Thursday, 2 July 2015

Simon Wren-Lewis on Greece.

Simon Wren-Lewis (Oxford economics prof) claims that more demand inside Greece will enable the Greek government to collect more tax and thus repay creditors. (Para starting “From a macroeconomic viewpoint…”) Nope. More demand inside Greece would suck in imports which would make Greece even more indebted to other countries or to banks and non-bank entities in other countries.

The extra demand would of course enable the Greek government to collect more tax off the Greek private sector as SW-L says, but that’s just a re-arrangement of wealth or money WITHIN Greece. And the Greek government can do that anytime simply by raising taxes and/or cutting public spending.

But that’s not to dispute SW-L’s other points, e.g. he argues (and has done so for some time) that a relatively long period of mild austerity is better than a shorter period of extreme austerity. That point might be valid. The logic there is that the basic purpose of austerity (internal devaluation) might take place at much the same speed under the two scenarios. But of course the latter ploy requires patience by Greece’s creditors, and those creditors are rapidly running out of patience.

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