Krugman Essentially Correct on Greece; Chance of Escape

Courtesy of Mish.

It's quite rare for me to agree with economist Paul Krugman on much of anything, or him with me.

Today, I think Krugman is essentially correct with his New York Times Op-Ed on Ending Greece’s Bleeding.

Europe dodged a bullet on Sunday. Confounding many predictions, Greek voters strongly supported their government’s rejection of creditor demands. And even the most ardent supporters of European union should be breathing a sigh of relief.

Of course, that’s not the way the creditors would have you see it. Their story, echoed by many in the business press, is that the failure of their attempt to bully Greece into acquiescence was a triumph of irrationality and irresponsibility over sound technocratic advice.

But the campaign of bullying — the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.

What’s more, they weren’t. The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work:

Debate Over Austerity

I can accept the above paragraphs completely. I disagree with what comes after the colon.

Immediately after the colon Krugman writes "Austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose."

My disagreement is over austerity. I do not label tax hikes in the middle of an economic depression 'austerity'; I label them 'stupidity'. And Greece did not do enough to reduce its bloated public sector.

What Greece most needs is reform of all sorts. There was virtually no reform in Greece on work rules, pensions, ease in starting a company or firing workers. Guaranteed pensions in Greece are higher than in Germany.

Chance of Escape

Krugman quickly gets back on track with his statement "The landslide victory of the 'no' side offers at least a chance for an escape from this trap."…