A Flea in the Fur of the Beast

“Death, fire, and burglary make all men equals.” —Dickens

Greece is now a developing country thanks to years of austerity and hard money

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An article from Reuters suggests that Greece has moved all the way to using emerging market ideas like setting up Special Economic Zones to attract businesses presumably to expand exports and probably try to force down wages, something explicitly denied by the government:

The zones, however, would not allow investors to pay workers especially low salaries, said Hatzidakis, who is the cabinet minister in charge of economic growth policy.

“Current labor law will be fully respected,” he said. Greece has already slashed minimum wages to encourage the creation of new jobs.

The idea of SEZs is premised on the idea that the business environment (regulations and taxes) are too complicated or uncertain for global multi-nationals, but in reality, they are also ways to slash taxes and regulations without going through the tricky political process of doing it through normal channels.

However, right now, it doesn’t seem like SEZs will really do much to help Greece because the EU continues to force austerity onto an economy in a depression, because the EU prefers to take the long, hard, pointless road towards competitiveness by crushing the economy rather than allow temporarily higher inflation in Germany.

It is a policy that is in harmony with the supply-side, “hard money” crew who got the Republican party to officially endorse a gold commission in their official platform which Joe Weisenthal at Business Insider called the “Worst Economic Idea in the World”.  He highlighted one reason why Republicans like the idea of the gold standard: inflation is a form of taxation, something anathema to the Republican party, although something which (along with flexible exchange rates) allowed Greece to survive previous downturns.

He uses the two charts below to show how much different the outcome has been in a ‘hard money’-dominated Eurozone where the government has still not been able to collect taxes, but can no longer use the ‘inflation tax’ to keep the economy running.  There is certainly a point when reliance on the ‘inflation tax’ becomes a drag on the economy (and Greece may have hit it in previous recessions), but it is still better than pointless, crushing austerity promised by the gold standard.

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Written by pdxblake

August 28, 2012 at 9:40 am

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