Home > Greece > USA 1933 vs. Greece 2013 (3 graphs)

USA 1933 vs. Greece 2013 (3 graphs)

from David Ruccio


We all know how terrible the economic consequences of the First Great Depression were in the United States. Well, as we can see from these charts produced by the New York Times, the current situation in Greece (measured in terms of national income, unemployment, and the stock market) is worse—much, much worse.

As Joseph Stiglitz observed, “I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences.”



  1. Blissex
    July 11, 2015 at 9:26 am

    Greece’s GDP would recover instantly if it were to receive “free” imports equal to 15-20% of GDP like in 2008. If 2008 is the baseline, does that means that Greece is entitled to receive that forever?

    If that is the fundamental argument, why shouldn’t Germany, the Netherlands, etc. be entitled to the same gift of “free” imports equal to 15-20% of their GDP?

    And if they are all entitled to receive that gift, who should then be doing all the exports that they are entitled to receive for “free”?

    • July 11, 2015 at 11:16 am

      That isn’t the fundamental argument. The “free” imports are not a gift from one country to another, they are investments from one region of the EU to another in order enable the whole to access the region’s surplus produce, which in the case of providing services like island holidays and tourism includes supplying what customers will expect and the region is not able to efficiently produce.

      As has already been elegantly pointed out, Germany, the Netherlands and other early pparticipants in the European Economic Community already received that investment via the Marshall plan. The “gift” then took the form of writing off aid which had achieved its end.

      What this economically ignorant critic needs to be reminded of is that free trade is premised on people exporting surpluses, not necessities, and trading one form of surplus for another. The current behaviour of the troika and European government representatives is like that of jealous children complaining because Mum has given their handicapped sibling a lift.

    • Paul Schächterle
      July 11, 2015 at 4:09 pm

      I don’t get your argument. Please explain how a “free import” would add to Greece’s GDP.

      • Blissex
        July 11, 2015 at 6:47 pm

        «how a “free import” would add to Greece’s GDP.»

        Trade economists would know that imports are accounted for at factory or wholesale prices “fob” and that between that and retail price there is a markup that mostly appears in the national accounts.

        For example if the “free” import was a Samsung phone, it would be purchased wholesale from the factory for $200, and it would then be sold in a shop for $400, with various steps of value added in between, mostly in the destination country.

        BTW when I use “free” here it means “paid for with borrowing meant never to be paid back”.

        In the case of Greece the country received these “free” net imports:

        2001: $9 billions
        2008: $51 billion
        2011: $33 billion
        2014: more or less parity

        (the total between 2001 and 2011 was $320 billion) which “coincided” with this level of private final consumption (non deflated):

        2001: €102b
        2008: €164b
        2014: €128b

        If one does some simple arithmetioc it turns out that the increase of greek GDP between 2001 and 2008 seems mostly “coincident” with the increase of net imports, and so the decrease in GDP between 2008 and 2014 too.

        My usual graphs that show the “coincidence”:


        Which suggests the plausible story that in the greek retail chain the markup between factory or wholesale “fob” prices and retail prices is close to 100%.

        The story seems to be that in 2001-2008 greek GDP was subject to a positive exogenous shock, which was spent mostly on net imports, and when the exogenous positive exogenous shock ended GDP went back to it 2001 level, when Greece was considered a rich, developed country doing well. It is not a story that “austerity” caused greek GDP to fall after 2008 to below “potential”.

      • Paul Schächterle
        July 11, 2015 at 8:26 pm

        Interesting theory. How do you account for the sharp rise in unemployment in the last 5 years? For example as indicated here: https://research.stlouisfed.org/fred2/series/LRUN64TTGRQ156S

      • Blissex
        July 11, 2015 at 9:09 pm

        How do you think that Greece’s GDP can grow again by 20% from their 2001 and 2014 baseline in the next few years without net imports growing to 20% of that baseline GDP too, given the evidence that this is what happened in 2001-2008 and happened in reverse in 2008-2014?

        Consider the opinion of one Y Varoufakis:

        «idle productive resources in Greece cannot produce much for which there is increasing demand»

      • merijnknibbe
        July 11, 2015 at 10:01 pm

        Imports weren’t free but led to large debts which as you might know are a bit of a problem, now. There is, however, the argument that before about 1990 countries like Greece got much more grants than nowadays which were used to pay for imports, grants which, in the heyday of neoliberal Europe, wree replaced by loans. On this blog a summary of the work of J.W, Mason: https://rwer.wordpress.com/2012/06/29/the-long-term-view-of-the-greek-current-account-deficit-from-transfers-to-loans-to-target2/

      • Paul Schächterle
        July 11, 2015 at 11:24 pm

        @blissex (July 11, 2015 at 9:09 pm):
        I was just wondering what you position was. I think it is fair to say that Greece is clearly not in the same situation as in 2001. So that would need some explanation.

      • Blissex
        July 12, 2015 at 11:29 am

        «it is fair to say that Greece is clearly not in the same situation as in 2001. So that would need some explanation.»

        Well. in the *aggregate* it is instead clear that Greece in 2014 was in the same position as 2001; the statistics about GDP, private final consumption and net imports are concordant.

        That has to be explained: how is it possible that after a giant borrowing boom exogenous shock Greece can return to the previous level of prosperity instead of overshooting downwards? The answer to this is that the “evil” EU and related “institutions” did a lot of work to help Greece, by buying up greek debt instead of letting it default (also to indirectly benefit their own banks), extending its maturity, and reducing interest rates. Greece has shown very democratically how grateful they are for that.

        As to the details, if the *aggregate* numbers in 2014 are approximately the same as in 2001, but the disaggregate situation is not, then the first thing that can be said is that it is an internal greek matter: it can only be the consequence of distributional choices made by greek voters and the kleptocracy they keep electing.

        For example the major distributional choice they seem to have made has been the classic “private gains and public losses” one, that is to distribute the benefits of the €8,000 per household per year peak “grants” to final consumers, but to load the resulting debt onto the state, that in practice over those whose income depends on the state, that is primarily welfare recipients.

        I wrote elsewhere that this seems the Republican strategy in the USA: load the state with debts used to give benefits (tax cuts or spending) to their constituencies, and when the debts come due declare bankruptcy and zero welfare. That’s what called in the private sector a fraudulent bankruptcy, something that banana republics like.

        In the greek case with the difference that SYRIZA now wants the costs of greek welfare to be paid for by the “evil” EU members who have stopped giving €8,000 a year “grants” to greek households.

        As to the specific case of unemployment, or rather the fall in employment, and the numbers for GDP and private final consumption (inflation adjusted this time):

        2001: 4.11m 0.51m => 4.62m
        2008: 4.52m 0.39m => 4.91m
        2014: 3.48m 1.27m => 4.75m

        2001: €197 billions (€47900 per worker)
        2008: €250 billions (€55300 per worker, +15% wrt 2001)
        2014: €187 billions (€53700 per worker, +12% wrt 2001)

        2001: €132 billions (net imports €10 billion)
        2008: €172 billions (net imports €35 billion)
        2014: €130 billions (net imports approx. zero)

        What’a amazing is that a 30% boom in private final consumption only resulted in a 10% rise in employment (and 6% in the activity rate).

        If the greek economy has become far more competitive, boosting productivity like that, then it is not surprising that a fall in GDP to a previous level drags down employment more than proportionally. Another contributor to RWER has IIRC pointed our recently that greek “competitiveness” has improved significantly. I don’t necessarily think “competitiveness” explains all there. Also looking at immigration:

        «The percentage of foreign populations in Greece is as high as 8.4% in proportion to the total population of the country. Moreover, between 9 and 11% of the registered Greek labor force of 4.4 million are foreigners. Migrants additionally make up 25% of wage and salary earners.»

        Perhaps that’s why greeks are so much against paying taxes to fund welfare, even if most immigrants are illegal and not entitled to it; or perhaps like in the USA in the past a part of the greek “competitiveness” miracle is undercounting the actual labour force if an increasing proportion of it are illegal immigrants that leads to an undercounting.

      • Paul Schächterle
        July 12, 2015 at 12:01 pm

        @blissex (July 12, 2015 at 11:29 am):
        Well, I am not convinced at all. Personally, I think you are cherry-picking facts to fit your personal political bias. (Don’t worry, that happens to all of us at times.)
        Greece clearly is *not* in the same situation as in 2001 as the unemployment data shows. And if they have increased their labour productivity – as you state as the reason for the increased unemployment – why isn’t that a good fact that makes Greece more competitive?
        Also I fail to see what your argumentation is aiming at. Are you in favour of a Grexit? Then you are not alone. The Greek debt is unviable so if there is no “haircut” or “restructuring” the Greeks will have no other option.

      • Blissex
        July 12, 2015 at 4:07 pm

        «if they have increased their labour productivity – as you state as the reason for the increased unemployment»

        That’s as the other statistics I have offered an official fact of the OECD and arithmetic, not a theory. Confusing the properties of the system of national accounts for theories is a bit hopeless in this discussion, and using GDP-per-capita, final private consumption, employment and net import numbers is not quite cherry picking, those are the prime quantities that describe an economy especially one like Greece.

        If you want a theory I’d guess that either during the net import boom a lot of greeks stopped working in marginally productive jobs and engaged in activities that were more profitable that then disappeared once the net imports dried up, or they were replaced by much cheaper albanians and bulgarians and turks who don’t appear in the official workforce numbers.

        «– why isn’t that a good fact that makes Greece more competitive?»

        Well it seems it has made them more “competitive” at importing :-) That is as Y Varoufakis pointed out:

        «idle productive resources in Greece cannot produce much for which there is increasing demand»

        The UK famously has has the opposite problem: the UK economy too is not that good as to «produce much for which there is increasing demand», at least internationally, yet a very significant *loss* of aggregate productivity kept official employment up even during a harsh recession, at the cost of stagnating or decreasing wages.

        I can’t see why as some other blogger here has pointed out the reverse could not have happened in Greece. It is largely an internal matter of greek policy…

    • July 19, 2015 at 5:03 pm

      “Should Greece receive X% free imports forever?”

      Probably, that would be a good idea for all concerned. It would be good for the Germans and the Dutch to be making free exports and for the Greeks and the Poles to consume free imports. We could argue about the amount, of course, but a form of surplus recycling in the EU, while not “fair” in an accounting sense, would boost overall growth and defuse balance-of-trade crises.

      The Germans were as happy manufacturing all those cars back in 2007 as the Greeks were happy driving them. That is a crucial point. In particular the Germans did not feel they were sacrificing something to make free exports. Of course they were sacrificing consumption, but that was their choice. German firms could have paid their workers higher wages to let them consume their fancy cars, instead of the Greeks. They collectively chose not to.

      The moral narrative goes that the Germans were sacrificing consumption in the present in return for higher consumption in the future. Really? That might be true of an individual German auto worker who expects his pension fund to yield generous income. But collectively were the Germans funding the lifestyle of the Greeks in the hope that the Greeks would later fund the lifestyle of the Germans? When exactly was that flow supposed to turn around?

      There are no inter-temporal transfers in the macro. There’s only current productivity and current investment yield. In the EU export productivity is imbalanced and trade tends to be imbalanced. The political choices are we can have maximum employment, growth, and trade at the expense of fairness by means of free exports; or we can have fairness and less growth, employment, and trade by insisting that everyone live within their means. If everyone lives within their means, trade is limited by the weaker party’s means.

      Of course it would be ideal for every regional economy to have equal productivity and an equal balance of exports to import consumption.

      The next best thing would be free transfers to keep the economy running at full clip in the presence of imbalances.

      The next best thing would be protectionist barriers, like separate currencies.

      And the worst thing would be deflationary barriers like austerity.

  2. BC
    July 11, 2015 at 9:59 pm

    Since 2000, the US has lost an equivalent of ~21% of real GDP growth that otherwise would have occurred had the trend prior to 2000-01 continued to date.

    Japan’s loss of real GDP growth since 1990 has been 33%, a loss that the US will experience by the early to mid-2020s should the decelerating rate of growth continue.

    That is to say, the US and Japan (and the EZ and eventually China) have been in a slow-motion depression for 15 and 25 years respectively.

    The structural stagnation and deceleration of growth shows no sign of abating. With wages as a share of GDP at a record low and US capital formation as a share of GDP at a 20- to 25-year low, real productivity will continue to decelerate with little or no growth of the labor force, resulting in US real potential GDP trending below 1% to around 0% per capita indefinitely hereafter vs. a CBO estimate of 2.1% and 1.4% per capita.

    Excessive debt and asset bubbles to wages and GDP have resulted in hyper-financialization of the economy and extreme inequality, which in turn results in excessive rentier claims on wages, profits, and gov’t receipts, reducing growth of productive capital investment, employment, productivity, wages, and purchasing power.

  3. Blissex
    July 11, 2015 at 11:11 pm

    «There is, however, the argument that before about 1990 countries like Greece got much more grants than nowadays which were used to pay for imports, grants which, in the heyday of neoliberal Europe, wree replaced by loans.»

    Yes, yes, the previous posts and graphs are very illuminating and sensible but it seems that the argument then is the same as “Dave Taylor”‘s that the way to boost Greece’s GDP per person back to its 2008 level is via grants whether to pay for net imports or whatever else (and greeks have recently demonstrated how much they like net imports).

    Then the story of the 2008-2014 GDP fall is not that evil germans planned to pauperize Greece by imposing austerity, but that the greek government “spontaneously” turned into “grants” the loans it had taken to boost imports to 20% of baseline GDP and this rather surprised the rest of the eurozone governments (or not, as giving AAA to greek debt was obviously a ruse).

    Also the question becomes not how to revert austerity, because there has been little to none, but what level of grants the rest of the EU should give Greece that is in theory a rich, developed country, no longer a developing one, to boost their GDP per capita from 82% of EU PPP average like in 2014 to 89% like in 2014.

    Currently official net EU budget transfers to Greece are about 2-3% of baseline GDP, or around €1,200 per household per year. Is that enough?

    Should grants be indeed 20% of baseline GDP or €8,000 per greek household per year?

    What about Poland where GDP per person is 1/2 that of Greece and population is 3.5 times that of Greece?

    Who should pay for all that?

    • Lyn Eynon
      July 12, 2015 at 11:57 am

      ‘Giving AAA to Greek debt was obviously a ruse’ but whose? It was not the Greek workers, youths or pensioners who have suffered over the past five years who set triple-A. It was the same credit rating agencies who thought the risk of sub-prime mortgages disappeared if they were lumped together into securities. When the Eurozone was launched, the Greek government of the time massaged its public deficit/debt numbers to qualify but it did so with the active assistance of Goldman Sachs and the connivance of the European Commission and governments.

      Sub-prime lending to individuals, businesses and governments was a nice earner while it lasted. Profits rose and bonuses became ever more extravagant with Eurozone banks as enthusiastic as the Anglo-Americans. Indeed, Deutsche Bank appears to have been one of the worst. Then it went wrong when asset and loan values fell. With excessive pay and dividends having already been extracted (this was the real looting) the illiquidity and insolvency of over-leveraged banks became apparent. To avoid collapse, including of French and German banks which had over-lent to Greece and others, governments and institutions bailed them out.

      The real issue here is the recklessness and incompetence of the financial sector.

      • Blissex
        July 12, 2015 at 3:33 pm

        «‘Giving AAA to Greek debt was obviously a ruse’ but whose?»

        Obviously of the governments of the EU, who wanted to give themselves the option to borrow cheaply no questions asked, and gave their banks “permission”.

        «It was not the Greek workers, youths or pensioners who have suffered over the past five years who set triple-A.»

        But they haven’t suffered *in the aggregate*, and in the few previous years enjoyed a net import boom worth €230 billion of free stuff over a few years. That by itself could justify a fair bit of suffering later, but the other eurozone governments have very generously ensured did not happen until SYRIZA decided to go (literally) for broke.

        «The real issue here is the recklessness and incompetence of the financial sector.»

        I’d rather say of (some) EU governments. While all EU governments gave themselves an AAA rating, some did engage in a debt boom and some did not.

        Because it takes two to tango: some EU governments planned a fraudulent bankruptcy using that AAA credit rating to the most while it lasted, some did not. Clearly the “evil” bankers were not successful in forcing every “unwilling” government to take lots of debt to finance a colossal net import boom for their voters :-).

        Or perhaps an AAA rating for a government in the middle of a giant “vendor financing” credit boom is like handing a loaded gun to someone: some handle it very carefully, some have a lot of fun :-).

  4. Blissex
    July 11, 2015 at 11:27 pm

    «it seems that the argument then is the same as “Dave Taylor”‘s that the way to boost Greece’s GDP per person back to its 2008 level is via grants»

    Y Varoufakis seems to hint that is what he wants too:

    «while state money involves mechanisms for recycling surpluses between member states (for instance, a federal budget, common bonds)»

    But then the debate about Greece is indeed completely different from the caricature of evil germans victimizing good greeks.

    • July 13, 2015 at 9:57 am

      «it seems that the argument then is the same as “Dave Taylor”‘s that the way to boost Greece’s GDP per person back to its 2008 level is via grants»

      Rhubarb! As I have explained it the way to give the Greeks a chance is to write off, now, unrepayable debts from the past, AND to localise the scope of debt (as with local currencies and personal accountability) so that in future innocent people are not held responsible for paying off crooked individuals’ debts. Put crudely, staff paid in drachma then cannot import for their own use Euro goods expected by foreign holiday makers. Blissex’s fiction of “GDP per person” is a major part of the problem: GDP is the sum of Net Domestic Products and you cannot increase Domestic Production by facilitating wholesale theft of domestic access to domestic resources.

      The crucial difference between us is that Blissex still hasn’t grasped the fact that money isn’t debt, it is merely a way of accounting for it. When banks make a loan, they don’t create a debt, they increase our credit limit. That only becomes a debt when we spend the credit, and the real debt then is not to the bank but to the society which honours the currency. The whole system works like hitch-hiking: one doesn’t expect repayment from the guy to whom you give a lift, you expect him to repay society by doing his bit to keep the system going. Governments have no right to insist that every such lift is paid for in banker’s IOU’s and the banks only fraudulently claim the right to tax such taxi fares and send in bullying bailliffs if this tax is not paid. What the banks should be doing is setting agreeing credit limits then keeping account of both what individuals spend and what they do, not writing off debts incurred by spending until they are paid for by doing necessary work. Unlike now, that is not necessarily for an employer, but may just as importantly be for the community, domestic or voluntary. Such accounting would highlight the not-obviously-workers who need to justify their expenditure. It is workers, not the thieving bankers – now busy replacing employees with automatons – who are worthy of their keep.

  5. Lyn Eynon
    July 12, 2015 at 9:05 pm

    Blissex is seriously confused on credit ratings. Governments do not ‘give themselves’ ratings nor can they always succeed in persuading private agencies not to downgrade. Sarkozy had to call an emergency cabinet meeting when S&P removed France’s AAA just before the 2012 presidential election. Nor are lenders with large teams of analysts obliged to accept these ratings. Creditors can be just as irresponsible as debtors but big banks have more powerful friends.

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