Divided by numbers
It’s a pity that the International Monetary Fund underestimated the size of fiscal multipliers at work in Greece. For if we had known from the start that every time we slashed state spending by 1 percent we would produce a 1.7 percent decline in economic activity, then we would not have gone through what we have.
Instead the Greek state would continue to spend 24 billion euros more than it collects; public service departments would be packed with happy stagiaires; workers would be able to retire at the age of 50; the Athens metro would not have to fire any of the surplus staff hired through political favors; short-term contract workers would get lifelong jobs. Basically, everyone would be happy.
And if the IMF had put the fiscal multiplier at 3 we could do a lot more, like establish a new rural police force; we could increase the number of Greece’s university institutions from 40 to 60 so every village would get its own university department and a safe source of revenue for the locals. Spending on state ads, which hovered at 80 million euros in 2008, could go up to 120 million so as to support all sorts of print and electronic media. And we could increase the number of the country’s officially recognized pollsters from 26 to over 40 so that we can finally evaluate every aspect of our prosperous life.
Furthermore, if we had a bunch of deft negotiators, we could persuade our foreign creditors that the right fiscal multiplier was, in fact, 5. Then we could finally see the anarchists’ slogan “Pension at 18, military service at 100” come true.
For sure, the whole debate about fiscal multipliers hinges on an important detail: the money. In other words, someone must be willing to hand out or lend money to a country that in 2009 posted a 24-billion-euro primary deficit. Someone had to make up for the gap between imports of goods and services and scant exports. The balance of payment deficit had climbed to 14 percent of GDP. So someone had to foot the bill. The problem was that there was no one willing to do so; not to even give us a loan.
There is no end to what can be accomplished, in theory. But the facts are inexorable. The fiscal multipliers were calculated after the fact and they were found to be so big because for three years now instead of deregulating the market, instead of implementing the necessary reforms, we have made zero progress.
Old bubbles are bursting but the political class would rather fulfill the demands of the various unions instead of liberalizing economic activity. For three years now we have been raising our fiscal multipliers, feeding into the recession. If we don’t change course, we will send the multiplier up to 3 and still wonder why the figures don’t add up.