Stimulus Is Not the Solution to Greece’s Economic Woes

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from NCPA,

Economists often confuse economic indicators with actual economic performance. In myriad news articles, white papers and academic studies, they advocate for ways to boost gross domestic product (GDP). Although GDP may be the best of limited measures in assessing total economic output, it is only a proxy, and proxies are imperfect. Therefore, when economists treat GDP as the be-all end-all metric to evaluate economic performance, they often propose ways to improve GDP figures, rather than the actual economy, says Matthew Melchiorre, the 2012-2013 Warren T. Brookes Journalism Fellow at the Competitive Enterprise Institute.

Recently, several economists at the Levy Institute at Bard College made this blunder in a new report recommending a “Marshall Plan”-type fiscal stimulus for Greece’s moribund economy.

The report compares the recovery times (the time it takes for GDP and the unemployment rate to return to pre-crisis levels) of Greece today and the United States following the Great Depression.

But America in the 1930s and Greece today are not comparable.

Pumping money into the Greek economy may boost GDP and even spur hiring for a short time, but it will not lead to self-sustaining growth driven by private investment over the long run. Only fundamentally reforming the Greek economy can accomplish that.

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