The mainstream media has just figured out that Greece risks entering a depression amid increasing austerity. Next, they will be reporting that John Wayne better quit smoking, or he may contract lung cancer.
“A foolish consistency is the hobgoblin of small minds.” Because Greece’s economy supposedly has not shrunk nearly as much as that of the United States and Germany in the 30’s, the thinking in this article is that Greece is not in a depression. The German economy shrank 34% in the early 30’s; Greek GDP has decreased from €209.7bn to €171.2 for a percentage decrease of 18.4.
The Greek numbers are not as rosy as that. The Euro has slumped in value since 2007. It was trading at $1.45 at the end of 2007 but costs $1.30 today. Adjusting GDP for the change in exchange rates yields a different result:
- €209.7 * 1.45 = $304.1bn, Greek economy at its 2007 peak
- €171.2 * 1.30 = $222.6bn, Economy this year
- $304.1 – $222.6 = $81.5bn, drop in dollar terms
- $81.5/304.1 = 26.8%, dollar drop in percentage terms
Greece is a heavy importer of food and oil, both priced in dollars on the world market. Expressing its economy in dollar terms draws a more accurate picture of the drop in living standards of Greeks.
U.S. GDP plunged 26.6% from 1929 to 1933; hence, even a journalist should be able to tell you that Greece is in a depression.
There is a precedent for the social and political effects of such a large drop in living standards in a European country with a military dictatorship in its recent past. Germany’s GDP fell even further than the U.S. in the early 30’s.