Monday, February 22, 2010

How Greece May Provide a Roadmap for Barack Obama to Regain Popularity

Last week, the Financial Times had an interesting report, Greeks back PM’s austerity drive. It begins:

George Papandreou, the Greek prime minister, is enjoying record levels of popular support despite his government’s commitment to public sector wage cuts, higher taxes and sharply lower pensions.

“Say farewell to the Greece you knew,” said a front-page headline in Eleftherotypia, a leftwing Athens newspaper, warning of the impact on households of a crackdown on tax evasion and an end to early retirement.

Opinion polls published on Sunday in two Athens newspapers, Kathimerini and Proto Thema, gave Mr Papandreou approval ratings of 72 per cent and 61 per cent respectively. Sixty-five per cent of those polled by Proto Thema said the austerity measures were necessary and overdue.

Mr. Papandreou is the son and grandson of Greek prime ministers.

The U. S. has at least as large a budget deficit as a percent of GDP as Greece is said to have, considering that the Fannie/Freddie current massive subsidies are off-budget (without comparing future unfunded liability levels between Greece and the U. S.).

Furthermore, Keynesian deficits were in Keynes' thinking supposed to be balanced by real surpluses in good times, not the faux surpluses of the later Clinton years which were still deficits with GAAP accounting. In this setting, where the government is of questionable credit quality, the concept that increasing deficit spending will really "stimulate" the economy is highly speculative.

Greeks apparently "get it". Their giant shipping industry is all about credit. Without letters of credit, there is no trade. Without large loans, large ships don't get built. And etc. and so on.

Americans, too, "get it". Bill Clinton was on a downward slide in the polls until the balanced budget sentiment that had made Ross Perot the most successful third party Presidential candidate in memory in 1992 gave the Republicans a sweep in 1994 and reined him in. Repositioning himself as the moderate Democrat he had posed as when he was candidate Clinton in 1992 revitalized his popularity.

Barack Obama could do well to ponder the current example of a Socialist prime minister in Greece receiving sky-high approval ratings while imposing austerity measures on the bloated welfare state that his family helped to create and sustain.

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