General government net financial liabilities as % Portuguese, Italian, Greek, Spanish and Irish GDPs

I had borrowed a lot of money from scratch after 2007. Greece borrowed a lot of money of its own accord from 2010. Italy always owed a lot of money. Spanish do not know all that much money considering their dire financial circumstances.

image

Source: OECD Economic Outlook June 2016 Data extracted on 01 Jun 2016 12:57 UTC (GMT) from OECD.Stat

Waiting for the permits to come in: business start-up fees and lost output waiting in Europe and North America

Expediting the processing of permits can actually make quite a difference to firm start-up costs even in countries with few barriers to starting up a business.

image

Source: Markus Poschke (2011) Entry regulation: Still costly | VOX, CEPR’s Policy Portal.

Note: The value of time is set to a business day’s output per day of waiting time at 22 business days per month.

The cost of starting a business in Europe and North America

These measures including the full cost of starting a business. Not only are official fees included, the opportunity cost of the waiting times for various permits are issued are added as well.

image

Source: Markus Poschke, Entry regulation: Still costly | VOX, CEPR’s Policy Portal (2011).

Note: The value of time is set to a business day’s output per day of waiting time at 22 business days per month.

 

A lot of doctors in Greece

image

Image

General government expenditure as % of Portuguese, Italian, Greek and Spanish GDP since 1960

I do not think any of these countries have governments who can really handle managing half of national income on a regular basis. The Italian, and I assume Greek GDPs at least are topped up quite considerably to take account of their underground economies. The top up for Italy is 20%.

image

Data extracted on 23 Feb 2016 07:45 UTC (GMT) from OECD.Stat.

Greece should have defaulted several years ago rather than have raised taxes

John Cochrane is the latest to join the list of economists who pointed out that Greece should have defaulted several years ago rather than put up taxes. Tax rises just made everything worse and put off the day when Greece had to reform through deregulation and privatisation.

image

Source: Renowned U.S. Economist Says High Taxes Squash Greece’s Prospects for Recovery | GreekReporter.com.

As early as 2011 , Jeffrey Miron was arguing the best way forward for Greece was to default and leave the Euro:

If Greece defaults, the country gets immediate relief from the crushing interest payments on its debt, leaving it with a relatively modest primary deficit which excludes the big interest payments Greece is faced with now.

In such a scenario, the pressure for austerity would therefore diminish. This would allow Greece to choose policies that encourage growth, rather than ones that shrink the deficit but retard growth by imposing higher taxes.

By abandoning the euro and adopting a properly valued currency, Greece can restore its international competitiveness. This means greater employment demand from both domestic and foreign sources.

The potential negative of default is that Greece will likely lose access, for a while, to international credit markets (although it will be a much safer investment after default than it is now).

But being cut off from foreign lending for a few years is not a disaster; if anything, it might encourage cuts in the wasteful components of government spending.

A bigger risk of default is that ending the crisis might reduce pressure for Greece to address the economy’s fundamental problems: crony capitalism, a Byzantine tax code, excessive regulation, and a bloated government sector.

If Greece fails to reform, it will suffer slow growth and a new crisis soon, regardless of what it does now.

Arellano, Conesa, and Kehoe explained in Chronic Sovereign Debt Crises in the Eurozone, 2010–2012 that the post-GFC recession in many Eurozone countries created an incentive to gamble for redemption. This gamble for redemption is betting that the post-2008 recession will soon end:

  • If Greece sold more bonds to smooth government spending in the interim, and if the Greek and EU economies recover, the stronger revenue growth will pay off the enlarged Greek government debt.
  • Under some circumstances, this policy is the best that a government can do for its country, but it carries a risk!
  • If the recession goes on for too long (and it did in southern Eurozone), a government will either have to stop increasing its debt or default on its bonds.

The global bond markets will anticipate this prospect of default as a country’s government debt accumulates and will seek higher and higher interest for new bonds, and importantly, to roll over existing Greek Government bonds.

EU policies that result in lower interest rates and lower the cost of a sovereign default provide incentives for a government to gamble for redemption. The interventions taken to date by the EU and the IMF – lowering the cost of borrowing and reducing default penalties, the bailouts and the 50% write-off of the existing Greek government debts – encourage southern Eurozone governments to gamble for redemption.

Greece and a few others are gambling for redemption by betting that the recession will end soon, selling more bonds to smooth government spending in the interim, and reducing the enlarged debt if their economies recover. The Greeks initially did a fine job in squeezing huge subsidies and debt write-offs!

If the recession continues for too long, the government will have to stop increasing debt or default on its bonds. Greece has been in default in more than 50% of the time since it became independent in 1822.

Greece’s problem is that it is 119th in the 2014 index of economic freedom, just ahead of India. The World Bank ranks Greece 161st in the world for ease of registering property and 91st for enforcing contracts; it takes an average of 1,300 days to enforce a contract through the Greek courts. This low base says something about how Greek politics works and will work for some time to come.

Cristina Arellano in a recent paper pointed out that if default is inevitable, raising taxes just makes everything worse:

Fiscal defaults occur because of the government’s inability to raise tax revenues. Aggregate defaults occur even if the government could raise tax revenues; debt is simply too high to be sustainable.

In a quantitative exercise calibrated to Greece, we find that our model can predict the recent default, but that increasing taxes would not have prevented it. In fact, increasing taxes would have made the recession deeper because of the distortionary effects of taxation.

Tax revenue as % of Portuguese, Italian, Greek and Spanish GDP

image

Data extracted on 23 Feb 2016 07:08 UTC (GMT) from OECD.Stat.

Portuguese, Italian, Greek and Spanish all-in average personal income tax rates at average wage by family type, 2014

image

Data extracted on 25 Jan 2016 01:07 UTC (GMT) from OECD.Stat.

The Left is back in power in Greece

The ups and downs of the Greek economy

Previous Older Entries

Bruner the Anarchist

The State is merely a legalized mafia claiming a monopoly on violence

Helen Joyce

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Inequalities

Research and reflection from both sides of the Atlantic

freer lives

A socialist critique of gender ideology

200-Proof Liberals

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Darwinian Business

A blog exploring business from an evolutionary perspective, by Max Beilby

Spin, strangeness, and charm

Politics, media bias, science, and psychology

Family Inequality

by Philip N. Cohen

What Paul Gregory is Writing About

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Woman's Place UK

Violence against women and sex discrimination still exist. Women need reserved places, separate spaces and distinct services.

TVHE

The Visible Hand in Economics

Kids Prefer Cheese

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

George Mason Economics Society

Provoking discussion by publishing economic writing

Offsetting Behaviour

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

JONATHAN TURLEY

Res ipsa loquitur - The thing itself speaks

single sex spaces

Single sex spaces are a question of consent

Adventures of a Tudor Nerd

Tudor History from the Wars of the Roses to the Death of Elizabeth I

Weapons and Warfare

History and Hardware of Warfare

No Punches Pulled

Laughter – the best medicine

TannerOnPolicy

Politics and Policy with a Libertarian Twist

Notes On Liberty

Spontaneous thoughts on a humble creed

Map Dragons

Written by map lovers for map lovers

New Historical Express

(Formerly Hatful of History)

CONVERSABLE ECONOMIST

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

Barrie Saunders

Thoughts on public policy and the media

The Victorian Commons

Researching the House of Commons, 1832-1868

Coyote Blog

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

American Enterprise Institute – AEI

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

The History of Parliament

Blogging on parliament, politics and people, from the History of Parliament

Catallaxy Files

Australia's leading libertarian and centre-right blog

Books & Boots

reflections on books and art

Legal History Miscellany

Posts on the History of Law, Crime, and Justice

Sex, Drugs and Economics

Celebrating humanity's flourishing through the spread of capitalism and the rule of law

The Long Run

the EHS blog

Vincent Geloso

Economics, History, Lots of Data and French Stuff

Climatism

Tracking Anthropogenic Climate Alarmism

%d bloggers like this: