So, I’ve stumbled across an interesting article. Someone/body issued a report as to how to fix Greece’ economy. The AP picked it up. Some of it is entirely correct and reinforces what I’ve stated about Greece and other nations in economic peril. Some of it is complete fantasy land babbling bs.
The article doesn’t do a good job in distinguishing what the report stated and what the AP’s opinion is. I’ll reproduce the article, with commentary interspersed.
ATHENS, Greece (AP) — After so much pain, Greece must now figure out how to get its economy back on its feet.
The scale of the country’s financial problems is mind boggling — a full quarter of the economy evaporated in the past six years and business activity is now plummeting further. Government cuts needed to qualify for a new bailout will hurt incomes for years to come.
Well, yes. But, only because Greece, and many other nations, have set up their economy to be dependent upon government spending. It’s needless and wasteful. In almost everything, there is no need for the government to spend money towards perceived needs. If it is needed, a private entity will move to fulfill the need. And, they do it cheaper and much more efficiently than any government can. It’s a simple equation. Every time a government entity is involved in an effort, you must pay at least one person of the government you wouldn’t otherwise do. Government is simply overhead to any effort. The more government, the more overhead. It’s that simple. Too much overhead causes the “cost/benefit” analysis to weigh too heavily towards costs and not benefits, so, efforts don’t get done. It’s not complicated.
The advice to Greece from economists is simple: start with the basics.
Have a steady government and invest in established sectors like tourism and agriculture. In the longer-term, tackle the more difficult but fundamental problems such as tax avoidance, high public debt and complex business laws.
It won’t be easy, but Greece has no option if wants to ease its people’s economic misery.
Well, I disagree. “Fundamental problems such as tax avoidance, high public debt and complex business laws” are, well, “fundamental”, and thus, should be addressed first. But, the article seems to insinuate these problems are not related. They are all one in the same. One can look at this from three different angles and have the same conclusion to the different views …. complex business laws causes more governmental workers to enforce such complexity, which leads to higher government costs, which leads to higher taxes ….. which leads to tax avoidance. This isn’t hard to understand. In every developed nation in the world, every time the public debt becomes alarming, there’s a move to increase taxes. This is without exception. You want people to stop avoiding taxes? Lower the public debt. It’s that easy!
The first, most important step is making sure the country has a steady government that is committed to avoiding a disastrous exit from the euro.
An exit from the Euro is exactly, and probably the only way to get Greece back up on it’s feet. Yes, it would cause some acute and immediate pain. But, as they are part of the Euro, they are constricted by the rules the Euro community has. Every time some idiotic mandate comes from the EU, Greece is compelled to open another office and hire more government workers/enforcers of the idiotic mandate …. even if the issue is of no importance to the people of Greece. Thus, causing an increase in government expense. It’s hard to get back up on your feet when you have people pushing you down.
Investors want to know Greece won’t fall into another crisis over whether to leave the euro — which would cause huge disruption to the economy — and that the rules of doing business won’t change unexpectedly.
Investment in Greece last year in everything from roads to new offices equaled just 12 percent of economic output, largely a symptom of a lack of confidence in the country’s stability. Only three of 124 countries ranked by the World Bank invested a lower share.
Now, that is simply babbling nonsense. Investment in roads and offices are two very different things. IMHO, roads are something best left to a government. I believe Germany first demonstrated this, and the US, later, improved upon it. Regardless of your opinion on that statement, investment in offices is entirely different. Office investment should be uniquely left to the private investor. As China has demonstrated, over and over again, one can build an office, but, it doesn’t mean someone will use it. That’s nothing but waste and an increase in government expense, which Greece can ill afford.
Greece’s current government offers the starkest example of the risks of political uncertainty. It came to power in January vowing to undo a series of laws and to challenge creditors. After months of high-stakes talks raised fears Greece might fall out of the euro, the economy went into reverse: rather than grow this year, it is expected to contract between 2 and 4 percent.
Investors pulled out tens of billions of euros from the country and the banks had to be shut to avoid their collapse. Limits on money withdrawals are costing Greece an estimated 1.75 billion euros to 2.8 billion euros ($1.9 billion to $3.1 billion) weekly.
The outlook for political stability is not particularly good. Political parties, including the ruling Syriza, are in turmoil and there is speculation Greece will head into another general election in November. The hope is the government that emerges from those elections will prove more stable.
That’s laughable! Greece’ form of governance all but demands instability until their debt question is resolved! I fully expect for the Syriza government to be removed next election. The next government will be no more stable than the last! This will continue until one of two things happen. Either the Greeks will determine they can stand on their own, or, they will determine they need the Eurozone community and become a puppet government for the EU. That question isn’t likely resolved in the next election …. nor the next one after that, nor the next one …….
Because so much uncertainty remains, economists say Greece should focus in the short term on making targeted investments in industries it already has a presence in.
Agriculture last year contributed almost 6 billion euros to the country’s 179 billion euro economy but could yield more with some basic modernization and better marketing.
Take olive oil. Although Greece is the third largest olive oil producer in the world, it exported 60 percent of its output to Italy in bulk, giving its neighbor the opportunity to earn 50 percent more on the price of the final packaged product, according to a 2012 report by consulting firm McKinsey & Company.
The fishing industry is another sector that Greece could develop quickly and enjoys a strong competitive advantage in, given its huge shorelines.
“You have the groundwork already laid out and there’s no need for large investment,” said Panayotis Alexakis, professor of economics at the National & Kapodestrian University of Athens.
Tourism, which produces almost a quarter of Greek economic output alongside retail trade, but could be improved further. …..
…. The McKinsey report identified Greece’s pharmaceutical industry, second only to tourism in economic output, as a “rising star” that could boost growth. The health care industry could cater to a large regional market with hospitals receiving patients from neighboring countries such as Bulgaria.
This is exactly what I’ve been stating for years now! Go with what you’re good at! Go with what you naturally do!
It’s about wealth generation and wealth capture. Tourism is about wealth capture. That is to say, some other people generated wealth, and they want to give the nation of choice some of their wealth they generated. All you have to do is be nice and genuine! …. or not genuine and let them give you their money, anyway!
Fishing and agriculture are some of the most basic forms of wealth generation because it provides for the most basic of human necessities. All of us have to eat! 7 billion potential customers! 2 billion still hungry!!!
The great part about fishing and agriculture is that if a people naturally do it, you don’t have to spend any money. All you have to do is to remove the barriers which prevent them from becoming a cornerstone of your economy.
I’m not sure about the pharma industry in Greece. I’m certain it won’t fly in the EU. I think that’s a pipedream.
A word of caution about the basics …. They’re basics and they can/will provide for the essentials in human life and more! But, there is a point of diminishing returns. If one’s economy revolves around fishing, agriculture, and tourism, then, you probably can’t have everyone retiring to the easy life after they turn 50 y/o. It won’t happen. It can not possibly happen for very long. Which, is why we’re writing about Greece, today.
Beyond a stable government and targeted investments, Greece also needs to fundamentally renew the way its economy runs if it wants avoid more financial crises.
Many of those reforms are what its creditors are demanding already. Some can be achieved easily, with a change in law. Other require a generational shift in attitudes.
The quickest ones to make include:
-Cutting red tape to make it easier and cheaper to open a business.
–Making the legal system more efficient so that it doesn’t take months, even years, to settle a business dispute.
-Opening up closed professions, such as pharmacies, to greater competition.
–Bolstering the banking sector with new bailout cash so that the government can gradually lift the limits on cash withdrawals and companies can get loans at affordable rates.
I love that!! Yes!!! Give banks more bailout cash!!! …… Except, where is the bailout cash going to come from? The Troika only lent the Government enough cash to sustain them through November. There is no cash. And, it’s not coming, nor should it. The Greeks squandered their bailouts. They had ample opportunity to do so, but, they didn’t. And, they won’t as long as people continue to provide them with the capital they need to continue their habits.
The longer-term, more difficult objectives include:
-Healing public finances, a process that will mean convincing Greece’s creditors to ease the terms of its massive debt burden. At around 320 billion euros, or 180 percent of GDP, public debt is considered unsustainable. Even the International Monetary Fund, a key creditor, says so and suggests lowering the interest rates and repayment rates on Greece’s bailout loans.
LOL!!! No one is getting their money back! Even the interest on their debt is unbearable! But, if you cut the interest to zero, they still won’t pay back the money given them. It’s human nature! If I’ve borrowed from you, and I have other, much more pressing needs, I’m not going to pay you back until the more pressing needs are taken care of, regardless of when and how much I said I would pay you back.
Let’s say I owe a grumbling friend $200. Let’s also say I owe the electric company $200 due on the same day I said I’d pay back my grumbling friend. Let’s further stipulate that I’ve only $200. If I don’t pay my grumbling friend, the worst case scenario is that he won’t lend me any more money. If I don’t pay the electric company, they’ll turn off my electric. Where’s the $200 going to go? Greece can’t pay the Troika because they insist on keeping their house at 60 deg F in the summer.
-Tackling rampant tax avoidance. This involves cracking down on the common practice to not declare everyday transactions like the sale of a coffee or the work of an electrician.
-Eradicating a culture of corruption in which public sector jobs are handed out by politicians in exchange for votes.
Nicolaos Eriotis, a professor at the National & Kapodestrian University of Athens, says corruption was at the heart of Greece’s problems, when previous governments hid the true scale of public debt. And it has kept the economy from modernizing and creating an environment where honest work pays off.
“Irresponsibility destroyed this country,” he said.
Paul Wiseman in Washington contributed to this report.
Well, Greece won’t be the first, nor the last. Will anyone learn from Greece is the question.