Dean Baker: NYT Warns Greece Away From Argentina’s Seven-Year Boom

[eridani]

http://fair.org/home/nyt-warns-greece-away-from-argentinas-seven-year-boom/

There is no doubt that 2002 was worse for the people of Argentina as a result of the default, but by the second half of the year, the economy returned to growth and grew strongly for the next seven years. (There are serious issues about the accuracy of the Argentine data, but this is primarily a question for more recent years, not the initial recovery.) By the end of 2003, Argentina had made up all of the ground loss due to the default, and was clearly far ahead of its stay-the-course path.

This raises the question of whether the pain associated with the default was justified by the subsequent recovery. Clearly Goñi thinks it is not. In this respect, it is worth bringing in a hero among American policy wonks, Paul Volcker.

Volcker is given enormous praise by many economists (though not by me) for bringing on a recession in 1981 that brought inflation down from near double-digit levels. This recession caused enormous pain of the sort described by Goñi (people lost their houses and farms and couldn’t pay for necessary healthcare; unemployment rose to almost 11.0 percent), but the economy did bounce back in 1983. The vast majority of policy types think this pain was well worth it as a price to bring down inflation. (For any Brits reading this, plug in “Thatcher” for Volcker.)



Clearly Greece looks much more like Argentina in 2001 than the United States in 1981. Its economy has already contracted by more than 20 percent, with unemployment now over 25 percent. And there is little hope for improvement anytime soon under the stay-the-course scenario. This should make the default route look more attractive, since the country has little to lose.

That doesn’t mean default will be pretty. People will suffer as a result, but at least default offers a better path forward. The striking takeaway from Goñi’s piece is how the notion of short-term pain for long-term gain can be made to look so appalling in a case where it was almost certainly necessary, whereas a similar choice is widely applauded in the United States in a case where it almost certainly was not.

[roamer65]

1. Volcker is a scumbag.

He almost singlehandedly destroyed the industrial base of the U.S. economy with his "war on inflation".

30 years out, now we see the true damage. A moribund, "service" economy that cannot be revived even through QE and ZIRP.