We are a commune of inquiring, skeptical, politically centrist, capitalist, anglophile, traditionalist New England Yankee humans, humanoids, and animals with many interests beyond and above politics. Each of us has had a high-school education (or GED), but all had ADD so didn't pay attention very well, especially the dogs. Each one of us does "try my best to be just like I am," and none of us enjoys working for others, including for Maggie, from whom we receive neither a nickel nor a dime. Freedom from nags, cranks, government, do-gooders, control-freaks and idiots is all that we ask for.
"The deficit spending the Greek government wants to do is almost-entirely suppressive or neutral to GDP - it is spending by government, for government, on government. The population is shrinking, their internal revenue picture is already dreadful and only getting worse (because they have the worst ratio of producers to consumers of tax funding in the civilized world, and getting worser) and the only way any government of Greece can survive and keep the mayhem in the streets down to acceptable levels is to restore the drunken-sailor approach to public spending that got them into trouble in the first place. This means 14 monthly pension checks a year, retirement at 50 for workers in hazardous trades like hairdressing, and all the other 1,001 ways they managed to bankrupt themselves already."
The usual way for Greece to resolve their problem would be to devalue the drachma to devalue the debt. This would increase the cost of imports, spur exports, and spread the pain throughout the economy. This could lead to runaway inflation, unless accompanied by fiscal controls, which is a decision the Greeks could make on their own.
Unfortunately, Greece does not control their currency. That means not only is the Greek economy at risk, but so is the Eurozone, and even their trading partners (most everybody). Only unified action can forestall the worst consequences.
So Greece should stay in the Eurozone, and the Euro should be devalued in order to spread the pain?
By the way, why is it a good idea to spread the pain again? Shouldn't some consequences be left on the people that did the dumb stuff? Otherwise, it's hard to see how the behavior ever stops, because the dumb stuff isn't that dumb if you can con other people into paying for it.
Texan99: So Greece should stay in the Eurozone, and the Euro should be devalued in order to spread the pain?
Either the Eurozone has to be become more integrated, so that they have a unified monetary and fiscal policy, or they have to separate to prevent a similar problem in the future. If they are to remain together, they have little choice but to address the extreme condition of the Greek economy.
Texan99: By the way, why is it a good idea to spread the pain again?
Because much of the pain is caused by macroeconomic conditions outside of anyone's control. If you are caught in a recession, even if you work hard and put money down on your house, when you lose your job and the housing market crashes, you can't sell, can't move, can't pay. That's always the problem with economy-wide debacles. A few get undeserved riches, and a lot of people get hurt who don't deserve it. Unfortunately, it's not practical to unwind all the bad transactions that led up to the meltdown.
Texan99: Shouldn't some consequences be left on the people that did the dumb stuff? Otherwise, it's hard to see how the behavior ever stops, because the dumb stuff isn't that dumb if you can con other people into paying for it.
Sure, in a perfect world (frictionless economy), the banks (in this case, largely German banks) should all go belly-up for making bad loans. Instead, they get bailed out to prevent a much worse problem. The Greek people, not so much.
Texan: I notice you ducked the question whether the Euro must be devalued in order to spread the pain.
Though devaluation is certainly an option, that's not what we said. We did mention that if Greece had an independent currency, then devaluation would be a common way to resolve the immediate problem, and also that if the Eurozone expects to maintain unity, then they will have to address the Greek economic collapse.
Texan: I didn't quite get how Greece's out-of-control un-paid-for benefits were caused by macroeconomic conditions out of anyone's control. It seems to me an ordinary bank robber could make that argument.
Because not everyone hurt by the collapse were complicit in the collapse. For instance, in a perfectly free market, many large banks would have bankrupted. However,the effect of this would have been devastating for the world economy, so the banks were bailed out. The Greeks not so much.
Texan: And, really, "friction" is the best explanation you can come up with? Do you even know what that's supposed to mean?
We're referring to the various forces that delay or reduce the difference between market signals and market adjustments.