The economic story that is Greece, provides valuable clues about the challenges all nations face in the management of their economic destinies. Present day economies are complex, and this doubtless affects why some nations aren't comfortable with the prospect of internal monetary management. All the more so, given the added dimensions of government participation in macroeconomic policy from the 20th century forward.
This probably accounts for the fact that some countries would just as soon take their chances on outside judgement calls, in terms of monetary policy. Only consider Puerto Rico, and the fact that while countries (and states) often desire complete sovereignty, a sufficient understanding of monetary economics is needed, to successfully "take the leap". Furthermore, populations need to be able to trust both governments and central bankers to do what is right in this regard, as well.
A common argument regarding Greece in recent years, goes to the heart of their economic structure and preferences for wealth formation. Why has Greece preferred (relatively speaking) asset and services formation over the kinds of production associated with the "maker" economy of traditional manufacture? In recent years, the role of services has become increasingly questioned, and not just in Greece by any means. The knowledge and skill set losses of "austerity" can multiply, if and when they are not effectively generated on monetary terms from the supply side. This has not happened for Greece. Consequently, many business leaders and services professionals have left for more lucrative environs, which contributes to the deflationary spiral of both supply and demand.
Germany - of course - is a prime example of the now preferred "efficiency model", which has emerged in the continuing asset uncertainty since the Great Recession. The assets to services wealth model, also reflected in nominal income as the backbone of local and national non tradable sector wealth - suffered quite a hit to its former respectability. How accurate is this negative perception, not just for Greece but other nations as well? It depends. Asset wealth in the form of housing, lost much of its momentum because of strict definitions for codes and regulations. Also, Greece faces continuing services cutbacks and losses of normal business formation, which are directly tied to tight monetary conditions. How can Greece emerge from these circumstance, to rebuild the kind of economy its population needs most?
Before anyone is tempted to dismiss the wealth potential of services and asset creation out of hand, think about the real wealth gains they represent - so long as any economy remains in structural balance. Assets to services formation as a unique structure which depends on local circumstance. These circumstance sometimes include a historical and geographic context which contribute economic value as well. Greece - of course - has all of this in spades, but it needs reliable monetary policy, in order to maintain the vitality of tourism as an active component of ongoing wealth.
Cultural tourism is an especially lucrative option to various aspects of traditional production, so long as the monetary flows which result are understood for the wealth capacity they actually hold. For instance, in countries which rely on natural beauty for a substantial amount of tourism, this does not translate into wealth capture on the part of local populations in quite the same sense. Which also means that governments often take responsibility for the preservation of natural beauty, when other forms of local organization for this form of experiential good are not possible.
How to think about local wealth capture in terms of monetary policy? There is a monetary role for services combinations as they relate to local asset formation, in local circumstance which exist independently of other production means. However, what has stumped me for the last few years is that I thought the services to asset structure needed to exist in a parallel circumstance to traditional manufacture, in terms of monetary value.
Now, I am not quite so certain, because there is the added component of time value in local circumstance which is always capable of generating a unique equilibrium on its own. Time value seems to correlate more closely to ongoing and endogenous asset formation, than the windfall nature of other resource capacity. This, in spite of the fact that (exogenous) concentrated wealth windfalls can create environment (hence economic) imprints which last for centuries.
Parallels are important between the wealth value of traditional production versus assets and experiential goods, but mostly in terms of the time aggregates which are available on the part of a given population. What is confusing in this regard, is that tradable goods of traditional production have relative value constants which apply across national boundaries. These relative valuation constants for tradable goods, are part of what makes it tempting for nations to "bite off more than they can chew" in terms of economic responsibility.
Why so? The asset to services structures of local economies are not constants at all. They have unique wealth value imprints, which need to be acknowledged and categorized for what they actually represent. The attempt to impose minimum wages across a multitude of local wealth imprints, is just one example of overreach on the part of national governments.
The valuation differences between tradable and non tradable sectors are vitally important. They make it difficult for governments with different asset to service structure imprints, to combine fiscal and monetary policy within the same common resource pool. Importantly, regions, states and nations with different services structures still have means to do so - if and when they desire. However, in order for long term debt and budget trajectories to remain in balance, the valuations of local non tradable environments need to be determined at local levels of coordinated activity and then internally accounted for. Otherwise, the assets structures which correlate with daily activity, do not have a chance to gain balance with services and time management flows.
Not only do the monetary flows of asset holdings need to be accounted for locally, but also the group aggregates which contribute time based services product. Otherwise, there are problems both in terms of supply and demand, for knowledge use and time coordination in the workplace at national levels. National and international monetary flows function best when they are utilized primarily for tradable goods sectors. The unique value imprints of non tradable wealth will eventually cause monetary imbalance at various points, when combined with the national and international flows of tradable goods and commodities.
Greece still holds great wealth in terms of natural beauty and cultural resources. Now, the challenge is to learn how to reconfigure the kinds of economic activity which so many local settings continue to make possible. Most important, is to disentangle both services and asset formation from the international monetary flows of tradable goods production. Greece is right to want an economy more in line with its already existing potential. Just the same, some understanding is needed, regarding valuation differences for the tradable and non tradable sectors, and how that might affect service formation in the future.
What are some of the more obvious lessons which Greece holds for others? The U.S. in particular, needs to examine local conditions more closely in regard to a decreasing labor force participation rate. Certain areas in particular have too little economic access. Unfortunately, the War on Drugs was the wrong response for poverty stricken areas - a problem which is becoming even worse by the increasing use of civil asset forfeiture. This latter response is even more alarming than the first. The lack of revenue for needed services, is causing governments to take money and other resources from their citizens with too little cause, in many instances.
There is too little actual coordination between asset formation and the services which populations seek. When any community goes too long without this coordination in local assets to services formation, governments begin to cannibalize various aspects of existing local wealth in order to maintain needed services - as is now occurring with civil asset forfeiture. Few other societal breakdown symptoms are as unsettling as the frightening reality of civil asset forfeiture. Governments will need to allow service formation in the future, on terms which do not destroy public trust and confidence. The asset forfeiture problem exists at such a deep level that - even though it is addressed in economics blogs - most of the social and communications media is not willing to discuss it at all. And this, in a society which seemingly complains about everything else in the political arena!
To sum up, Greece is right to focus on the kinds of wealth formation which are natural extensions of their own cultural heritage. Clearly, not every nation should expect to maintain a traditional production advantage, relative to other nations. However, Greece will need to be able to structure a knowledge based services based economy on more practical and accommodating terms. This also means finding ways to include more citizens in the knowledge based work of the future.
Furthermore, local asset structures need to reflect the reality of income potential as it actually exists. Greece is now in the unfortunate position of losing too much of its productive services capacity. The services structures which can be retained (on asymmetric terms) in the immediate future, are not necessarily those which work to the benefit of the public. However, what appears as austerity, does not necessarily have to be so. This is an understanding which all governments need to gain, in order to plan for sustainable budgets over the long term.