16 February 2016

Stop talking about Austerity as you have no idea what that means

It is disgusting to hear the British and French bleat on about the horrors of Austerity, as if they actually had any idea of what they are talking about.

My friend Andrew Brice in Wellington, New Zealand has produced some simple but effective graphs that showing GDP growth across the world from 1994 to 2014. Looking at the graphs for somewhere like Greece, and you quickly see what Austerity really means.He is graphing World Bank data since 1994 on a range of economic data points for all countries. While not setting out to show "Austerity", the graphical presentation does provide some interesting information. His site can be found here.

I've selected four countries for the chart below: France, Greece, Spain and the United Kingdom.

Notice how the GDP points expand fairly uniformly for France and the UK. Each point on the spider diagram, for the three reference years, shows growth, indicating and reasonably balanced growing of the various key elements of GDP.

Not Greece, in which that growth virtually implodes for 4 of the five factors between 2004 and 2014. Only 'X' - Exports, continues to grow, and that at a slower rate than the previous decade. Household consumption, General government, Gross capital formation and Imports all collapsed. Gross Capital Formation is less than it was in 1994.

Spain looks only marginally better.

Yet for the UK and France, all five indicators continue to expand through the crisis and into the second decade of this century.

GDP growth graphs for http://zyaneconomics.appspot.com/#/finmodel/

In the UK and France, governments have attempted to bring spending under control, and in large measure have failed miserably.

Oxfam's report on Austerity in the UK is a wonderful example of not understanding reality. "Since 2010, austerity – primarily in the form of deep spending cuts with comparatively small increases in tax – has been the UK government’s dominant fiscal policy, with far fewer measures to stimulate the economy. The stated aim of austerity was to reduce the deficit in the UK to give confidence to the markets and therefore deliver growth to the economy. While austerity measures have had some impact on reducing the deficit, they have delivered little growth, and public debt has risen from 56.6 per cent of GDP in July 2009 to 90 per cent of GDP (£1.39 trillion) in 2013."

It is almost as if "Austerity" actually only means "we cannot have everything that we want". Economies just balance what is required to keep the lights on, tax rates that do not disincentive investment, balanced against social programmes that effectively avoid rioting and revolution. In which case Austerity has become the a rejection of a "give me mine" mentality.

Yet contrast that with 10 things the Greeks cannot do (from July 2015 at the height of the crisis). If you want to see real austerity, look at Greece. Could the UK or French governments survive cutting pensions by greater than 50%. Or unemployment higher than 25% (and 50% for under 26 year olds)? What would Oxfam say to 45% of pensioners living below the poverty level, and food consumption dropping by almost 30%?

United Kingdom

Looking at the GPD growth chart for the UK it is almost easy to see the source of discontent. Yet it needs to be remembered that the economy has continued to grow (once over the Global Financial Crisis - GFC - induced great recession) and is now larger then it was in 2008.

UK GDP Growth, 1994 - 2014
Note the continued expansion of all five elements

Personal income has (as of 2015) grown to exceed personal income, inflation adjusted, pre-GFC. It took a long to time recover, and certainly the average POME (Prisoner of Mother England, or is that short for Pomme de Terre?) has had a rough ride. But pensions have continued to be paid, the health service has continued to treat patients, and to expand the range of coverage and care provided. The economic effectiveness of that service may be up to question, but that is a factor of quality of provision, not total expenditure in GDP terms.


France is not significantly different, with growth across all five data points through the years. Yet France (and the French) are mired in a psychological paradigm that says that they are suffering, oh so horribly, from massive austerity. Each new president is elected on a promise of change, or in the case of Sarkozy, "rupture" with the past. Yet for twenty years, each new president has been met by strikes at the mere hint of market reform legislation, strikes lasting weeks and covering the entire country sometimes. Each president has caved. Even the French military has a better (much) record of refusing to surrender.

France GDP Growth, 1994 - 2014
Not bad for coming through the GFC

Yet looking at the image above, you would think that France has had fairly steady growth, especially when you consider that between 2004 and 2014 there was the GFC knocking their economy into deep recession, and their being in a Europe that has seen lackluster growth at best over the past half decade.


Turning to Greece, we see a very different graph, in which the only growth has been in exports. The years between 1994 and 2004 showed good growth, in line with the UK and France. Yet with the GFC and their debt crisis, loss of sovereignty and destruction of the social welfare system, the years 2004 and 2014 we can see what austerity really means.

Greek GDP Growth, 1994 - 2014

The collapse in Greek GDP growth has been across the board, with only exports growing past 2004 levels, and that only marginally. The other four indicators have all collapsed, with Gross capital formation falling to below 1994 levels.

Compare that to the GDP performance of Greece's four land-border neighbours; Albania, Bulgaria, Macedonia (well, okay, the Former Yugoslav Republic of Macedoia to give it the official name) and Turkey. All four have experienced consistent and continual GDP growth.

 These countries have come through revolutions, civil wars and military dictatorships, but have then spent 20 years growing. And growing. Meanwhile their Eurozone neighbour has suffered at the hands of creditors and "friendly" governments. "But it's all the Greeks fault, they are perfidious and profligate, and they borrowed the money". All true (well, except the perfidious). Yet looking at the rouges gallery of neighbours, can we really say that the Greeks are any worse?

Greek is in austerity. And this is real austerity; the kind that results from the markets losing faith, and the bankers engaging in as much Moral Hazard as the Greek government itself. Yet when the bill came due, the banks (as effectively representatives of other governments or the ECB and IMF) decided that only one side of the perfidious (and here I mean it) cabal would pay.


The United Kingdom and France should, to use the English colloquialism, "shut their pie-holes". They are not in austerity, and do not actually know that it means. They are living *slightly* above above their means, but continuing to borrow like drunken sailors.

True Austerity is Greece, and this is in their futures when the markets say "enough". Then we will see real austerity in those two countries, as government debt becomes unavoidable and unsustainable. Greece saw:

– 25%: Fall of gross domestic product
– 28%: Reduction in public sector employees
– 28.5%: Drop in food consumption
– 61%: Drop in average pension (833 euro)
– 45%: Number of pensioners living below the poverty line
– 26%: unemployment (50% at ages under 25)

This is the real face of austerity, and something the UK and France should really fear. Today's weak attempts to controls spending are only a start, and a poor one at that.

12 February 2016

Grexit: The "Left" Failed Again, and Europe continues to fail Greece.

Soon, the Prime Minister of Greece will be forced to accept that capitulation did not save Greece, and that he has failed. Not only did he fail, but he failed in every way. Not only did he not achieve any concessions from Europe (read Germany), the IMF, ECB or European Parliament, he also failed to deliver the mandatory legislative changed demanded by the creditors. He failed to reform the Greek government, and instead has spend nine months perpetuating an already disastrous status quo.

Sadly his personal failure to stand by his values, and more importantly to meet his obligations to the 61% of voters who said "OXI", will taint not only his memory, but the entire "Left" for years to come. Meanwhile for his failure of nerve, the Greek people have lost a year of potential recovery, or at least the additional pain before the recovery has been postponed by a year, and the base from which they will begin their recovery has been reduced even further.

But nobody should be of any doubt, there will be a Grexit.

The Greeks know that the only way is out. Is Tsipras simply trying to hold power long enough to feather his nest (and create a future personal revenue by 'saving' the EU)? Does he really think that he will be loved for his treason?

How much longer before tractors blocking highways and undertakers going out in sympathy strikes leads to mass demonstrations in downtown Athens? Riots of farmers are already happening in Athens. General Strike anyone?

Greek Tractors about to block the highway

Greece's masters, also known as the European Commission and the Reichstag, meanwhile vilify Greece for its response to the flood or migrants (oops, refugees) that pour across its borders from Turkey, their NATO ally.

So while we have two themes here; subjugation by European powers, and exploitation by a NATO ally, the core problem is the treason of the Prime Minister. He claims a "mandate" from the post-treason snap election, an election in which the choice was the current traitor, or the previous traitors.

And in the snap election, the voter turnout dropped significantly from the referendum, to just over 50%. Looks more like voter apathy then a mandate.

Meanwhile the Center (Brussels and Berlin - if two places can be "the Center") lambaste Greece for not spending their last Euro on stopping migrants from getting in, and then moving on to wealthier European countries. After all, would you want to be an economic migrant to Greece right now?

Migrants are coming in through Greece because it is the "easy" route, and appears to have the defacto blessing of the Turkish government in their 2500-year war against Greece. If, in the logic of the Center, Greece can stop boats from landing on their islands (or sinking part way with the Greeks being the ones expected to pull the living and the dead from the water), then surely a country that is not broke, that is getting massive aid to address their refugee / migrant crisis, can afford to run a basic police force that can identify the starting and gathering points for people smugglers on their own territory.

Unfortunately the only thing that Tsipras is accomplishing is delaying Greece's recovery, while making the starting point even deeper.