Greeks' crisis: They spend more than they produce

Greeks' crisis is rooted in too much spending relative to too little production. Greeks work longer hours than all but the South Koreans, but low productivity and high unemployment hurt output.

Kostas Tsironis/AP
Protesters shout slogans in front of the Greek Parliament during a peaceful rally for a twenty-second consecutive day in Athens on June 12, 2011. The rally, attended by more than 10,000 protesters, was called to protest new austerity measures, worth 28 billion euros($41 billion), which were unveiled on Friday. But the root of the Greeks' crisis is that they spend too much for what they produce.

I got unusually many comments and other reactions, both negative and positive, from my post on Greece the other day, where I pointed out that the Greek protestors are extremely irrational as no alternative exists to some form of austerity measures in Greece and that Greece as a nation has been living beyond its means in an unsustainable way, or in other words have tried to live at the expense of others, as is evidenced by its persistent and very large budget and current account deficits.

I see now in various posts and articles, that proponents of the view that Greeks aren't living at the expense of others have been pointing out that Greeks on average work longer than people of any other nation in the OECD, except South Korea. That is true, but also irrelevant.

Because the relevant issue in a debt crisis isn't how much someone produces, and much less how many hours it takes for the average worker to produce what they produce, it is instead how much they spend relative to how much they produce. And the bottom line is that Greece has had persistent and large deficits in both its government budget and current account balance, despite being one of the largest net recipients of money from the EU budget.

The Greeks that are employed may work longer than others in the EU, and per capita consumption is below the EU average, but because the Greek employment rate and the productivity level is so low, this still means that Greece is producing a lot less than it spends.

As the rest of the world won't continue to tolerate this for much longer, the only real question is if the reduction in Greek deficit spending is done in the least painful way or the most painful way for Greece. The Greek protestors are because of their cluelessness in effect opting for the most painful way.

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