent labor mobility - about 10x that of Europe. It has seen numerous population shifts based on economics: the early western migration, the Gold Rush, migration of freed slaves to the north, Okies leaving the midwest during the Dust Bowl, the population shift from New England to the Sun Belt, and more recently the oil-boom-related migrations, to name a few.
Employers are also mobile. Furniture manufacturers moved from Western NY state to the South decades ago. GE once had 14,000 employees in the town of Pittsfield, MA. Now it's gone. Boeing is moving ops to SC. Beretta moved to TN. If the wages don't adjust, the employers migrate to the lower wages.
The US, having a large and relatively less regulated private sector that's also relatively unencumbered by unions, has greater wage flexibility than most developed countries.
I think these compensation mechanisms in mobility and wages work better for the US and that's why the US handles monetary union better than the Eurozone. The US still has to engage in interstate fiscal transfers but they're mediated through the central government and few citizens give it a second thought. Is the State of NY frothing over the fact that it gets back less federal dollars than it pays, and that the difference is going to Kentucky?
Why does Boeing open a plant in South Carolina and China open factories in Africa but BMW hasn't opened a plant in Greece? If I were negotiating a bailout, those would be the reforms I'd demand - reforms that make business thrive."
Easing the process of labor migration within Europe was one goal of the Eurozone, and in terms of making it relatively easy for someone to take a job in another Eurozone member nation, it was a successful reform.
But this doesn't really address imbalances in productivity due to differences in skills, education, cultural values and corruption. Low-skill labor is more easily recruited than high-skill labor, and in a global economy, the choice of where to site a new plant or call center depends on many factors, not just wage arbitrage, i.e. going to where the labor is currently cheaper.
Many assume corporations have shifted production to China to take advantage of lower wages. But as wages rise in China, this is not necessarily the deciding factor: proximity to China's growing market is often the over-riding factor.
A new book, Thieves of State: Why Corruption Threatens Global Security, highlights the many systemic costs of corruption. The corruption that is endemic to Greece and China (among many others) imposes profound systemic costs on those economies, costs that may well loom much larger in the next global downturn than they did in the last Global Financial Meltdown.
I think it is safe to say that piling on more debt is the worst possible way to correct structural trade and productivity imbalances, yet that is the Eurozone's "solution" to Greece's debt/ trade/ productivity/ corruption crisis. The discussion should be (as Michael pointed out) about creating conditions for business and real wealth creation to thrive, not jamming more debt down the throats of everyone on either side of the structural imbalances.
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Fattening the calf for the slaughter.
The meat will be just that much sweeter when butchered.
And you can make a little money on the side while you're at it. Nice work if you can find it.
Who's yo Daddy!
"Sugar Daddy" that is...)
More like <SLAP>....Now, bitch, get out there and make me some money so yooz can pay my ass back, ho !
Precisely, especially given the fact that the top officials in Greece are all former goldenites (actually, goldenites can't be former).
Greece, as a part of the "EU" (created by the US) is a colonial territory. Labour week in Greece is 5 hours longer than in Germany. But ZOG media keep pouring the same mantre into sheeple's ears: "Greeks are lazy". As Greeks would say: "Gamoto Kerato sou"
I think the *worst* way is what Bruce Jenner did or plans to do to his pork n beans...
Nobody was trying to "solve" the problem in Greece. Greece is all by itself a problem because they are not big enough producers (oh teh noes!), the EU wanted them out of the club but didn't want to make themselves look like thugs kicking the Greeks out. So instead the EU just sort of abused them until they left (or shortly will) because of course that looks sooooo much better on paper.
Sociopaths.
The EU fuckers are all top-tier pathological. Greece ought to run the other way now.
The United States was founded by Durch and English speculators.
The entire economic history of the USA save for 1945-1973 can be summed up simply as "the boom and bust cycle."
Unlike Europe which has many safeguards for workers and "stakeholders" alike (I.e the Taxpayer") the USA pretty much has ZERO.
Banking donates the Norh American Continent like no other place on Earth...which makes "Governmenting" a dangerous business over here.
I'm not sure "Europe" has ever really understood that as they have a legal and "cultural" code is not conducive towards creating these huge "mania's."
Seems to be more like "epic power struggles" over there. Here "we just go bankrupt and think nothing of it."
We'll see how all this "Greek stuff" aye out over the coming weeks and months.
Suffice to say it has no bearing whatsoever on what the U.S. economy is or will do.
If Surope isn't careful "they could become part of the American POLITY" would appear.
I mean nothing's says HUGE like the United States.
"Western Europe" is quite small by comparison.
Wrong article, too many windows open...
:-)
the American people has to understand, the documentary films of of Michael Moore was all about. He praised the socialist EU supra-national organisation for what?. He showed you just how wonderful it is to sit, relax and get payed by benefits.He showed you just how happy people can be, with restricted arms possession. The erstwhile cradle of capitalism, the USAhas being challenged for decades from socialist forces. By supposedly "liberal" ronald Reagan who launched the monetary expansion and established the toxic Keynesian regime o the FED as a regulator of the economy, to "philanthropist" O" bozo with socialist programs copied directly out of the fucked up "social" EU state. The American people must be awakened and finally reject socialism.
Greetings from Greece. Sorry for any mistakes in my english.
To be honest, in modern history Greeks liked bribes a lot, did not care much or understand what productive work is, courts and police have traditionally being corrupt and manipulated.
Everyone seems to want to rip off the other, public employees with private sector friends have robed many of their factories, businesses, houses ....
That's my experience anyway, awfull, now the new generation seem much better, and Syriza seemed more honest than past Greek politicians.
I guess they deserved a chance to fix their country, it was a huge mistake to deny that, Greece will now go through a few 'national unity' governments, Tsipras will last max 3 months, eventually Hrisi Avgi will win the elections and declare bankruptcy, default on all loans, take Greece out of Euro , EU, Nato, and become a Russian 'semi-protectorate'.
Not ideal for many but hey, Greeks have it very tough now, Russia looks pretty good when your country is utterly destroyed and you are starving....
Too many bad politicians in Europe and USA.... I mean Obama clown is worse than the fat looney lady Merkel.
There will be NO GREXIT ever.
And there will be NO DEBT CUT ever, if the debt cut will result in lower debt obligations of the other EU members to the ECB and IMF.
And fuck you if you don't like it.
And fuck that old man Carl Icahn, a man who is intellectually bankrupt.
Ask him, "Hey, Icahn, did you trade any ETF throughout your life? Oh, you did? Well, fuck you!"
"Hey, Icahn, just because Apple Ceo is a stupid fella does not make you good fella. Stop asking Apple to buy back your stocks. Apple needs the money to save the world, not you."
"And fuck you again, Icahn. If you don't like it, then come over and suck my cock."
"Easing the process of labor migration within Europe was one goal of the Eurozone, and in terms of making it relatively easy for someone to take a job in another Eurozone member nation, it was a successful reform."
There is that little pesky problem that we have a number of different languages to deal with rather than 1 (well, 2) in the USA. And not even from the same linguistic branch: Greek is a family of its own, then you have the latin languages (Italian, French, Spanish and, more distant, portoguese), the german ones (German, Danish, Swedish, Dutch and, in a way, English), the slavic ones (Czech, Slovak, Polish, Croat and, more distant, Slovenian), the Ugro-finnish ones (Hungarian and Finnish, which as distant and incromprehesible to each other as they are to any other language in the world), a Semitic one (Maltese, with heavy influences from Italian, Arab and English.. weird language) and I'm probably forgetting some. One might be able to master a couple, giving him some mobility, but not all of them.
Let's add immense cultural differences among Europeans, immensely larger than among americans, at least within teh same ethnic groups.
Plus wholly different legal systems among member states, which means that anyone with a legal and economics degree is stuck in their countries and people with engineering degrees have to re-learn everything that can be impacted by national regulations.
So, yeah, mobility isn't going to solve teh problem any time soon, if ever, even with all the help or reforms one might wish to make.
Beat me to it :-)
Labor migration in the EU is hampered by language barriers, which are non-existent in the US.
In the US, all states shared the same basic elements:
Shared history and lack of language barriers made US States more homogeneous to begin with, and the opposite is true in Europe. Trying to get individual countries which were once powerful colonial powers or empires down to the same level with countries which were not is not going to work. The best they can do is dismantle the EU to the bare minimum, meaning common market for labor, goods and services, leaving individual countries to increase their competitiveness to themselves as they see fit. What they are doing now is trying to increase the competitiveness of southern countries against their will, increasing tensions and mistrust in the process. Another aspect of the EU is added complexity, bureaucracy and enactment of dubious legislation (the power limit for vacuum cleaners comes to mind). Of course, Germany won't like it, as it did not in the mid '90, when, for example, car buyers from Germany bought cars in other EU countries where they were cheaper.