We live in a time when up is down. Victims of financial crimes are portrayed as the perps. And the biggest financial crime is unfair trade.
Working people in America and Greece (and all over Europe, in fact) are being painted as profligate. The reality is that globalization has so depressed wages -- and the banks have figured out so many ways to siphon money from the poor and middle class -- that people are falling into debt they can't escape from. Today, one in seven Americans is pursued by a debt collection agency.
The story we've heard so often in the U.S. is that Americans bought houses they couldn't afford and then used them as ATMs to buy SUVs. That caused the housing bubble to burst and the poor widdle banks are left with all those bad mortgages.
Trouble is, it isn't true. Americans are borrowing no more now than they did 30 years ago. They have more debt, but that isn't because they've borrowed more.
A new study by two economists, Josh Mason and Arjun Jayadev, shows that Americans borrowed at the same rate or less from 1929 to the present, with the exception of 2000-06. The reason Americans have more debt is that wages and inflation fell while interest rates rose. Interest rates on credit cards, for example, were a lot lower in 1982 than they are now. And that doesn't even account for the fees banks are now charging.
And why are wages falling? Because of globalization.
Greece is also the victim of an economic fable. The story goes that Greece paid too much for a social safety net that it can't afford. The reality is that Greece's economic problems result from its currency integration with the rest of Europe -- aka, "globalization."
As economist Paul Krugman points out in a recent New York Times op-ed,
By introducing a single currency without the institutions needed to make that currency work, Europe effectively reinvented the defects of the gold standard — defects that played a major role in causing and perpetuating the Great Depression.
More specifically, the creation of the euro fostered a false sense of security among private investors, unleashing huge, unsustainable flows of capital into nations all around Europe’s periphery. As a consequence of these inflows, costs and prices rose, manufacturing became uncompetitive, and nations that had roughly balanced trade in 1999 began running large trade deficits instead. Then the music stopped.
If the peripheral nations still had their own currencies, they could and would use devaluation to quickly restore competitiveness. But they don’t, which means that they are in for a long period of mass unemployment and slow, grinding deflation. Their debt crises are mainly a byproduct of this sad prospect, because depressed economies lead to budget deficits and deflation magnifies the burden of debt.