Portugal’s example shows why the IMF will ruin Greece


10:30 am - February 15th 2012

by Sunny Hundal    


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Imagine a country that strictly follows stringent cuts demanded by the IMF. Imagine a country that has slashed massively is applauded by the IMF and its friends. Surely it’s on a path to recovery?

That country is Portugal and in fact it is spiralling deeper into a hole. The austerity is shrinking its economy – making its national debt even harder to pay off. If this carries on, Portugal will also have to default.

And Portugal’s sad example shows why Greece should tell the IMF that its prescribed austerity won’t work. Austerity kills growth – creating a worsening debt spiral.

The New York Times explains:

Unlike Greece, Portugal is a debtor nation that has done everything that the European Union and the International Monetary Fund have asked it to, in exchange for the 78 billion euro (about $103 billion) bailout Lisbon received last May.

The ratio of Portugal’s debt to its overall economy, or gross domestic product, was 107 percent when it received the bailout. But the ratio has grown since then, and by next year is expected to reach 118 percent.

Portugal’s economy shrank by 1.5% and is expected to contract by 3% this year. It is not expected to grow again until 2014 (optimistically).

The same is happening with Greece. Figures revealed last week showed Greece’s economy had contracted even more than expected. Guess what the IMF wanted in response – more cuts!

Guess why this is unsustainable:

According to the calculation of Mr. Bencek, the economist, Portugal would need to produce a primary surplus of about 10 percent of G.D.P. in the coming years to reduce its debt ratio to a permanently serviceable level. That, he said, would require a degree of cuts in spending far beyond what Mr. Gaspar and his team have already been able to achieve.

Imagine what that ratio is for Greece. And the same will happen to Italy – at which point the whole of Europe starts to become financially insolvent.

The IMF is ruining Europe’s economies by putting them on an unsustainable path of worsening austerity. Even commentators at the Telegraph (Jeremy Warner) recognise this. To a lesser extent – the same scenario played out in the UK too.

The Conservative mantra – ‘you have to cut debt by cutting spending’ – is proving to be hollow across Europe.

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


Once again this is not a bail out of Greece. It is a bail out of the banks that lent money to Greece. That is why the elites are pushing this. It is they who are being bailed out.

Greece should default, and extend the middle finger to the banks and the global elites.

Greece is screwed for as long as it stays in the Euro but hey the dream of a few is more important then the well being of a nation, and as if French and German banks will take a loss..

The possibility of Portugal “not paying” has been brought up by opposition politicians recently, as I noted in this post:

http://zelo.tv/skyUdt

The obvious signs of cutbacks for visitors are in Public Transport – Lisbon operator Carris has cut back on many bus route frequencies and is taking one of the remaining tram routes off (perhaps – they threatened this before).

Rail service cutbacks have seen many marginal routes lose their passenger services completely. On other routes, Regional (stopping) trains have been axed.

And, as spending has been severely cut back, projects like the Third Tagus Crossing (road and rail) have been shelved.

Oh, and there are a lot more folk sleeping rough in Lisbon nowadays. Not good.

why have the governments of Germany, France etc. (the “Eurogroup” of finance ministers more generally) and the European Central Bank been airbrushed from this post leaving only the IMF?

my impression is that the IMF is the least enthusiastic of the “troika” about austerity, and most accounts I have read place the blame at the feet of the Germans.

this report says “the IMF mission staff in the troika sought to distance themselves from a “counterproductive set of austerity measures” see IMF clashes with EU over Greek austerity measures:

http://www.athensnews.gr/portal/11/52207

here is the director of the IMF fiscal affairs dept, warning against cutting too fast

http://www.voxeu.org/index.php?q=node/7604

Here is Christene Lagarde saying that the ECB and other EU central banks should take more of a hit on their Greek debt holdings

http://www.ft.com/cms/s/0/74d2b31a-46b2-11e1-bc5f-00144feabdc0.html#axzz1mRpDacAn

5. Bugger (the Panda)

Germany needs to exit the Euro and take with it, Netherlands, Belgium, Finland, Luxemburg, Austria and France to form a NieuEuro.

The existing Euro with the rest of the EZ in it will find this currency dropping in parity appropriately.

Then some deal needs to be concocted to allow the NieuEuro Banks debts in Euros to be written down over a period of say 10/15 years.

It won’t happen because the NeuEuro will also rise against the other World currencies and Germany et al will not be able to sell their manufactured goods easily outside this zone. Strong group though, France excepted.

But this an alternatives question isn’t it? Portugal can’t afford to continue borrowing at its current level, and maintain its public spending – at least not without substantially increasing borrowing, which would then itself need further borrowing to service – that’s a spiral.

If it simply defaults on its debts – while continuing to run a primary deficit – that will lead to more austerity and not less, because post-default Portugal will be unable to access the international capital markets, and it doesn’t have control of its monetary policy – meaning that it will have to balance its budget by hook or by crook.

You seem to be under the impression that there’s a nice, simple and painfree option out there, by which nobody gets hurt and we can all happily return to growth. I’m not sure that there is.

Martin Wolf’s latest column on Greece is worth reading

http://www.ft.com/cms/s/0/3d4c2598-5701-11e1-be5e-00144feabdc0.html#axzz1mRpDacAn

in context of the OP, note what he has to say about the IMF:

“the IMF believes that a programme founded on strong structural reforms rather than massive further fiscal contraction or headlong privatisation could work, at least in theory.”

my emphasis

Default is the only option. Better to default now and at least retain democratic control over the country than default later once everything including the kitchen sink has been sold off to predators.

The most catastrophic thing is that everybody involved knows this is a dishonest process.

Austerity doesn’t work, this has been demonstrated time and time again. It makes the restoration of the Greek economy less likely, not just in the short term, but in the long term as well as the bailout funds make the situation worse. We have a spiral of decline that leaves a wasteland in its wake, that will drag more countries into the whirlpool, simply because central bankers will not admit that they have the wrong solution.

Everybody involved knows this. But they do it anyway because the truth is electorally disastrous for the carpetbaggers who’ve been peddling the lie in the countries which enforce the decisions.

Greece died that Merkel might win re-election

The Conservative mantra – ‘you have to cut debt by cutting spending’ – is proving to be hollow across Europe.

Incidentally on this point, and from the Wolf article Luis links to:

Greece has made progress since the crisis broke, albeit largely as a result of austerity. Its primary fiscal deficit (before interest payments) has shrunk from 10.6 per cent of GDP in 2009 to an estimate of just 2.4 per cent in 2011. This is a big fall, given the scale of the recession.

Things become a touch easier (still awful, of course) for Greece if it can run a primary surplus.

Once again, Sunny attacks austerity without any alternatives or solutions, and ignoring some harsh realities to boot.

As TimJ points out above, in Greece austerity is beginning to achieve its aims – Greece is slowly beginning to get towards a sustainable fiscal footing. When you have huge debts, its hopeful at best to believe a little more spending is going to solve the problem – which is that ultimately debts and deficits are swamping the proceeds of any new growth, and the countries concerned would be bankrupt well before growth solved the problem – not withstanding the bailouts.

Sunny also totally ignores the fact that no-one is prepared to lend to these economies for exactly the above reasons, so where is the money for running huge deficits going to come from?

Of course, the Euro itself is a massive part of the problem, making the hardship suffered by many countries much worse, but ultimately these countires enjoyed a debt fuelled boom, with according increases in living standards, and now it is coming home to roost. Unfortunately, what is unsaid is that during recessions living standards and wages tend to fall, and this is no different this time.

As an aside, why not have a quick look at ireland, who had a massive recession, enacted sever austerity but now are growing again and are off the radar screens in terms of countries laible to default. No-one said austerity is pleasant or makes people happier, but if done properly it can work. Racking up huge amounts of new debt in the vain hope that it promotes the massive growth needed to pay for it really is little more than winging it.

13. Anon E Mouse

Great article but why doesn’t anyone in Europe listen to their national governments?

The stupid European dream is over and the sooner the student politics minority socialist opinion individuals realise this the better….

” The countries concerned would be bankrupt well before growth solved the problem – not withstanding the bailouts.

Sunny also totally ignores the fact that no-one is prepared to lend to these economies for exactly the above reasons, so where is the money for running huge deficits going to come from?”

Why do they consistently ignore and fail to understand this? How many times has it been stated only for another topic to appear shortly after pushing the same views, its almost fanatical, as though stating the same views over and over again makes it correct,as though all that matters is the view, so attached to it..

Try this from the Euro tribune from Talos who is on the ground………

“How is Greece taking the new loan deal that accompanies the PSI? Most compare it to a dictatorship, a foreign occupation, the kind of terms a victor imposes on a defeated country. No wonder: Two years of the most grinding austerity, has caused a destruction of the Greek economy that has no precedent, in peacetime, as official nominal wages dropped 15%, unemployment passed the 20% mark and, according to polling company VPRC, the bottom 90% of Greek households, suffered in 2011 alone loss of income on average ~45% of their incomes.

Greece is already a “labor wasteland” where jobs are near impossible to find and when they materialize they are more likely to be “black”, uninsured, well below the poverty threshold.Yet the new loan deals mandate among other things:

* The dismantling of collective bargaining and the annulment of the current collective agreement. “Labor law” in Greece will not be a meaningful subject any more

* Across the board cuts in nearly all of private sector wages and salaries to the tune of 22%. This includes the minimum wage (which will be now around 580 euros net, and under 500 euros if you are a new entrant into the job market). This affects all sort of benefits i.e. the unemployment benefit which is reduced to 369 from 461 euros. This in a country where the cost of living in its capital is still higher than that of Berlin.

* Immediate elimination of rent subsidies for the poorer, cuts in pensions, mass privatization at fire sale prices (including the Athens and Thessaloniki water companies, and the lottery/football pool company, whose market price right now is at two years profits) etc. This on top of galloping social destruction, a health system that is going to the dogs (the decay of which is producing even stronger superbugs) and public services being destroyed or annihilated.

* At the same time whatever debt will remain -and it will be huge and unsustainable anyway -will now be under English law, and not Greek law, meaning that the terms of the loans will be draconian.

And much, much more: 650 pages of it that Greek MPs were required to read in 24 hours since they received the package, Saturday, to vote on it on Sunday. The process is illegitimate, and constitutionally questionable yet the two government coalition partners (socialists and conservatives – the far right LAOS rightly figured that this will destroy it electorally and removed its ministers from the government), are extorting their MPs: “pain or destruction” they warned, along with the PM. Everything will be rationed, Greece will leave the euro and remain a third world country for ever. Sane people disagree. But they are not in government.

16. Northern Worker

@ 13

Perhaps because the EU is an unelected bunch of troughers and doesn’t care about the 500 million citizens?

The standard IMF rulebook require a devaluation to go with austerity measures.

It is not the austerity which is killing Greece, it is the Euro. Greece and Portugal are collapsing because they can’t devalue their way out of an uncompetitive economy.

This begs the question: why does Ed Miliband still refuse to rule out Britain joining the Euro?

“This begs the question: why does Ed Miliband still refuse to rule out Britain joining the Euro?”

Because he has a dream so facts dont count, same as most of this lot have the anti cut dream yet cant get it through there skulls if no one is going to lend to you its not a choice, the only alternative, which of course would go a long way to solving there issues is rarely mentioned here, I guess they have the dream to.

Greece needs a hard left government that’s prepared to take over the major enterprises and tell the international community where to get off.

“Greece needs a hard left government that’s prepared to take over the major enterprises ”

Like what, exactly?

Left right it doesent matter both are run by idiots, even if the peoples of Greece are granted the conditions in which they can work towards a recovery, how many years is it going to be before some wanker politician foaming at the mouth with a spending (other peoples money) fetish goes to town with the countrys credit card or signs up to some political dream thats totaly unsuitable for the countrys condition and people for nothing more than short term politican gain.

Are you shitting me?? Viewing the world I seriously have to ask my self if this is reality some times. Go on play your fanatical political games with the lives of millions, your special, we need you to have zero business experience and just write policy to direct the largest business structures on the face of the earth, its because your special guys, spend 10,000 euros a day on food, you derserve it.

@21

Left right it doesent matter both are run by idiots, even if the peoples of Greece are granted the conditions in which they can work towards a recovery, how many years is it going to be before some wanker politician foaming at the mouth with a spending (other peoples money) fetish goes to town with the countrys credit card or signs up to some political dream thats totaly unsuitable for the countrys condition and people for nothing more than short term politican gain.

Are you shitting me?? Viewing the world I seriously have to ask my self if this is reality some times. Go on play your fanatical political games with the lives of millions, your special, we need you to have zero business experience and just write policy to direct the largest business structures on the face of the earth, its because your special guys, spend 10,000 euros a day on food, you derserve it.

So not a fan of democracy then I take it?

4. Luis Enrique

” why have the governments of Germany, France etc. (the “Eurogroup” of finance ministers more generally) and the European Central Bank been airbrushed from this post leaving only the IMF? ”

A good question, Luis. Perhaps Sunny could find some time to answer. I think some parts of the UK Left are still in denial about the appalling behaviour of European institutions towards weaker members. Hence, we get ludicrous attacks on more familiar foes like the IMF. The truth is there is absolutely no reason for the IMF to be involved and they really do not want to be there. Europe is rich enough and has the resources to solve their own problems. European institutions are using the IMF as a smokescreen to cover up for their own lack of resolve to tackle the fundamental problems. It is scandalous that IMF funds, often from the developing world are being used in the EZ periphery because rich European nations will not help their neighbours.

It is absurd for Sunny to blame the IMF for internal European problems. The IMF MO for a nation suffering from balance of payment problems is quite simple. Default and restructure external debt, devalue your currency, cut spending, raise taxes and restructure inflexibilties in the economy to generate growth. Often not pretty, but it works. Since it is the European institutions that will not let them default and are trying to restructure debt to avoid formal default, it is a bit rich to blame the IMF. Moreover, a significant factor for economic recovery in devaluation has effectively been removed.

Government & citizen debt is because the super rich have their (ie our) cake & eat it. We are the true wealth generators, we are the ones who do the real work, we are the ones who develop new science & technology, we are the ones who pay taxes to keep our society running, we are the ones who buy goods & services…

…even the likes of Bill Gates would be nothing without us (although, to be fair to him, he has donated 90% of the wealth he accumulated to a charitable trust)

However the real problem is that too many millionaires & billionaires are more interested in being like the Pharohs of the long dead ancient Egypt, or the princes of the Mayan civilisation (long dead), or chasing Ceasar’s imperial purple, you get the picture?

Our austerity is their short term profit, meanwhile not enough resources are there to maintain the future of our civilisation in the long run. What is done to the 99% today will happen at a wonga.com style interest rate to themselves in the future, and they are the architects of their own long term failure!

Last century, incidentally, countries like Argentina chose to default on dodgy debt, the ecenomic elite were up in arms, but within 2 years that country recovered – it hasn’t had anything like the problems servicing such debts would have caused it over the past 15+ years…

Well, all you people who sneered at sound money and free markets, you wanted the politicians and their courtier economists to manage everything, hasn’t worked out too well, has it? (And remember the IMF is one of John Maynard Keynes’ bastard offspring)

And all you people who accused those of us who wanted to keep independence, and not surrender control to a supranational economic bloc as being xenophobes and reactionaries, likewise, your European Dream ain’t looking too pukka any more.

Whilst trying to figure a way out of this mess, spare a little thought for how we got into it.

25 Not this old chestnut again. For the record……..

1 Who took the UK into the EU?

2 Who signed the European single act?

3 Who signed the Maastricht treaty?

4 Who has never held a referendum on any of this?

If you answered tory to all 4 questions then give yourself a cigar.

More seriously-a basic question for many of the people on here:

Would you, personally, lend Greece some money? And if so, on what terms?

I agree completely that these policies seem stupid. A bit more money and Greece wouldn’t be quite so ripped apart and might in the long run be better off. But Greece is no more a real country economically than South Sudan: it’s controlled by the charity of its donors now. And it can’t default without abolishing its budget deficit completely.

@ Trooper Thompson ~ So not a fan of democracy then I take it? meh meh!!

26 Sally ~ Nice of you to totally forget about the treaty of lisbon but hey when your playing political games you can be a spinless twat.

If you answer who signed them all then give yourself a cigar, here is a clue the word starts with P.

30. Trooper Thompson

@ 26,

true, but not really relevant, because never was it likely that those things would be reversed by Labour or Lib Dem governments, so they may have been done by Tory governments, but with support across the political establishment.The deep problems we have are due to areas where there is no difference between left and right (other than who gets to drive, and who has to sit in the back criticising). It is the vast growth of state power, intervention, monetary inflation etc. Neither left nor right wants to change this system, they don’t even see it as a problem. The only alternative is liberalism in its original sense – peace, free trade, honest money, limited government.

31. Frances_coppola

25 Trooper Thompson

Yes, Keynes was involved in the creation of the IMF. But it was not created as he wished. The blueprint adopted by the Bretton Woods conference was largely designed by Harry Dexter White with American interests to the fore. Had Keynes’ blueprint been adopted there would have been a world central bank with money creation powers and a world reserve currency (bancor). Instead, we have ended up with the dollar as the world reserve currency and therefore, effectively, the Fed as the world’s central bank.

The debate between Keynes and White was astonishingly similar to that in the Eurozone today – Keynes saw the need for rebalancing of stocks and flows between deficit and surplus countries, while White was concerned about inflationary pressures and saw imbalances as solely problems of deficit countries. I have no doubt that Keynes today would be arguing for the ECB to be a proper lender of last resort to the Eurozone and for Eurobonds to be issued. But so far, like the Bretton Woods conference, the Eurozone has gone for the White solution – central bank’s remit is to control inflation and support banks, and deficit countries have to solve their own problems through austerity.

As you say, hasn’t worked too well, has it?

30 Trooper Thompson

Labour held a referendum on European Community membership in 1975, because a large proportion of the Labour party at that time was opposed to membership and wanted the UK to withdraw. The referendum result supported remaining in the Community. The rest, as they say, is history.

So it isn’t really true to say that Labour wouldn’t have withdrawn us. Had the referendum result been different, they would have found it very difficult not to, given the strength of opposition in their own ranks at the time.

32. Frances_coppola

Sunny,

you really can’t airbrush the EU and ECB out of the picture and blame everything on the IMF. The people driving this creaking jalopy towards the cliff at top speed are primarily the EU leadership.

@ 31 Frances,

“I have no doubt that Keynes today would be arguing for…”

There’s no way of judging at all what he would be saying. He was notorious for changing position (he was called ‘India-Rubber Man’). The only thing he was unbendingly consistent in was his belief in his own genius.

That one his more outlandish goals was thwarted at Bretton Woods is little comfort, as the rest of his woeful schemes were put into effect, despite the warnings from proper economists, and his malign influence still plagues us to this day. If only his books were printed on absorbant paper, they might serve a useful, and fitting purpose.

34. Frances_coppola

@31 Trooper Thompson

Why are you so hostile towards one of the great economic thinkers of the 20th century? Rather extreme, if you don’t mind my saying so.

35. Frances_coppola

Sorry, that should be @33 Trooper Thompson.

Do you think that the way the IMF is designed works, then? Do you think that the dollar being world reserve currency is a good thing – or the Fed effectively being world central bank, for that matter? If not, what do you think would be a better arrangement?

The International Clearing Union proposal was not meant as a money creating global central bank. It was to be a supranational bank to settle international trade, and try to prevent nations running up large deficits as debtors and others accumulating large surpluses as creditors. The international trade would have been settled in terms of the bancor. However, the bancor would have been a unit of account and not an actual currency. Each nation would have retained their own currency which would trade vis-a-vis the bancor. Therefore, the bancor would have been a type of synthetic currency like SDRs. However, more things would have been priced in terms of bancors and not much is priced in terms of SDRs. An SDR is just basically an index basket of the main global currencies. The basic idea was to try and find a system to stop nations feeling the need to build up huge ‘ rainy day ‘ reserves which had the effect of collapsing international trade. Alas, a problem still with us.

Yes, the Americans rigged the game to their advantage and we effectively got the Treasury bill standard. However, the Triffin dilemma means that the U.S. have to run current account deficits or the world will be starved of dollars. The huge stock of Chinese USD denominated reserves is the actuality of the Triffin dilemma. Fundamentally the BOP problems of the EZ are a type of Triffin dilemma.

37. Luis Enrique

Anybody interested in this topic should read this.

http://crookedtimber.org/2012/02/16/so-what-would-your-plan-for-greece-be/

38. Trooper Thompson

@34 & 35,

I do not consider him to be one of the great economic thinkers, rather the opposite. I find the reverence for him to be utterly mystifying. His ‘magnum opus’ is a combination of snide remarks about ‘orthodox economics’, of which he seems to know very little outside of Marshall, and mercantilistic, money-crank fallacies, which the previous 200 years of economic science had debunked.

As I mentioned above, he chopped and changed his position throughout his career, so you can find him arguing vociferously in favour of laissez-faire at one point, and for national autarky somewhere else. If he’d lived longer and stayed true to form, he would probably have repudiated ‘The General Theory’. Besides these things, I’m not attracted to arrogant, elitist snobs who believe they have some kind of divine right to rule over the rest of us.

“Do you think that the way the IMF is designed works, then? Do you think that the dollar being world reserve currency is a good thing – or the Fed effectively being world central bank, for that matter? If not, what do you think would be a better arrangement?”

I’m not in favour of any of the Bretton Woods architecture. The dollar as world reserve currency is certainly not a good idea, which is why Bretton Woods collapsed (which I would mark as 1971, when Nixon ended the fiction of the dollar’s gold backing). The answer was and is gold, and if Keynes and the other inflationists hadn’t got their way, the world could have returned to a stable currency. This could have been achieved after WWI, if Britain, Sterling being still the most important currency, hadn’t a) gone back to the pre-war rate, or b) having done so, followed policies to allow the deflationary adjustment, or c) having failed that during the ’20s, finally take decisive action when push came to shove in 1931, rather than repudiating its commitments and helping to set up the period of economic nationalism which led on to another world war. This decision in 1931 was an utter betrayal of everyone who had trusted Britain’s word, especially the French and the Dutch who had massive Sterling holdings.

All the issues mentioned by Richard W @36 are consequences of the failure to return to gold, which is the only workable alternative to the never-ending round of inflation and devaluation which has taken its place. You may argue that it’s too late now, but it sure as hell wasn’t too late in 1944.

39. Trooper Thompson

@ Frances,

I honestly would like to understand how and why people rate Keynes. Can you suggest something I may be overlooking? I wonder, have you read the economists who set out to refute him? For instance, Henry Hazlitt’s ‘Failure of the New Economics’ goes through the General Theory line by line. Do you know this work? Would you read it? Would it be like …. heresy or something? I’m not being facetious, I am truly interested to learn whether I am correct in my view of the man’s work or not.

40. Frances_coppola

@38 Trooper Thompson

This forum really isn’t the right place to take your arguments apart in detail. Suffice it to say that you demonstrate your absolute ignorance of, for example, the causes of the Great Depression when you insist that gold-backed currencies are the panacea for all economic ills. Commodity-backed currency systems are not intrinsically better than fiat ones: they have problems too, not least of which is their inability to absorb major economic shocks. The closest we have to a gold-standard system at the moment is the Eurozone. A large part of the problems there is the inability of currencies to devalue to counteract imbalances between surplus and deficit nations, which means the hit has to be taken by real wages and living standards – as happened in the Great Depression for those countries that stayed on the gold standard too long.

Regarding Keynes, I fear you are a very lonely voice.

41. Trooper Thompson

@41,

” Suffice it to say that you demonstrate your absolute ignorance of, for example, the causes of the Great Depression when you insist that gold-backed currencies are the panacea for all economic ills.”

When did I say ‘panacea for all economic ills’? You are suggesting that the gold standard caused the Great Depression, I suppose. Nothing to do with the monetary policy of the Fed and the BofE during the 1920s? Nothing to do with the tariffs, which prevented Europe paying its debts to America with goods? Nothing to do with Hoover and Roosevelt?

“for those countries that stayed on the gold standard too long. ”

That is disingenuous to say the very least. What it means is that those countries who believed the British when they said they would keep to the Gold Standard, and consequently lost a fortune when Britain broke its promise and defaulted, suffered, and it serves them right! This lack of morality is something you of course share with Keynes.

“Commodity-backed currency systems are not intrinsically better than fiat ones”.

They are because they are not the playthings of politicians, who are always driven by the short-term. That was the great advantage of gold. It enforced honesty – not perfectly of course – and that is why it was abolished.

“The closest we have to a gold-standard system at the moment is the Eurozone.”

A meaningless statement. What you mean is that the Euro cannot be expanded to infinity along the lines called for by money crank Silvio Gesell and his biggest fan JMK.

“Regarding Keynes, I fear you are a very lonely voice”

Is that it? That is your answer to a genuine question as to why you think that stark-bollock emperor is really wearing the finest silk pyjamas?

You’re right in one sense. The proper economists were not listened to, unlike the apparently God-like Keynes, so at least you can’t blame the proper economists for the dog’s breakfast him and his worshippers have made of the economy.

Your answer indicates that you’ve probably never even considered the arguments of his critics, never doubted the holy writ for a moment. I dare you to read that Hazlitt book. See whether your faith can take it.

42. Frances_coppola

@41 Trooper Thompson

“Morality”? “Honesty”? “Faith”? Oh, grow up. This is economics, not a bloody religion.

You have no idea what I’ve read or what I believe.

43. Trooper Thompson

@42

“You have no idea what I’ve read or what I believe.”

I never claimed differently. All I said was “Your answer indicates” that you’ve not read the book I mentioned or others of a similar ilk.

As for the seeming contempt you have for morality and honesty, I can only say with sadness, that if you lie down with a mangy, scrofulous cur like John Maynard Keynes, you’ll be bitten by his fleas.

44. Frances_coppola

@43 Trooper Thompson

Totally illogical responses. My answer indicated nothing about my beliefs or about what books I’ve read. Nor can you claim that I have “contempt” for morality and honesty when I point out that religious terminology is not appropriate in economics.

You seem very confused.

@44

The only religious reference I made was in suggesting that you had “never doubted the holy writ (of JMK’s work) for a moment”, and daring you to read one of his greatest critics, to see “whether your faith can take it”.

This is not particularly outlandish as metaphors go, and I would expect a reader to assume I was alleging a lack of critical appraisal, or an unquestioning appreciation of the man’s work, rather than a literal worship of his image.

As for honesty, there’s not even necessarily a value judgement involved to describe the BofE’s repudiation of the Gold Standard as dishonest, especially given the assurances they had issued to the central banks of France and the Netherlands, amongst others. Honesty and trustworthiness are very important in business, especially when credit is used as much as it is in a modern economy.

As for morality, Keynes described himself as an immoralist. You can look up the quote for yourself, it’s published in ‘Two Memoirs”. It sheds a lot of light on his personal philosophy and his view of economics.

Anyway, I shall not pursue the matter, but I still hope, one day, to find a Keynesian who’s prepared to justify the absurdly high regard the man is held in.

In case anyone is interested, Keynes’s influence still pervades current mainstream economics as can be easily established through reading regular undergraduate textbooks such as:

Olivier Blanchard et al: Macroeconomics – A European Perspective (Financial Times, 2010)
Rudi Dornbusch et al: Macroeconomics (McGraw Hill 2011)
Manfred Gartner: Macroeoconomics (Financial Times, 2009)

Btw Olivier Blanchard is currently chief economist at the IMF. His book carries a prominent endorsement on the front cover by Charlie Bean, deputy governor at the BoE and previously chief economist there.

As John Kay commented in the FT:

The macroeconomics taught in advanced economics today is largely based on analysis labelled dynamic stochastic general equilibrium. The unappealing title gives the game away: the theorists are mostly talking to themselves. Their theories proved virtually useless in anticipating the crisis, analysing its development and recommending measures to deal with it.

Recent economic policy debates have not only largely ignored DSGE, but have also been remarkably similar to the economic policy debates of the 1930s, although they have been resolved differently. The economists quoted most often are John Maynard Keynes and Hyman Minsky, both of whom are dead.
http://www.ft.com/cms/s/0/19491372-472c-11df-b253-00144feab49a.html

On why Keynes is relevant: Robert Skidelsky: Keynes – The Return of the Master (Penguin 2010)

For an illuminating series of 5 lectures on macroeconomics, which assess and criticise the received Keynesian model as well as other critics, try a search on YouTube for: Roger Farmer How the economy works

Farmer properly argues, against the recieved Keynesian model, that consumption spending is not a function of (disposable) income but of consumer wealth, which makes a big difference to “the multiplier”. Farmer has also produced a book: How the economy works (OUP 2010).

On the recent crisis, try Nuriel Roubini: Crisis economics (Penguin 2011).

Dornbusch’s text is good on the potential flaws of European monetary union.


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    Portugal's example shows why the IMF will ruin Greece http://t.co/0QbnU7dn

  2. Jason Brickley

    Portugal’s example shows why the IMF will ruin Greece http://t.co/n1JGRO2c

  3. Steve Preston

    Portugal’s example shows why the IMF will ruin Greece | Liberal Conspiracy http://t.co/2UDnSovO via @libcon

  4. Matthew Gibson

    Portugal's example shows why the IMF will ruin Greece http://t.co/0QbnU7dn

  5. Patron Press - #P2

    #UK : Portugal ’s example shows why the IMF will ruin Greece http://t.co/A3bnyPCK

  6. leftlinks

    Liberal Conspiracy – Portugal’s example shows why the IMF will ruin Greece http://t.co/WWcBnm5A

  7. Nicholas Ripley

    Portugal’s example shows why the IMF will ruin Greece http://t.co/wURyteZu

  8. John Hurr

    Portugal's example shows why the IMF will ruin Greece http://t.co/0QbnU7dn

  9. Portugal's example shows why the IMF will ruin Greece | Liberal … | What is High Debt Ratio ?

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  10. sunny hundal

    Portugal did what the IMF wanted them to. The result: economy crashed. The same will happen to Greece http://t.co/Aie2b3sA

  11. carmen l lockett

    Portugal did what the IMF wanted them to. The result: economy crashed. The same will happen to Greece http://t.co/Aie2b3sA

  12. Diogo Moreira

    Portugal did what the IMF wanted them to. The result: economy crashed. The same will happen to Greece http://t.co/Aie2b3sA

  13. TomDelargy

    Portugal did what the IMF wanted them to. The result: economy crashed. The same will happen to Greece http://t.co/Aie2b3sA

  14. Simon Godefroy

    Portugal did what the IMF wanted them to. The result: economy crashed. The same will happen to Greece http://t.co/Aie2b3sA

  15. Syazwina Saw

    Portugal did what the IMF wanted them to. The result: economy crashed. The same will happen to Greece http://t.co/Aie2b3sA

  16. planetwalker

    Portugal did what the IMF wanted them to. The result: economy crashed. The same will happen to Greece http://t.co/Aie2b3sA

  17. SF

    Portugal did what the IMF wanted them to. The result: economy crashed. The same will happen to Greece http://t.co/Aie2b3sA

  18. Lynn Alves

    Portugal did what the IMF wanted them to. The result: economy crashed. The same will happen to Greece http://t.co/Aie2b3sA

  19. Summer Teh

    Portugal did what the IMF wanted them to. The result: economy crashed. The same will happen to Greece http://t.co/Aie2b3sA

  20. Portugal’s example shows why the IMF will ruin Greece « SaveTheCrisis

    […] http://liberalconspiracy.org/2012/02/15/portugals-example-shows-why-the-imf-will-ruin-greece/ Share this:TwitterFacebookLike this:LikeBe the first to like this post. […]

  21. Jason West

    RT @sunny_hundal Portugal did what IMF wanted The result: economy crashed Same will happen to Greece http://t.co/cOwHVkIl #DeepFriedOlympics

  22. Frances Coppola

    Portugal’s example shows why the IMF will ruin Greece http://t.co/UlQoZsIh via @libcon << Unfair to blame IMF alone. Otherwise ok #gfc2

  23. papanicolaou marina

    Portugal’s example shows why the IMF will ruin Greece http://t.co/UlQoZsIh via @libcon << Unfair to blame IMF alone. Otherwise ok #gfc2

  24. Jadwiga L Reinke

    Portugal’s example shows why the IMF is ruining Greece by prescribing austerity http://t.co/Aie2b3sA [link fixed]

  25. TruthBeckons

    The IMF is ruining countries across Europe

    Portugal’s example shows why the IMF will ruin Greece with austerity… http://t.co/NBUdmUOR

  26. xoxoPortugal

    The IMF is ruining countries across Europe

    Portugal’s example shows why the IMF will ruin Greece with austerity… http://t.co/NBUdmUOR

  27. TruthBeckons

    The IMF is ruining countries across Europe

    Portugal’s example shows why the IMF will ruin Greece with austerity… http://t.co/DfZXxJG6

  28. TruthBeckons

    The IMF is ruining countries across Europe

    Portugal’s example shows why the IMF will ruin Greece with austerity… http://t.co/a44gFElZ

  29. Knut Cayce

    The IMF is ruining countries across Europe

    Portugal’s example shows why the IMF will ruin Greece with austerity… http://t.co/a44gFElZ

  30. AlmosJustice

    Portugal’s example shows why the IMF will ruin Greece | Liberal Conspiracy http://t.co/lirCV4Oo via @addthis

  31. El ejemplo de Portugal muestra por qué el FMI arruinará a Grecia « Disenso

    […] originalmente en: Portugal’s example shows why the IMF will ruin Greece, Liberal Conspiracy, […]

  32. Rui Grilo

    "The IMF is ruining Europe’s economies by putting them on an unsustainable path of worsening austerity" http://t.co/SKl0wzlX via @libcon

  33. @rochetapontes

    "The IMF is ruining Europe’s economies by putting them on an unsustainable path of worsening austerity" http://t.co/SKl0wzlX via @libcon

  34. OccupyingTheReality

    Portugal’s example shows why the IMF will ruin Greece | Liberal Conspiracy http://t.co/FM09NCeJ via @libcon





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