Khan Academy » Finance » Macroeconomics » Greek Debt Recession and Austerity (part 1)
So I’m a little late watching these videos, but they’re at the end of the Macroeconomics playlist; what was I supposed to do?
Anyways, Greece is majorly fucked. Their debt-to-GDP ratio is horrendous, with debt overshadowing GDP by 165%. Their GDP has been shrinking the last several years. Things are looking pretty bad.
So what’s the solution? Austerity! Austerity, derived from austere (just meaning minimalist, cut back to the bones; almost spartan), in economic terms is essentially just cutting spending. Cut education, cut garbage collection, cut water and gas and public services!
Okay, so if you haven’t figured it out by now, austerity is not actually effective at helping Greece climb out of this crisis. The thing about austerity is that when you cut spending like that, you can actually slow the growth of the economy — fewer services are provided for people to take advantage of, money circulates more slowly (as in any recession), but most importantly people are less wealthy and thus tax revenue decreases also.
So now you’re spending less, sure, but at the expense of critical public services (there are literally bags of trash on the streets of Greece right now) AND you’re making less revenue from taxes because unemployment is skyrocketing and people have no money.
So the cycle continues.