Greece on the Edge

The lead article in today’s New York Times, “Greece Signs Off on Sweeping Cuts to Calm Lenders,” describes what so-called investors consider to be an easing of the Greek/Euro monetary crisis but is only just the beginning.

The European conventional wisdom states that Greece must bring its budget into balance in order to please the deficit hawks, but the austerity measures it has now agreed to adopt could make the situation even worse.

Keynesian economics states that you don’t cut spending in the middle of a downturn, or a fragile recovery, because doing so reduces demand and thus exacerbates matters. This introductory economics fact seems beyond the “troika” of Greek lenders — the European Central Bank, the European Commission and the International Monetary Fund.

While the concept of government debt is often portrayed as a family sitting around a kitchen table trying to balance its checkbook, the dynamics of the government’s ability to affect overall demand, and thus the tax returns and revenue sources in the first place, results in a more fluid situation.

Meanwhile, with the unemployment rate in Greece at a staggering 21 percent, the Greek working class is caught in the middle of a downward spiral, with the cure being worse than the disease. Can’t anyone stop this madness?