The Producers

(This post is pure speculation, but let’s have some fun with it anyway.)

During the campaign for the recent Greek referendum, something inexplicable happened. The Greek leader Tsipras suddenly offered a compromise proposal that he said was very close to the proposal of the creditors.  Tsipras was campaigning for a no vote, but this move seemed to support the yes position.  Very odd.  His supporters were very upset. In email correspondence with Tyler Cowen, I mentioned my confusion.  He suggested that there might be nested games being played, perhaps Tsipras secretly prefers a yes vote.  Then on Tuesday Ambrose Evans-Pritchard reported this bombshell:

Like a tragedy from Euripides, the long struggle between Greece and Europe’s creditor powers is reaching a cataclysmic end that nobody planned, nobody seems able to escape, and that threatens to shatter the greater European order in the process.

Greek premier Alexis Tsipras never expected to win Sunday’s referendum on EMU bail-out terms, let alone to preside over a blazing national revolt against foreign control.

He called the snap vote with the expectation – and intention – of losing it. The plan was to put up a good fight, accept honourable defeat, and hand over the keys of the Maximos Mansion, leaving it to others to implement the June 25 “ultimatum” and suffer the opprobrium.

This ultimatum came as a shock to the Greek cabinet. They thought they were on the cusp of a deal, bad though it was. Mr Tsipras had already made the decision to acquiesce to austerity demands, recognizing that Syriza had failed to bring about a debtors’ cartel of southern EMU states and had seriously misjudged the mood across the eurozone.

Instead they were confronted with a text from the creditors that upped the ante, demanding a rise in VAT on tourist hotels from 7pc (de facto) to 23pc at a single stroke.

Creditors insisted on further pension cuts of 1pc of GDP by next year and a phase out of welfare assistance (EKAS) for poorer pensioners, even though pensions have already been cut by 44pc.

They insisted on fiscal tightening equal to 2pc of GDP in an economy reeling from six years of depression and devastating hysteresis. They offered no debt relief. The Europeans intervened behind the scenes to suppress a report by the International Monetary Fund validating Greece’s claim that its debt is “unsustainable”. The IMF concluded that the country not only needs a 30pc haircut to restore viability, but also €52bn of fresh money to claw its way out of crisis. . . .

Syriza has been in utter disarray for 36 hours. On Tuesday, the Greek side turned up for a make-or-break summit in Brussels with no plans at all, even though Germany and its allies warned them at the outset that this is their last chance to avert ejection.

The new finance minister, Euclid Tsakalotos, vaguely offered to come up with something by Wednesday, almost certainly a rejigged version of plans that the creditors have already rejected.

That was a very pessimistic article, but I saw a possible upside—both sides actually might want a deal.  On Wednesday I linked to the article and commented:

If so, is a deal still possible?

Then commenter Mike Sax pointed out that Varoufakis once linked to an article by Evans-Pritchard, praising it lavishly.  Interestingly, the new Evans-Pritchard piece reflects some of the views held by Varoufakis.  Could he be a source?

And then global stock markets started rallying.  Today the BBC has this report, entitled “Athens Capitulates to Creditors”:

Not for the first time over the five years of Greece’s euro crisis – or the eurozone’s Greece crisis – I am confused.

My confusion stems from the proposals for tax, benefit and economic reform submitted by the Greek government to secure, at the very last minute of the last hour, a deal from their creditors to avoid tumbling out of the euro.

Having obtained a copy of this paper, headed“Greece: Prior Actions – Policy Commitments and Actions to be taken in consultation with the EC/ECB/IMF staff”, it feels very familiar.

That familiarity stems from its great similarity to the bailout proposals put to Greece by the creditors – the eurozone governments, the European Central Bank and the IMF – last month.

Pretty much everything wanted by the creditors is there – with the odd tweak or softening, but nothing which looks as though it ought to be noxious to them.

So there is a pledge for budget surpluses rising in steps to 3.5% of GDP or national income by 2018; VAT would be raised to three rates of 23% (the standard rate), 13% (for food, energy, hotels and water) and 6% (for medicine and books) – increases that would raise revenue equivalent to 1% of GDP; and Athens is eating the dust of comprehensive reforms of pensions to make them more affordable; and so on.

So here’s why I am a bit baffled.

Only a few days ago the Greek prime minister Alexis Tsipras won an overwhelming mandate from the Greek people, in a referendum, to reject more-or-less these bailout terms.

And today, on the back of that popular vote, he is signing up to the supposedly hated bailout.

This is big politics that would make Lewis Carroll proud.

Or Mel Brooks.  It would be like selling the same play 10 times over to 10 investors. The play would have to be so bad that it would definitely fail, and then you pocket all their money.  But what if it succeeded?

It’s too soon to say any of this is true.  But each hour that goes by I am more and more convinced that this prediction will somehow turn out accurate:

Does it sound like Syriza was telling the truth?  Will the Greeks now negotiate a better deal?  Or did they not even bother presenting an offer because they knew the game is over and Grexit is approaching?  I’m not sure, but within a week we’ll probably know the truth.  My hunch is that a month from now this won’t be viewed as a “victory for democracy.”

Not my view that Grexit was likely, but rather the prediction that in the end this won’t be seen as a victory for democracy. Some very subtle games are being played here on both sides.  To think that voters could suddenly be thrust in the middle of these complex games, with no understanding of what’s really going on, and less than the legally required two weeks to analyze the situation, and make a helpful contribution to the negotiations, seems increasingly utopian.  I love referenda, but this isn’t how it’s supposed to be done.

Again, this entire post is speculation; I have no information beyond the opinions linked to above.

PS.  If a deal is reached it will be very good news for the global economy–there was danger of a deflationary shock.  But it won’t be good news for Greece, indeed in some ways the worst of all possible worlds.  The socialists will still be in power, reluctant to do neoliberal reforms, and there’s no silver lining of a boost to NGDP coming from devaluation.  Overall I’m happy if there’s a deal because I care most about global welfare—but with a tinge of sympathy for the Greeks.



48 Responses to “The Producers”

  1. Gravatar of Ironman Ironman
    10. July 2015 at 05:38

    At least we know the answer to the question now of what Tsipras’ government believes would be worse: exiting the Eurozone or accepting the Troika’s terms. Here’s a tool we built to do back-of-the-envelope calculations on the impact that a deal would have on Greece’s GDP (update the numbers appropriately).

    The interesting angle is that the ECB has expanded its ability to target its QE efforts within specific regions, which means it has a path to offset the negative input shock of Greece’s impending tax hikes within Greece if it chooses. The privatization of Greek government assets (such as Athens’ port facilities) that would be part of a deal would provide an easy channel for it to do so.

  2. Gravatar of Gallego Gallego
    10. July 2015 at 06:19

    That’s what I thought when I saw Varoufakis step down on Monday: he wanted a yes vote and had no idea what to do with OXI. Or didn’t want to be a part of it.

    Anyway, Greeks are now offering what voters rejected. Is anyone still in the “victory of democracy” camp? First they come up with a populistic, “clean hands” referendum, now they ignore its result. They just wag the dog..

  3. Gravatar of collin collin
    10. July 2015 at 06:41

    I am surprised the Greek people don’t just drawing Drachma marks as the truth is what is best for the global economy and Euro is Greece to continue their depression.

    If we ever get depressed about the modern world, we do have remember what happened the last time Europe was in such a depression. (Not trying to break Goodwyn Law here.)

  4. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    10. July 2015 at 06:42

    ‘VAT would be raised to three rates of 23% (the standard rate), 13% (for food, energy, hotels and water) and 6% (for medicine and books) ‘

    Mustn’t forget the intellectuals!

  5. Gravatar of vak vak
    10. July 2015 at 06:52

    I’m not sure I buy this. If they wanted a yes vote, they would have put “no+exit the euro” on the ballot. That way, they would still have gotten their second best in case of a no victory (free hands to implement their agenda).

  6. Gravatar of LK Beland LK Beland
    10. July 2015 at 06:55

    I have a slightly off-topic question. It is linked to Krugman’s latest post, regarding multipliers:

    The fiscal multiplier in the EZ seems to be about 1.5, with a log-rgdp intersect of 7.73. I would prefer a ngdp assessment, but I expect the result to be similar (which Mark Sadowski has already shown, if I remember well).

    So here is my question: if the ECB had implemented policies that boosted ngdp (and probably rgdp), would that have changed the intersect or the slope (or both) of the [structural_balance vs gdp] relationship?

  7. Gravatar of Brian Donohue Brian Donohue
    10. July 2015 at 07:00

    Governing is hard. Perhaps Tsipras realized at some point that the EU wasn’t bluffing, and the latest go-round helps him demonstrate this to the Greek people. “I’m sorry, I did all my fancy game theory, and this is the best deal we’re gonna get.”

    Doesn’t seem so undemocratic.

  8. Gravatar of Tom S Tom S
    10. July 2015 at 07:04

    How can you love referenda when you think public opinion polls are meaningless and depend entirely on how the questions are worded?

  9. Gravatar of Saturos Saturos
    10. July 2015 at 07:13

    But didn’t you say you would have voted Yes on the referendum? Isn’t this the outcome you wanted for the Greeks?

  10. Gravatar of Ray Lopez Ray Lopez
    10. July 2015 at 07:26

    @Saturos – good spot of Sumner’s doublespeak. Note Sumner’s “PS” is so full of doublespeak that it’s laughable: he’s for YES, was fearful NO was decided, but NO is now YES, but he still disapproves, and he fears a ‘deflationary shock to the world’ from an economy about the size of Atlanta, Georgia, USA’s (250B USD), and nevertheless feels sorry (crocodile tears) for the Greeks! What baloney. The pertinent reference here is not to a Greek tragedy by Euripides but a comedy by Aristophanes.

    Sumner’s speculative commentary indeed is fun: it’s for The Birds.

  11. Gravatar of John Thacker John Thacker
    10. July 2015 at 07:55

    I believe Scott stated, as he did earlier, that he had thought a Yes would be the end of Syrzia in government. What he clearer prefers (as do I), and repeatedly stated, is both looser ECB monetary policy and neoliberal reforms in Greece.

    Greece, like the rest of the Southern Europe, has high “social expenditures” that go mostly to those with high incomes. It’s mostly sending money to pensioners and others who have been insiders throughout their lives, rewarding them for their success. Actual spending on the have-nots is rare. Some socialism, this Southern Europe.

    Those harsh neoliberal Nordics and Anglo-Saxons do a much better job of actually sending their social spending to the poor (and the US spends as the second most in the OECD on social expenditures once private expenditures are taken into account.)

    Taxing the people to send money to the upper middle and upper class is certainly more government, and I suppose it is technically socialism and opposing it austerity, but my conscience is clear being against it.

  12. Gravatar of ssumner ssumner
    10. July 2015 at 08:22

    Agree with many of the comments.

    Ironman, Maybe, but there are real limits to how much a central bank can do to target policy to a certain region, as the liability side of its balance sheet has much more macro punch than the asset side.

    Vak, There’s a difference between what Tsipras wanted and what the radicals in his party wanted. They might not even vote for his agreement. That’s why he had to work in secret.

    LK, Good question, My hunch is the intercept, but I’m not certain.

    Tom, I like clearly worded referenda, like in Switzerland. This was somewhat vague—right in the middle of negotiations.

    Saturos, A “Yes” would have thrown Syriza out of office, that’s why I favored it. Now we have socialism plus falling NGDP. Yuck.

    Ray, My PS said roughly the opposite of what you claim it said. I now have less fear of a deflationary shock. Pathetic, even by your standards.

  13. Gravatar of benjamin cole benjamin cole
    10. July 2015 at 08:33

    I wonder if this is a variation on the old only Nixon could go to China story. That is, only a socialist Greek can accept the bailout terms otherwise the Greeks would assume it was a capitulation. Or even if it was a compitulation, it was forced and not a skillful connivance.

    But really the Greeks have to run primary surpluses of 3%? Why?

    Should not the emphasis now in Greece be on developing a red-hot economy?

  14. Gravatar of Pietro Poggi-Corradini Pietro Poggi-Corradini
    10. July 2015 at 08:45

    Neoliberal reforms also are more likely to be implemented by a leftish govt. See the Schroeder reforms in Germany.

  15. Gravatar of TallDave TallDave
    10. July 2015 at 08:50

    I still say an agreement will be reached. Socialists don’t leave money on the table and the Eurocrats only really care about their Euro project, not about voters in Germany or Latvia. Everything else is brinkmanship and kabuki theater.

    They’ll keep writing off debt and promising never to write off debt again. Greece will be back feeding at this trough again in five years, this time joined by Italy and Spain.

  16. Gravatar of Doug M Doug M
    10. July 2015 at 09:23

    I am still unconvinced that exiting the euro is in the best interests of Greece in the event of a default.

    They do not have a big export sector to their economy that would benefit from increased competitiveness. No, instead, everything just gets more expensive.

    I still think the best solution for Greece is to default and stay in the EMU.

  17. Gravatar of Thanos Thanos
    10. July 2015 at 09:42

    This government had no real strategy. I think they really believed that if the majority of people voted “No” in the referendum then they would be able to get a better deal. But of course that was an illusion. Now many MPs of SYRIZA dont want to vote for austerity measures and reforms. I think that the collapse of the government is only a matter of time.

  18. Gravatar of Thanos Thanos
    10. July 2015 at 09:59

    I also think that if SYRIZA/Independent Greeks accept the bailout terms then many Greeks will vote for Golden Dawn in the next election……

  19. Gravatar of Kyle Kyle
    10. July 2015 at 11:36

    Perhaps I’m too distrustful, but my first thought was that this is a great way to buy time to ditch the Euro without having an immediate cash crisis.

    Syriza clearly didn’t have any alternative to the Euro before calling the referendum, so the choice is to go along with whatever will get them a deal from Germany, or default and have no monetary system (or cash) in place for several months.

    If I wanted to default, but didn’t want to have 6 months of chaos while trying to come up with a new currency, I would agree to whatever demands keep the status quo over the near term, knowing full well I intend to start planning for a strategic default with a new currency before the really drastic reforms begin.

  20. Gravatar of LK Beland LK Beland
    10. July 2015 at 12:01

    “LK, Good question, My hunch is the intercept, but I’m not certain.”

    That seems to me like a reasonable first-order approximation.

    So, if the ECB had fostered 5% NGDP growth per year in the EZ , instead of roughly zero, Greece would have had 0% NGDP growth, instead of -5% (given the same increase in its structural balance, which might not have been necessary). Unemployment would probably be around 10%. Debt to GDP would be around 120% or so. Basically, it would be a non-story.

  21. Gravatar of LK Beland LK Beland
    10. July 2015 at 12:03

    I still don’t quite get why southern Europe, Ireland and France aren’t pushing hard for much more ECB intervention.

  22. Gravatar of Mike Sax Mike Sax
    10. July 2015 at 12:46

    Seems to me the Original Sin-or less dramatically, error-of Tripas is that he came in hoping to deliver 2 things:

    1. A cut in austerity while

    2. Staying in the euro.

    It is now pretty clear that it’s an either/or. Greece has to decide between 1 and 2.

  23. Gravatar of CA CA
    10. July 2015 at 13:17

    Mike, I thought you weren’t gonna comment here any more.

  24. Gravatar of Mike Sax Mike Sax
    10. July 2015 at 13:24

    CA, I thought it would be alright as Scott linked to me in this post.

  25. Gravatar of Ironman Ironman
    10. July 2015 at 13:32


    Agreed, although what the ECB did on 2 July 2015 was to approve the extension of QE to corporate bonds, which I presume a number of former Greek government-owned privatized assets would be capable of issuing. In addition, of course, to existing Greek corporations.

  26. Gravatar of Brian Donohue Brian Donohue
    10. July 2015 at 13:44

    @LK Beland,

    Because, to a first approximation, nobody understands monetary policy.

  27. Gravatar of ssumner ssumner
    10. July 2015 at 14:40

    Pietro, Yes, but Schroeder’s government believed in capitalism, Syriza doesn’t.

    Doug, The point of exiting the euro is not to boost exports, it’s to boost NGDP.

    Kyle, Why not start planning 6 months ago?

    LK, You asked:

    “I still don’t quite get why southern Europe, Ireland and France aren’t pushing hard for much more ECB intervention.”

    People in Europe I speak to suggest that the policy elite over there doesn’t get the importance of monetary policy (outside the UK and Nordics perhaps.)

    Mike, Yup, that’s the choice.

    Ironman, My best guess is that this sort of thing would marginally reduce financial stress, which is fine, but doesn’t address the elephant in the room, crashing NGDP.

    Brian, We think alike.

  28. Gravatar of Anand Anand
    10. July 2015 at 15:53

    I am not sure what is confusing here. Seems pretty straightforward to me.

    Syriza had no cards whatsoever, because they were not prepared for Grexit. The EU called their bluff, they folded. Democracy be damned.

    I agree that this is very bad outcome for Greece, unless there is some serious debt relief, which is unlikely, but could happen.

    As I said in the last comment, don’t be suprised if Golden Dawn is next.

  29. Gravatar of Anand Anand
    10. July 2015 at 16:05

    The only parties in Greece which are for Grexit are the Communist party and Golden Dawn. This latest deal is identical (actually harsher) than the earlier deal. What does this hold for the future?

    I also have another comment. “Supply-side” in the US means, at least partly, cutting taxes. How is a deal hiking VAT on hotels improving the supply-side? How will cutting pensions for poorer pensioners improve the labour market? I think one has to discard these unfitting labels.

    It’s basically just a power play by the creditors.

  30. Gravatar of Ray Lopez Ray Lopez
    10. July 2015 at 16:57

    Sumner: ‘PS. If a deal is reached it will be very good news for the global economy-there was danger of a deflationary shock” and later: “Ray, My PS said roughly the opposite of what you claim it said. I now have less fear of a deflationary shock.” (Sumner)

    Let the reader decide what the dictionary meaning of the words above say. Does Sumner fear a deflationary shock if Greece drops out of the EU? That’s the question. Sumner’s answer is typical economist doublespeak: “Yes and no, on the one hand…” Odds makers are giving (at Ladbrokes) 50% odds that Greece drops out of the EU, so at best you can say Sumner thinks Greece will stay in the EU, and that won’t be a deflationary shock, but that’s reading between the lines. Once again, ‘esoteric writing’.

    PS- Econlog maintains a ban on my name, even with different email addresses. That’s how dangerous my thoughts are.

  31. Gravatar of AIG AIG
    10. July 2015 at 17:36

    I don’t understand the proposition that he never expected to win the referendum. Every poll in Greece showed the No vote would win.

  32. Gravatar of Jared Jared
    10. July 2015 at 18:25

    What if we take Tsipras at his word, that he truly respects democracy and the wishes of the Greek people? He truly wanted the no vote all along (as he claims), but he recognizes that staying on the Euro is incompatible with the no vote, but he doesn’t have the popular support to leave the Euro. So now he takes a gamble. He believes that all bridges with (German) creditors have been burned and he’s betting they will decline this new proposal simply because they don’t trust Syriza and have had enough? If the proposal is rejected, the creditors look completely spiteful, since they’d be rejecting pretty much the same plan they offered a couple weeks ago, and Tsipras looks reasonable and gets what he wanted all along (the drachma and fiscal room to introduce Syriza’s program). If Tsipras’ bet fails and they reach agreement, he claims he tried everything to fulfill the wishes of the Greek people, but this plan was the only way to stay in the EU given the intransigence of Germany (since he now has France, the US, and some at the IMF on his side). Either way, Germany is the fall guy, which buys him some political capital no matter what happens moving forward.

  33. Gravatar of Luis Pedro Coelho Luis Pedro Coelho
    11. July 2015 at 00:50

    Another pure speculative narrative: many inside Syriza were getting ready for Grexit after the referendum and it was not clear that they would not win that internal fight, then the Greek opposition mobilized and told them OXI to Grexit, forcing Tsipras back to the negotiating table.

    The political opposition in Greece mobilized (meeting with the President, demanding that Tsipras address parliament “to make certain commitments in public”), and finally Tsipras got called in to talk to the President (he did a short trip to Athens between EU meetings to meet the President). Later, he said that he didn’t a mandate for leaving the euro, only for making a deal. I wonder if that was not the message that the Greek President made him fly in to hear: if you try to pull the Grexit, you are overstepping your mandate and may have to deal with a constitutional coup and snap elections.

  34. Gravatar of Christian List Christian List
    11. July 2015 at 01:43

    This post is pure speculation indeed, and it’s not very plausible. It might be true that Tsipras could have lived with both results, OXI and NAI.

    He must be disillusioned after a few months in power where he had to face something odd called reality. He did not fight secretly for a NAI voting, that’s just not true. But of course he was prepared for it and ready to step down in case of losing. Tsipras tried to establish a win-win-situation like any good politician should do: Winng the vote meant strengthening the bargaining position, losing means a Wicker Man style martyr’s death (like Varoufakis did). That’s a typical win-win.

    Mr. Varoufakis says what he thinks in the Guardian:
    “Based on months of negotiation, my conviction is that the German finance minister wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone.”

    And that’s just not true either. But this legend is good for Greece and strengthens their bargaining position that’s why the Greeks keep telling it over and over again.

    The Greek government tries to divide Europe, for example France and Germany. I don’t know if this strategy is smart, because when you insinuate that Germany/Eastern Europe/Northern Europe is forcing a Grexit anyway, the media might tell this story, too.

    And as soon as the media keeps telling it Germany/Eastern Europe/Northern Europe might think: We seem to be the bad guys anyway no matter what we do, so what’s so wrong with actually doing it? It’s the typical case of a self-fulfilling prophecy.

  35. Gravatar of Thanos Thanos
    11. July 2015 at 02:55

    I mentioned before that this government will collapse sooner or later. Yesterday only 145 government MPs (of 162) voted for an agreement. The prime minister wanted at least 151 votes from his own party (and Independent Greeks) so that he could govern without the help of the opposition. A snap election is a serious possibility now.

  36. Gravatar of Mike Sax Mike Sax
    11. July 2015 at 04:44

    Pritchard just tweeted that he spoke with a Greek senior banker and there is now a 90% chance of a deal-the only snag is Merkel. The Americans along with the French and the IMF are really pushing for a deal.

  37. Gravatar of ssumner ssumner
    11. July 2015 at 04:56

    Anand, I don’t think anyone claimed that reducing the deficit would be a supply-side reform.

    Ray, If there’s an inconsistency there I certainly don’t see it. But then I don’t have an IQ of 120.

    AIG, When he launched the referendum he didn’t expect to win, as polls showed the vast majority of Greeks did not want an Grexit. Then during the campaign he got nervous, which is why he suggested that the two sides were actually quite close (as statement that would have been idiotic if he truly wanted a no vote.)

    Jared, You said:

    “If Tsipras’ bet fails and they reach agreement, he claims he tried everything to fulfill the wishes of the Greek people, but this plan was the only way to stay in the EU given the intransigence of Germany (since he now has France, the US, and some at the IMF on his side). Either way, Germany is the fall guy, which buys him some political capital no matter what happens moving forward.”

    No one would believe that. After the vote all 18 member were firmly against Greece, and all demanded that Greece offer major reforms. Many of them are more anti-Syriza than Germany.

    Christian. There was a lot of pro-Greece propaganda in the article, which I dismissed. But you din’t provide any evidence for this:

    “He did not fight secretly for a NAI voting, that’s just not true.”

    Or even respond to the evidence that I did present. If it was “secret” how would you know?

    Thanos, Interesting.

  38. Gravatar of Morgan Warstler Morgan Warstler
    11. July 2015 at 05:03

    I just went thru this with Saxie, and it’s no different than I said years ago here…

    It’s NOT the debt.

    It’s not AUSTERITY.

    If Greece political elites announced they were going to bend over, give entrepreneurs full reign, get down on hands and knees and wash free marketer feet with their tears…


    It doesn’t take 5 years to shut down Greek Telecom and end land lines, and replace that with competitive cell and broadband (Skype) – it doesn’t.

    OVERNIGHT a huge flow of investor dollars will flood into Greece, the moment everyone believes Greek govt elites are spiritual broken.

    The POINT is that once the old guard literally raises NO argument with any of many efforts to remake Greece into a cross between South Carolina and Estonia….

    There will be NO Austerity.

    This is not and has never been about Austerity.

    Austerity is a word used by people who hope to god Greece doesn’t have to be the kind of state that free marketers will make it OVERNIGHT.

    OVERNIGHT it will be better.

    If Greece announced that any public employee who asks for a bribe, or protests anything will be SHOT DEAD each night in town square…

    Greece would have a an almost unlimited amount investment dollars.

    Uber. BAM.
    Airbnb. BAM.
    Amazon. BAM

    So stop saying Austerity.

    There is an ocean of freshwater to drink, as long as only one kind of guy in Greece gets to drink the freshwater.

  39. Gravatar of Mike Sax Mike Sax
    11. July 2015 at 05:34

    Christian I would recommend reading Pritchard who knows a lot more than any of us as he’s an insider for Syrzia.

    Check out his twitter page he provides links to all kinds of interesting articles. He actually speaks with the Greek Administration so he does more than speculate.

    A counter-point to your narrative is that Varoufakis said he’d step down with a yes vote then stepped down with a no.

  40. Gravatar of Morgan Warstler Morgan Warstler
    11. July 2015 at 08:16


    Greece’s choices are not about Austerity.

    Greece’s choices are about what kind of place to be.

    The problem is that with all this discussion about Austerity, Krugman, more than Sumner who is honest but still makes it blurry bc he’s focused 100% on best MP, is trying to convince you that these choices are monetary policy choices.

    But you now know better.

    This is a glimpse of the structure behind the backdrop.

    The backdrop is MP and Austerity.

    The real structure is that human capital & capital are global and mobile, and for all the day-to-day histrionics, Greece and you HAVE TO DECIDE if you can get in a boat with no access to capital and human capital and ON YOUR OWN, try to keep your country afloat.

    Can you provide services, raises taxes, print money, AND can you do it without a decreases the consumption of your people? Can you do it without printing money? If not how much how often?

    This is the man behind the curtain, printing money is what you do when you pay out more than you take in and nobody will loan you money.

    and even worse:

    This is what happens when the human capital, the smart guys, the top 20% of a state’s talent is not running things, you’ll simply have no access to human capital. It will leave, and it’s genes/generations will leave, and move to a place, where it breeds with other human capital.

    So you can’t borrow, you can print, tax, spend. You can TRADE. and what makes it MOST LIKELY you can survive?

    Do you bend over for your human capital? That Saxie is the real question to Meritocracy.

    We don’t ask ourselves if Meritocracy is good, we ask, what will the “Meritocrats” do to us if we try to not run a Meritocracy.

    Thats always the Q, do you let the smartest guys do whatever they want, and have very little state protection to keep other smart guys from beating them.

    And guess what the smartest guys will do? They’ll want to trade more and print less.

    Anyway, most of the time, it’s not CLEAR AS DAY, about what’s really going on, what the choices really are.

    But when you finally get down the bitterest of brass tacks, what matters is who in each generation gets to drive the boat?

    And it is not a “fair” discussion, the human capital and capital get to vote with FIREPOWER, and theirs is always the final veto.

    I’d suggest a good progressive accepts this, and then tries to craft the a public sector that will appeal most to human capital and capital.

    And if you follow this to it’s logical end, the more productive and efficient you make a public sector, the more services you will get to provide.

    Think about Uber.

    What you see is a massive increase in consumption for the poor.

    by simply ending the labor strike value in Taxis.

    Now think about this:

    Now replace taxi rides with ALL GOVT SERVICES, what happens the price of delivery govt services gets Uberized?:

    1. the poor get more and better services.
    2. the top 20% are happy to support services.
    3. you need to borrow less money from capital owners.

    Anyway, it’s not about MP and it’s not about Austerity. Most of the time, this isn’t clear… but now you have no excuse.

    It’s right there in front of you.

  41. Gravatar of Mike Sax Mike Sax
    11. July 2015 at 09:06

    Morgan my man, I’m honored that you had so much to direct at me there. In the discussion between structural vs. monetary issues it’s a discussion about short vs. long term.

    Yes, monetary policy may be short term but if not done properly it can have long term cataclysmic effects in the long term.

    Those who talk about structural reforms in Greece certainly at least are right to a point but again, the question is for the Greeks to decide not me or the EU.

    I know you argued that in the long view we’re going to have a Federated States of Europe-but this interim period of monetary but no fiscal union has been deadly.

    By the way, I find it interesting that you are a state rights guy in America but you’re Alexander Hamilton when it comes to Europe.

    The monetary policy of the EU the last 5 years has decimated Greece.

    So even now it’s not unrealistic to discuss Grexit-though no doubt it is going to be much tougher than it would have been in 2011.

    I get your premise-you’re saying that the EU has wanted Greece to do structural reforms first and then they get more euros.

    Trouble is that this waiting period has really hurt Greece for the long term now as well.

    Some argue that Greece basically has no good options less that at best it’s a choice between which option is worse.

    On the question of Grexit though you said that this would turn Greece into Venezuela.

    Nick Rowe disagrees with you here if you read him here.

    He still thinks introducing the Drachma would help.

    Lars Christensen who agrees with you totally about Greece needing structural reforms still differentiates between short term monetary and long term structural issues and argues that if Greece Grexits now it will return to growth.

    As it happens, it looks now like there won’t be a Grexit anymore as Greece has capitulated-so maybe they agree with you.

    Though even now Germany could blowup a deal.

  42. Gravatar of TravisV TravisV
    11. July 2015 at 09:10

    China: Quantitative Easing?

    “This looks like quantitative easing with Chinese characteristics. Instead of buying bonds, as many central banks around the world have done, China is effectively printing money to buy shares. The difference is the PBOC is outsourcing the actual stock buying to an intermediary.

    For now, the move seems to have injected confidence””Shanghai stocks have risen 11% in the past two days…..”

  43. Gravatar of Mike Sax Mike Sax
    11. July 2015 at 09:10

    By the way Morgan regarding the Uber economy, there are some smart liberals now with a way to bring liberalism up to date with this Brave New World.

  44. Gravatar of TravisV TravisV
    11. July 2015 at 09:42

    “China could roll out a policy bazooka if stocks continue to fall”

  45. Gravatar of Morgan Warstler Morgan Warstler
    11. July 2015 at 09:45

    “By the way, I find it interesting that you are a state rights guy in America but you’re Alexander Hamilton when it comes to Europe.”

    Saxie, I’m not Alexander Hamilton, I think ECB policy is correct.

    I EXPECT that overtime this force Southern states to compete as more free market than the north, and as they do there will be less cost the European safety net that gets created.

    What I’d like is to see a Euromarket get it’s shit together and start to compete with US, forcing us towards more states’ rights.

  46. Gravatar of Mike Sax Mike Sax
    11. July 2015 at 09:57

    Anyway, Morgan have you read Hanauer? I linked to it above. He’s a liberal who’s trying to update liberal policy to keep up with the Uber economy.

  47. Gravatar of Morgan Warstler Morgan Warstler
    11. July 2015 at 10:44


    “The trickle-down theory””the one that lionizes the rich as “job creators”””insists that the American middle class is a consequence of growth, and that only if and when we have growth can we afford to include more people in our economy. But trickle-down has it exactly backwards: Properly understood, the middle class is the source of all growth and prosperity in a modern technological economy, and economic security is the essential feature of what it means to be included in the middle class.”

    This is the shell game bit Saxie, this is where the pea lies.

    Hw often have you heard me (and Scott) talk about the true size of the top 20% over a lifecycle.

    Each year, 20% do 80% of the GDP. The 80% fill the last bit.

    Each year, the 20% pay most of the taxes.

    Now take one person, they spend 25 years in top 20%, each of those years they help pay most of the taxes. The rest of the years they are part of the 80%.

    Now 71% spend at least a year there, which is where you should first give pause.


    Now think about the 29% who never spend one year in top 20%.

    Ok, that’s the model. The 71% vs the 29%.

    Now let me ask you and Hanauer.


    I see them, but you know where I see them?

    Over in that 71% group.

    As to his larger picture.

    DUDE, have you not heard of Uber for Welfare?

    Saxie, pretend you are me, READ his story about Zoey in the sharing economy, go paragraph by paragraph and to each idea, say back tot he screen, “Uber for Welfares solves for that”

    And think about if I’m right or wrong.

    You will not find one paragraph where you don’t know my answer. If not copy it here.

  48. Gravatar of ssumner ssumner
    12. July 2015 at 06:45

    Travis, Thanks for the links.

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