I will make a note not to read articles by Prof. Paul Krugman on Fridays because they have the potential of ruining my weekend... Well, not quite, but it is certainly a test to my blood pressure when I read articles like "What Greece Won" which was published in the NYT last Friday.
I just wish all those Keynesians like Krugman & Co. would – instead of spending their time explaining who won/lost at each stage of the negotiations – read up on Keynes’ “The economic consequences of peace”, particularly the chapter on “Germany’s capacity to pay”. I don’t remember that things like GDP, fiscal and monetary policy, primary surplus, etc. were even mentioned there. Instead, Keynes went painstakingly, industry by industry, through Germany’s economy and calculated how much Germany could produce and what it needed to produce that. I remember the cute observation that, if one wanted Germany to maximize steel production/exports, it would not be a smart idea to cut off Germany’s import capacity for those imports which it needed for steel production.
I do not tire of using the analogy that debt is the ‘derivative’ and the real economy is the ‘underlying’, and that one cannot solve the problem of the ‘underlying’ by playing around with the ‘derivative’. To me, it is high time that the learned people of Greece and elsewhere start getting busy with the ‘underlying’. If they don’t know where to start, they could start with McKinsey’s “Greece Ten Years Ahead” report of 2011. It went through industry by industry and suggested over 100 steps about how 500.000 new jobs could be created over ten years and how quite a few billions could be added to Greece’s GDP. I think Varoufakis & Co. would benefit greatly if they spent some time with down-to-earth, common sense Mid-Western Americans like Warren Buffett. Buffett would in all likelihood focus their attention swiftly on the essentials. Or he would sell his shares in Greece, Inc.
And, by the way, if Varoufakis & Co. did the above, they would quickly discover that Greece’s economic value creation capacity is far from justifying the living standards of the past and if they wanted to keep the living standards, they would rapidly have to do something about the economic value creation capacity. McKinsey recommended one set of measures. If SYRIZA doesn't like them, they should develop alternative sets of measures. But only discussing negotiation strategies and hitting the headlines of the world's media with ideas as to how to improve the world will not do anything for the economic value creation capacity of Greece!