Boomerang, by Michael Lewis

I’m halfway through Boomerang: Travels in the New Third World as a book on tape. It is far more entertaining and enlightening than I’d thought and it sheds a clear light on a lot of supposedly complex and confusing current events.

For example, the Greek/Euro crisis has always confused me. A 65-year-old California private sector worker does not mind paying high taxes so that a 50-year-old former fire chief can enjoy a $241,000/year public employee pension. Why then do working Germans get so angry that they have to work harder and pay more taxes so that 50-year-old Greeks can enjoy retirement? Is it simply because Germans and Greeks have less in common than the American taxpayer and the American public employee pension collector? News articles have not been helpful in answering this question.

Lewis explains that Greece wanted to join the Eurozone so that it could cut its borrowing costs, borrow a lot of money, and then distribute it among government workers and other citizens. It wouldn’t have been possible to join the Eurozone without meeting some requirements for budget deficit as a percentage of GDP and inflation, so the Greek government falsified its numbers and thereby gained entry into the Eurozone. Once in, the Greeks, sometimes aided by Goldman Sachs, continued to put out absurdly fraudulent numbers, e.g., that their budget deficit was 3% of GDP when in fact it was 15%. The fraud was sort of obvious in that the new debt being issued by the Greek government was at least double the stated budget deficit, but hardly anybody bothered to add up the numbers until 2008 and 2009. Greek banks were relatively conservative. It was the citizens who brought down the banks, not vice versa as in other nations.

So it is not a simple matter of some Europeans working until they drop while others retire comfortably at 50 but rather that there was fraud in how the Greeks presented what they were doing.

7 thoughts on “Boomerang, by Michael Lewis

  1. Never getting the fallacy of “take what you need, give what you can” is 1 of the insurmountable pitfalls of human mortality. No matter how proud we are of our brains, overcoming the myth of socialism is a biological impossibility.

  2. One of my recent favorite books as well, found it very enjoyable and highly illuminating. The section on Iceland was great, but the last section with Ahhnoold I found both depressing and humorous (especially Ahhnoold’s view of himself 🙂

  3. except Americans don’t know that Greece has been
    run by 2 families for last 60 years because US intervened
    in greece because there was a communist party.
    Also military junta was in power for some time.
    Most of the young people cannot get jobs in greece
    unless you are connected to the ruling families.
    US also feared the Greek Orthodox and Russian Orthodox
    have something in common.

    This clear case of blowback and American intervention gone awry.

  4. One of the negative comments suggests that a summary of the book can be found in Michael Lewis’s Vanity Fair articles that can be read for free:
    (amongst the one-star reviews I don’t know whether it’s true, but some of the topics seem to be there.

  5. I think Hanlon’s razor can be applied to that explanation. The far more plausible explanation is that the Greeks entered into a monetary union that was not right for their economy because of a desire to remain part of Europe (as opposed to the near East). The Greeks and other Mediterranean states needed significantly higher interest rates over the past 10 years, but the ECB kept interest rates low because Germany and the northern bloc wanted lower rates. I am not saying that the Greeks are not at fault as well, but to portray Germany as some sort of blameless white knight is to ignore the immense benefit that they received from EMU prior to the crisis. What we are seeing now is the expected result of a monetary union of states with very different economies.

    For an excellent European perspective, consider reading Ambrose Evans-Pritchard.

  6. In response to Jim there was a recent discussion about the Euro, Greece, Germany, etc., on another site I frequent and the main commentor (who really seemed to know his stuff) disagreed with the assumption the Euro is getting flaky because of the vastly different economies. This is mainly shown by analogy between the Eurozone and the US itself. We’re a bunch of states with vastly different economies under one monetary unit, which obviously up until about 2007 was doing quite for itself in terms of stability. And it certainly may not be the “right” currency for everyone, but I’d imagine a state like West Virginia is infinitely better off with the US dollar than if they were on their own. Smaller Euro countries probably were of the same opinion. Maybe the Euro was mismanaged due to pressure, but I’d say this is the fault of those who determine how interests rates are set, rather than the economies as a whole.

    This stuff’s way too complicated for any simple posting and unfortunately until the whole crisis (if there is indeed one) is over and more scholarly work is done, I don’t tend to buy any single one or single set of arguments, but I thought it made good sense.

    (Also, I like how even for as many news sources as I scour at times, I’ve never heard of Ambrose Evans-Pritchard until just now, even though all his posts have between 300-500 comments. I bet my argument above will change if I go through this guy’s archives. Good link.)

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