Greekonomics
With Greece in the news again after an interval of what seems like hours, does anyone know if the dire Greek economic situation has been resolved with the EU bail-out? Is the EU’s economic plan for Greece working despite the recent record Greek stock market falls? Was that an anticipated and predicted part of the solution? Without for a nanosecond wishing to minimise the distress and uncertainty clearly felt by the Greeks, has the welter of earlier deadlines leading to the eventual bail-out sapped every last ounce of interest from everyone except those directly involved?
It’s even more difficult for someone like me who’s always been suspicious of economics and even railed against Bachelor of Science degrees – obviously my italics – frequently being awarded for the study of economics after three years. Perhaps some would regard economics as a science because it’s actually a tad more scientific than other members of the social science collective, that also aren’t sciences, like for example politics. But just like swallows and summer, integral signs in equations in economic publications do not a science make, even if such equations these days are solved by computer modelling, which is itself incorporated within a discipline referred to as computer science. Perhaps I’m convincing myself of the scientific credentials of economics, even if they are only by proxy.
However, economics may be more like a religion than a science because at its heart is the great myth that a piece of paper can somehow be worth goods and services. As someone once said, but more recently than usual, the absurdity of money only becomes apparent when you try to swap a chimpanzee’s banana for a piece of paper. Two or more bananas may persuade the chimpanzee to drop its banana, but not for something unhygienic with no taste and no nutritional value, unless a vanishingly thin layer of cocaine has nutritional value.
What I think I might know about economics – and I have to say I’m not convinced – is that if a country isn’t doing particularly well at creating wealth, its currency wouldn’t be as desirable as other countries’ currencies. So relatively, the value of its own currency would go down. Therefore other countries could buy a lot more of the poorer country’s money, and a lot more of their indigenous (ie non-imported) goods and services. However, the good news for the underperforming country is that entrepreneurs could take advantage of the low cost of wages and land and build factories there, increasing employment and the manufacturing of goods that the outside world wants. And further, if there were a pleasant climate and lots of attractive coastline, then outsiders could be tempted to holiday there and perhaps buy the cheaper houses and spend even more time and money there. And then after a little while, almost like magic, the underperforming country’s wealth creation – and therefore currency – would rise compared to other countries’. Adam Smith’s invisible hand would be giving them a thumbs-up sign rather than a slap in the face, and everyone in that country would live happily ever after or until the next recession.
Having just about understood that, the difficulty comes when some sort of federation of sovereign states with their different laws, tax regimes, customs and traditions, decides to adopt a single currency. What happens when a member country’s wealth-creation falls significantly relative to other members of the federation? With a federal currency whose value refuses to budge in response to the failing country’s situation, how does such a country reverse its plight? And how does anyone know that loans or bail-outs, combined with austerity measures, will address the underlying problems or lead to a long-term solution?
But even if I have my doubts, thank goodness that many regard economics as a science just like physics, and not more akin to, for example, the sale of snake oil. We should be grateful that EU economists have the power of equations, computer models, and loads of Euros to save Greece from economic meltdown and keep them in the EU.
So the burning question of the day is; is the current bail-out package the end of Greece’s financial problems?
