Confused By Populist Rhetoric?

This article by Bulow/Rogoff in today's WSJ is, in my opinion, a more convincing narrative than anything I have seen coming out of the minds of Krugman, Stieglitz & Co. Below are some excerpts: 

"In the court of world opinion, a large majority seems to believe that even if the Greeks may have been a tad fiscally irresponsible, it is the Germans who have driven Greece into depression through cruel insistence on austerity and debt repayments. This populist narrative misses the essence of the problem: The Greeks are experiencing an emerging-market debt crisis, albeit one on steroids.

Let’s first dispense with the “it’s all German-led austerity” nonsense. In 2009, fueled by a three-year jump in government spending to 54% of gross domestic product from 45%, the Greek government was running a primary deficit equal to 10% of its GDP, according to IMF estimates. In other words, new borrowing equaled all principal and interest due, plus an extra 10% of GDP. Yet the bailouts could not begin to substitute for both the lost lending and the collapse in tax revenues caused by a deep recession. By 2014, Greece supposedly ran a 0.3% surplus with government spending at 47% of GDP plus continuing “cohesion” transfers from the EU of about 3% of GDP and ECB support for the Greek central bank.

But don’t blame today’s austerity on tough repayment terms that have never been, and probably never will be, implemented. Already the EU’s current bailout terms include no principal or net interest until 2020. Greece has enjoyed a much smoother cushion than say, the Asian financial crisis countries in the late 1990s. 

Greece would have experienced far greater austerity had it been forgiven all its external debts in 2009—with all foreign sources then refusing to lend the country more money. Solutions to Greece’s woes ultimately require structural reforms at both the national and pan-European level. Its debts will eventually need to be further written down, and the country will need aid beyond that. Greece may yet someday suffer the yoke of heavy repayments; we hope not. But so far austerity in Greece is due to having maxed out its credit-card limits. Let’s not be confused by populist rhetoric".

Ok, so if this is the right narrative, which I have said that I believe, it still doesn't answer the question of what could have been done and/or could still be done in order to alleviate the economic pains of Greeks.

My point has been a very simple one from the beginning: total GDP is the sum of the public and private sectors. When the public sector tanks and loses its ability to grow fast again, and if one wants to get GDP up, then that impulse can only come from --- the private sector. As I once suggested in an article: "Germany, don't send money. Send machinery & equipment, instead!"

Those dependent on the public sector are still doing reasonably ok, as far as I can tell. Salaries and pensions may have been reduced but the critical issue in a depression is to have income in the first place (or not). The private sector, on the other hand, seems to be in shambles after having carried the load of adjustments todate. 

In a private market economy, money flows from the spender to the receiver voluntarily ("in exchange for value received"). In the last years, I have read innumerable articles/studies about the theoretical potential of the Greek economy. I have written quite a few on the subject myself. The trick is to turn that theoretical potential into practical results. It's not the location of Greece and not a possibly insufficient work ethic of Greeks which limits the realization of this potential. Instead, it's the lack of effective institutions and the lack of an appropriate economic framework which does that job. In my opinion.