Home > Uncategorized > Anti-austerity links, ‘economists hate to say ‘I should have told you so” edition

Anti-austerity links, ‘economists hate to say ‘I should have told you so” edition

A) Greece: past Dickens. Supposed to happen when the monetary system fails you. See below.

B) The British consumption conundrum: not foretold but supposed to happen, considering the change in the income distribution. Conundrum solved. See below.

C) Voxeu: Eurozone austerity is self-defeating (A) – self-fulfilling crisis edition. It’s not different, this time.

D) Voxeu: Eurozone austerity is self-defeating (A) – debt deflation edition. Which we have known since the thirties (Irving Fisher actually already warns about ‘debt deflation’ in the beginning of the twenties (second edition of this)). The tens of billions which the Greek government was forced to borrow to recapitalize the banks, which was needed to plug their government debt restructuring induced capital shortage are not mentioned.

E) (No) investments in Greece, graph below. Investment in new dwellings declined to 10% of the peak level. Well, that was slightly unexpected – but in Ireland this happened, too.

Ad A) From Zero hedge and based upon a labour union investigation(h/t: David Taylor): this is what real, Great Depression like deflation looks like. The Greek are forced to use barter and to reinvent kinds of money and it’s not a pretty sight (for those who still believe the assumption of quite some neoclassical models that all companies use the same technology and only compete on (wage)costs: read recent ECB studies on competitivety, which are entirely consistent with the empirical findings from Salter in the sixties (in fact: fifties, it was published in 1960)): 


Employers who cannot pay salaries:

1. offer free sleep in hotels, free food
2. pay salaries with at least 3 months delay and not on monthly basis.
3. they do not pay full 13th and 14th salary (for Christmas/Easter and vacation) as obliged by the Labor Law.  They give food items and fuel coupons, instead, and force employees to sign that they have received the full bonus. GSEE estimates that one million employees have not received neither the 13th nor the 14th salary.

Young employees below 25 years old get hired with monthly contracts for part-time work of 4 hours per day and for salary of €180 per month. By 25 working days per month this could be translated into a wage of €7.2 per day!  It’s odd that while in 2011 ans 2012 Greeks made a step backwards to Dickens’ times, in 2013 and 2014 had a big jump back to Middle Ages.

Ad B. The growth of British consumption was a kind of conundrum, as average real income stagnated. From an accounting point of view it made sense: savings declined. But why did savings decline so much? New ONS data solve the conundrum: average income may have declined but income of the bottom (high spending, low savings) 20% increased while income of the top 20% (high savings, relatively low spending) decreased, leading to a classical increase of the average propensity to consume.

Ad E. Source: Eurostat


  1. June 27, 2014 at 4:18 pm

    You seem to have a very different view of the message of the ONS report from this http://www.theguardian.com/uk-news/2014/jun/27/top-lowest-earners-inequality-ons?CMP=twt_gu

    • merijnknibbe
      June 27, 2014 at 6:09 pm

      Also: “To emphasise the point, the ONS figures show that excluding retired households, disposable incomes fell overall by 6.3% on average, or £2,100, much further han the £1,200 fall for all households. The bottom fifth of non-retired households saw a 2% fall in incomes in contrast to the 3.5% rise.”

      But the point I try to make is that the British recovery (and believe me: compared with the Euro area it’s a recovery) is characterized by a sustained increase in consumption which, considering a decline of average real incomes, is somewhat puzzling. However, one of the surprising aspects of the post crisis period everywhere is a large increase of the number of people over 65 who are working, which is surprising as ‘prima age workers’ do much worse! And it seems that these households are often relatively poor and do spend the additional money. The Guardian article also points out that measures have been taken to increase disposable income of especially low income households (not exactly what happened in the Euro Area *as a whole* after about 2009…), which seems to work.

  2. merijnknibbe
    June 27, 2014 at 5:57 pm

    Well, this is what the ONS states:

    “The average disposable income in 2012/13 was unchanged from 2011/12, but it remains lower than at the start of the economic downturn, with equivalised disposable income falling by £1,200 since 2007/08 in real terms. The fall in income has been largest for the richest fifth of households (5.2%). In contrast, after accounting for inflation and household composition, the average income for the poorest fifth has grown over this period (3.5%).”

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