Mackenzie Wolfgram
Econ 411
Trading Meat for Tires: Not Exactly Progress for Greece
Greece is not doing well, and a New York Times article about a recent rise of bartering as a common form of currency highlights just how poorly the country is doing as a whole. While this article frames the new bartering systems as a brilliant innovation showcasing resilience and adaptability, the truth is that trading meat for tires is hardly a step forward for Greece.
Since 2009, Greece has been doing exceptionally poorly as a whole. Requiring bailouts from other Euro Members, passing austerity packages, suffering through a multitude of downgrades from the big three credit ratings agencies, and the biggest issue of all, becoming the first developed country to default on national debt. These events all cumulated into a very unfortunate reality in Greece, where the liquidity crisis is still going full boar, and the general populus seems to have lost faith in the government and the banks.
It appears that people have taken matters into their own hands, thrown the euro out the door and just started bartering with one another. While Liz Alderman’s article frames this rise of bartering as a fantastic idea, the bigger picture is a huge problem for Greece in the long run. As a disclaimer, I do not disagree with Lil Alderman, this is a smart adaptive strategy that the people of Greece are employing. I just think that it paints a bleak bigger picture.
Some of the examples listed in the NY Times article include a butcher trading a month's worth of meat for a refurbishing of his van, and, notably, an electrician claiming that one out of five jobs that he does are paid for by bartering. These transactions are largely facilitated by a couple of barter trading websites that have popped up as a response to the liquidity crisis.
While it is somewhat of a laughable concept, people paying for things in meat in a modern day, developed country, the consequences are dire. If bartering continues to grow as a means of trading, then the Greek Central Government will be even further crippled, unable to implement monetary policy, and unable to collect taxes.
The system is great for the short term fix, there is no money available but you have a skill. So does your neighbor, both require the other’s skill but neither could pay the other, since neither have any money. Since nobody could pay the other, neither neighbor would ever use their skill. Bartering turns skill into currency. Right now, people might love bartering, since it is allowing them to finally make purchases, but it will not allow the government to recover or for the country to regain it’s former economic might.
The government needs tax revenue to function, and while a couple of “I’ll give you this cow if you mow my lawn” transactions aren’t going to do any damage, large scale bartering could really hurt. As the aforementioned electrician mentioned, 1/5 of all of his work is payed for by bartering. That means he only pays taxes on 4/5 of his income, and if that ratio is indicative of wider trends, then Greece is losing a lot of tax revenue.
Another way that this hurts Greek recovery is that it takes monetary policy away from the Greek Government. For example, in the USA, the Fed dropped interest rates to near zero levels in order to cause people to borrow and spend money, and cause economic growth in the long run. This would not have worked if people just didn’t want dollars anymore. In a world where chickens are currency, how is Greece going to keep people from saving all of their chickens indefinitely? We were able to lower rates, making saving less attractive and borrowing more attractive. They are going to have to send Prokopis Pavlopoulos to people's houses and have him kill a few of their chickens each month if they want to enact monetary policy.
Anil Kashyap
A Primer on the Greek Crisis
http://faculty.chicagobooth.edu/anil.kashyap/research/papers/A-Primer-on-the-Greek-Crisis_june29.pdf
Liz Alderman
Trading Meat for Tires as Bartering Economy Grows in Greece
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