The latest story out of Greece is that the people can no longer pay for heating oil. Consumption of home heating oil is down 70% from last year.
There are two reasons for this drop. Greece is undergoing an economic depression, and everyone is broke. Another reason is that the government levied an ill-advised tax on heating oil to harmonize the price with gasoline (petrol):
Finance Minister Yannis Stournaras, however, has refused to row back on the tax hike, saying that aligning heating oil and car fuel taxes eliminates smuggling and that additional revenue for state coffers was secondary.
Of course, there is another way to harmonize fuel and heating taxes without allowing your citizens to freeze. If revenue was really a secondary consideration, the government should have lowered the gasoline tax to harmonize it with the heating oil tax. This maneuver would have achieved the stated objective of reducing black market activity while simultaneously raising the purchasing power of the Greek consumer.
While reading this article, this line took me by surprise
Even the office building where he works, an eight-story block tenanted by law firms and accountants on a busy street in central Athens, switched off the heating this year to avoid the 2,600 euro monthly oil bill.
When the professional class is scrimping, you know that economic conditions have seriously deteriorated. This got me to thinking. Are living standards reverting back to their levels of 30 years ago? GDP says no:
It is plain from official figures that the economy has fallen to 2004 levels wiping away years of economic growth with more GDP shrinkage in the coming year or two. Yet, these numbers seem to be understating the true drop in GDP.
People are burning firewood to keep warm. Professional office buildings are adopting consumption patterns from the 80’s. Furthermore, pollution levels have risen to levels not seen for over 20 years with particulate readings almost five times greater than safe thresholds though fortunately nowhere near Beijing levels.
Since certain aspects of Greek economic activity are reverting to levels not seen for over twenty years, is it possible that the true decrease in GDP is even greater than economists realize?