WEE December 4, 2015 I'll start......I'll start with some......

[Proserpina]

41. I don't know about predictions, but here's some analysis

“Failed: What the ‘Experts’ Got Wrong about the Global Economy”

http://www.nakedcapitalism.com/2015/12/failed-what-the-experts-got-wrong-about-the-global-economy.html

Yves here. This is an extract from the new book, Failed, by Mark Weisbrot, the co-director, with Dean Baker, of the Center for Economic and Policy Research. I’ve been reading his book (all of my non-post related reading comes in snippets on the treadmill or airplanes, and the latter only when I have no WiFi) and like it so far. It has an excellent discussion of the role of the IMF, particularly its leverage via informal support from other major institutions, that by itself makes for important reading.

My only quibble is that Weisbrot accepts and promotes the widely accepted, but inaccurate idea that Greece would have been better off to have defied the Troika and tried going on the drachma. He like many other economists, analogizes Greece’s situation to Argentina circa 2002, when as Yanis Varoufakis pointed out strenuously in 2012 (and his comments then were directed at Weisbrot as well as Krugman, and Weisbrot has bizarrely chosen to brush them off) that the two were not comparable by virtue of Greece not having its own currency (as in Argentina was depreciating an existing currency, not facing the staggering complexities and collateral damage to imports and most important, its nearly 20% of GDP tourism sector) and the destabilizing effect a Grexit would have on the Eurozone, which in turn would blow back to Greece. Regular readers know we discussed this topic at exhaustive length, and financial service industry professionals with relevant expertise agree that our estimates of the time and costs involved in making the computer system changes (which must occur across numerous participants) would be likely to exceed our estimates of three years. The considerable cost and damage of a mere two-week of severe restrictions on Greek bank and business access to international payment systems were enough to bring Greece to its knees. The notion that Greece, which was and is in desperate shape, could take the hit of prolonged economic disruption of this level, ignores the high odds that Greece would slide in short order into being a failed state.

We’ve been surprised, as well as frustrated, by the resistance of people who profess to be analytical, to to hear that Greece only has very bad options. While bowing to the Troikas’ misguided plan was akin to having one hand amputated, with the high odds of having the fingers on the other hand cut off over time one by one, the alternative of a Grexit was akin to an immediate amputation of both legs. And a s clearly unpalatable as it was to again agree to wear the austerity hairshirt, Greek citizens were also unwilling to leave the Eurozone.

While a dramatic break has the emotional appeal of shocking and potentially hurting Greece’s counterparties, particularly Germany, the reality is that Greece would suffer far and away the most damage. By contrast, hanging on longer, as unattractive as that seems, keeps alive Greece’s best hope for rescue: that other countries rebel against austerity, as Portugal is to a degree and Marine Le Pen is doing in a far more concerted manner in France. The shifts in the game board that have the potential for the least bad outcomes for Greece lie almost entirely outside Greece’s control and depend on how quickly the inevitable failure of austerity policies leads to broad scale changes.

By Mark Weisbrot, an American economist, columnist and co-director, with Dean Baker, of the Center for Economic and Policy Research in Washington, D.C. Excerpted from his book Failed: What the “Experts” Got Wrong about the Global Economy. Cross posted from Alternet

Of all the examples of neoliberal policy failure since the Great Recession, the eurozone crisis stands out as a work of art. The European authorities who made this mess—the European Commission, the European Central Bank (ECB), and the International Monetary Fund (IMF)—known as “the troika”—provide one of the clearest, large-scale demonstrations in modern times of the damage that can be done when people in high places get their basic macroeconomic policies wrong. That it has happened in a set of high-income economies with previously well-developed democratic institutions makes it even more compelling.

It is necessary to say “previously well-developed” democratic institutions because the eurozone countries surrendered their sovereign rights to control their most important macroeconomic policies: first monetary and exchange rate policy, and then increasingly fiscal policy for the so-called PIIGS countries (Portugal, Italy, Ireland, Greece, and Spain). As we will see, this was a profound loss of democratic governance, and one for which tens of millions of eurozone residents would pay dearly in the years following the world financial crisis and recession of 2008–2009, and for as yet untold years to come.

Most citizens of the euro area did not understand what they were losing when the Maastricht Treaty was signed in 1992, and the euro was introduced in 1999. You couldn’t see it until there was a serious recession—when the government really needed to use expansionary macroeconomic policies to restore growth and employment. Then we discovered that not only was the fate of most Europeans in the hands of people who were almost completely unaccountable to the electorate; it was worse than that. Power was now in the hands of people who had their own political and economic agenda, and who, as we shall demonstrate, saw the crisis as an opportunity to implement changes that could never be won at the ballot box...

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