Monday, June 29, 2015

Repent and reform

Paul Krugman has several blog posts and a column about the negotiations between the European Union and Greece.  He argues that the demands for more austerity are misguided--that Greece has already done everything that could reasonably be done, and more.   But at least some of the people commenting on his posts disagree--they say that although Greece has cut government spending, there hasn't been much "structural reform."  That is, Greece still has a lot of unnecessary business regulations that hold back production and waste resources--if it got rid of those, the economy would expand and it could pay its debts.

The World Bank has been keeping track of business regulations in different countries since 2004 in its Doing Business project.  By this ranking, Greece was 109th out of 189 in 2010, and 61st in 2015.  That's still the lowest rank among the EU countries, but Greece is closing in on Italy (56th in 2015) and,  ironically,  Luxembourg (59th).  Greece had one of the biggest upward moves in that period (Russia and Poland were among the others).  The lesson seems to be that although cutting business regulations may promote economic growth in the long run, it doesn't have much immediate effect--if it did, Greece would be one of Europe's success stories.

PS:  A high "Doing Business" ranking doesn't necessarily mean small government--Denmark and Norway are in the top 10.

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