Wednesday, 19 December 2012

Holidays....and Austerity Crises

Its almost the holiday vacation season and can't wait to get off of work!  Was reading about Greece and its a bit scary to think of the problems when a country is in virtual bankruptcy.  From Bloomberg:

In the Greek mountain town of Kastoria, less than an hour from the Albanian border, Kostas Tsitskos, 88, can’t afford fuel to heat his home against the winter’s cold. So he and his son live in a single bedroom, warmed by a small electric heater.

“One room is enough,” said Tsitskos, who lives on a 734 euro-a-month ($971) pension and doesn’t have the 1,000 euros a month he needs to buy heating oil.

Greece is facing a heating-oil crisis. With an economy that has contracted for five years and an unemployment rate at a record 25 percent, residents in northern Greece can’t heat their homes. Kastoria hasn’t received funds from the central government to warm schools and the mayor said he will close all 53 of them rather than let children freeze, a step already taken in a nearby town. Truckloads of wood are arriving from Bulgaria as families search for alternative fuels.

While I feel bad for the people in Greece that are suffering from the austerity, there's also the part of me that's wondering, what the heck is happening.  How has the austerity program which to some degree is government based (needing to cut their budget), propagating so much throughout their entire economy?  What happened to this guy's savings?  Where is his family?  Why doesn't the school have money from alternate sources like property taxes in the US?  Why can't they reduce costs?

How much of these problems are unavoidable because of sheer numbers and physics and how much is from laws and regulations that is preventing a more steady state situation?  An interesting section from the article:

The household price for heating oil in Greece reached 1,266 euros per 1,000 liters (264 gallons) in the second quarter of 2012, surging 48 percent from a year earlier, according to the International Energy Agency, a Paris-based organization. The same quantity cost 700 pounds (861 euros) in the U.K., according to the IEA, and $1,045 (790 euros) in New York, according to a state agency.
Greeks pay both excise and value-added taxes on heating oil that can make up 42 percent of the total cost. The mayors of the region are petitioning the government to be exempted from the tax.
Greece’s oil prices are high because of laws that protect the country’s two refining companies and prevent competition, said Pavlos Eleftheriadis, a lecturer in law at the University of Oxford in England, who studies monopolies.
...and another:
Sales of wood for heating have soared 40 percent from last year, according to Alexis Tsekouras, a Kastoria wood seller. Because of limits imposed by the forestry service on the amount of timber that can be harvested, wood is imported from Bulgaria, he said.
So interesting point there...  While it wouldn't solve the issue, the lack of competition and efficiency in the system is serving to make the entire system worse off than it should.  So this is an example where rules created to "protect" specific causes while tolerable in good times, long term the inefficiency can catch up and worsen things.  
The most interesting question:  Is there a similar situation in the US?  The US prides itself in efficiency and competition and capitalism but are we?  Refineries has not been built in the US for several decades, taxi cabs in major cities are blocking new smartphone based methods of booking, etc etc.  While I believe the US is not as bad off, I think many would be surprised to see how similar we are to certain Greek systems.  So what do I think of austerity?  Well IMF demanded austerity programs in Europe and during the Asian financial crises of the 90s have certainly proven disastrous in many ways, a slower but steadier system of cuts is much more preferable.  I don't believe most of those countries can be stimulated to grow fast enough to really negate the need for austerity however.  Maybe a new system of financing governments is needed?  You can either buy bonds or stocks in corporations, why not the same for governments?  I'll be scared to see that balance sheet however!

No comments:

Post a Comment