Stiglitz oped on Greece is a missed opportunity

Here is his conclusion:

For now, the Greek government has capitulated. Perhaps, as the lost half decade becomes the lost decade, as the politics get uglier, as the evidence mounts that these policies have failed, the troika will come to its senses. Greece needs debt restructuring, better structural reforms and more reasonable primary budget surplus targets. More likely than not, though, the troika will do what it has done for the last five years: Blame the victim.

His opinion is that the agreement will be very bad for Greece.  No duh.  But the right oped would make the case for what is better, and why the creditors will be better off with that alternative.  Instead, Stiglitz slouches off, rambling.

He never offers specifics about those “better structural reforms.”  So we have no idea what he prefers for Greece.

On the primary surplus, he is also silent.  Given the likely reality that Greece really will only have a 1% primary surplus (presumably Stiglitz has read all those analyses about how countries repeatedly “agree” to immense structural reforms as conditions of IMF loans and then just go ahead and delay and ignore until the next loan negotiation comes around and they promise to be better next time) is Stiglitz saying 1% is good, or is he saying that an agreement for 1% would enable the Greek government to actually run a deficit of -1%?  Is that his preferred alternative?

On debt restructuring, he surprisingly has nothing to say in the oped.  I assume he thinks the eurozone countries should take a $200 billion haircut.  That is a big number.  More than 1% of eurozone GDP.  About the same size as a full year of eurozone military spending.  But spread out over 20 years, with a suitable discount rate, it is doable and the rise in Greek and neighboring GDP will make some of it worthwhile in the long run.

So his oped has little positive content.  Instead, it offers a smattering of conspiracy theory, innuendo, “I told you so,” and “it obviously must be true” rhetoric.  The beginning of the oped warns, like Marvin Gaye, that “we shouldn’t lose sight of what is really going on.” But what is going on?  Marvin Gaye never answered the question, and neither does Stiglitz.

The only clear thing going on, Stiglitz offers, is that Dutch milk producers will get to sell more milk in Greece. Really, that is what is going on?  I always thought the Netherlands had comparative advantage in milk and Greece in feta.  Take a look at Greek trade.  $350m in cheese exports, and $506m in cheese imports.  Seems like standard intra-industry trade with lots of specialization, branding, and niche economies of scale.  In fact, I might even venture that Greece imports milk and exports cheese, just like it does for petroleum?

Even if there were 20 “things going on” like this, the total value of the benefit to European producers could not be more than $5b.  (Outside of petroleum, Greece top 20 imports are valued at maybe $20 billion a year; assuming a 25% markup, doubling that would increase profits by the firms exporting to Greece by $5b).  Do those dispersed European exporters really exert that much leverage over the concentrated power of hedge funds, banks and European treasury departments, who presumably would be quite willing to accept a $50b haircut?  Tell, us, Joe, if they do!  May I rephrase?  Stiglitz seems to be arguing that the eurozone is refusing restructuring in order to open up the Greek market to European exporters, even though eurozone creditors are then losing far more than eurozone exporters could gain.  To me, it does not add up as a theory of “what’s going on.”  Maybe my math is wrong?

The other thing going on, Stiglitz suggests, is that the troika is going to ruin Greece just like they ruined Indonesia in 1998.  OK, here is Indonesia’s GDP per capita:


Greece should be so lucky.  In the two decades since the Asian crisis, real GDP more than doubled. But if you read Stiglitz, you would think Indonesian GDP had declined for a decade after 1998.

Even if the secret intent of the troika is to “ruin” Greece, to what end, one might ask?  Is this a Naomi Klein conspiracy?  Ruin them so we can buy up their assets cheap?  It could be true.  Yanis Varoufakis thought so.  In one blog post he cogently (well, almost) summarized exactly that in the case of Eurobank, though how the Greek oligarchs profited from the mess he never quite made clear.  I would have appreciated an assessment from Stiglitz of how much looting has been going on.

Aside: Well, what did happen to Eurobank’s shares?  They went from about 23 cents in May 2014 when Varoufakis was sure that the hedge funds were making a killing, to 6 cents today.  Some killing.  And by the way, if you truly believe that they are indeed going to make a killing, then absolutely nothing prevents you too from sharing in the profits of their risky bet, by buying shares now at a price much lower than they bought theirs. How well you will sleep at night, knowing that you are going to make an even higher return than John Paulson!

Stiglitz then hints darkly that this is about teaching left-wing politicians a lesson.  That argument to me is implausible: “Let’s impose vicious austerity so that a left-wing backlash ensues, and a super left-wing government gets elected, and then we’ll make them accept the same conditions they campaigned against, so that way no left-wing movements will arise anywhere else.”  How do the oligarchs stay in power with such fiendish thinking!

So in the end we learn little from Stiglitz’ oped.  A pity, because there is probably a lot of merit to his position that European political parties (Merkel’s in particular) would do better in the long-run with a rhetoric and policy of European solidarity and sacrifice.  So would ordinary citizens of Greece, who are Europeans too. And policies that reduce wealth disparities at the very high end indeed are my political preference too.  But I don’t think those policies will be hastened by writing ten bad opeds a day, as Stiglitz seems to do.

A clearer oped would have indicated how Indonesia returned quickly to growth.  One factor was the huge devaluation, then float and depreciation, of the rupiah.

rupiah exchange rate

Yikes!  Without a large depreciation in Greece, a depression for another five years seems likely, regardless of whether the Dutch do not get to sell more milk, or bank shares are distributed to “the people” in a gesture towards inclusive capitalism, or the primary surplus target is reduced to .5%.

I am totally sympathetic to Stiglitz’ argument.  I wish he had taken the time to write more coherently.

via Greece, the Sacrificial Lamb – The New York Times.

About mkevane

Economist at Santa Clara University and Director of Friends of African Village Libraries.
This entry was posted in Teaching macroeconomics. Bookmark the permalink.