Why an Economic Recovery is Greek to Me
Tuesday, May 4th, 2010
Humanity has been using money as a means of exchange for about 5,000 years. For millennia, “money” meant coins whose gold or silver content was equal by weight to their assigned value. It was a common device for over-indebted rulers to debase their currency by reducing its gold or silver content while ordering the coins’ nominal value to remain the same. Thus, they could repay borrowings of say 60 pounds of gold with coins now weighing just 50 pounds. Needless to say, this annoyed their creditors, but it pleased another group whose economic influence has expanded over the centuries: tourists.
Tourists love a bargain, and the best places for bargains are countries where your dollar goes a lot farther than at home. Greece is a wonderful place to vacation. Its rulers would love to make it even more wonderful by debasing the currency. Today that’s done, not by reducing its gold content, but simply by revving up on the printing presses at the mint. Tourists would flock to the country and Greek restaurants, hotels, and resorts would be booming. But, the Greeks don’t control their currency, which is no longer the drachma, but the euro. Instead of Greece trying to inflate its way out of trouble, the International Monetary Fund and the European Central Bank have pledged a €110 billion bailout loan. The price of the loan, and ultimately the price Greeks must pay for being part of the Western European euro zone, are drastic economic austerity measures that are bound to depress their standard of living.
The relative situation of Greece and the richer nations of Western Europe is not unlike those of relatively more or less affluence within the same country. Poorer communities have a hard time making themselves more economically attractive by offering cheaper amenities. Worse, poorer communities cannot tax themselves as heavily as their more affluent neighbors and so fall even farther behind during hard times. Debasing the currency, which is another name for state-managed inflation, is a tool, not a cure-all. But it’s a tool missing from Greece’s tool-kit and from the tool-kits of struggling American communities.
