By David Zylberberg
On January 25, 2015 Greece’s New Democracy government led by Antonis Samaras lost its bid for re-election. Meanwhile, its coalition partner, PASOK, received less than 5% of the vote, despite having been the largest party in recent decades and in government for over half of the last 40 years. They were voted out after presiding over the worst peace-time economic collapse ever in an advanced economy. The statistics are staggering and reflect great levels of both suffering and lost opportunity for a skilled generation of young adults. With an economy losing over a quarter of its capacity in six years, unemployment of 26%, youth unemployment over 50% and the emigration of many university graduates. Despite the colossal failure of their administration, it is hard to imagine that Messrs Samaras and Venizelos wanted so many young graduates to head for Melbourne or middle-aged adults scrounging through dumpsters for food.
In thinking about the causes of the current Greek suffering, I am reminded of an excellent paper given by Charles Read on the role of monetary policy in Irish Famine Relief in 1846-1848. As it is available online, I would highly recommend that people read it (the paper begins on page 73). Read effectively argues that the British government of the 1840s was a victim of the macroeconomic trilemma, whereby government policies are limited. For reasons connected to the dynamics of currency, the trilemma explains that governments are effectively limited to choosing any two of the following three policies: fixed exchange rates, free movement of capital and trade, and discretion over levels of spending. The British government of the mid-1840s was ideologically committed to fixed exchange rates through a gold standard and to free trade. Continue reading
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