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Greek Debt & the Sunk Cost Obsession

In the 1950s Germany had debt at 25 per cent of GDP (Gross Domestic Product) and the major lenders of that debt opted to let half of the debt go. Countries that let Germany off the hook included Greece, Spain, Pakistan, Egypt, the United States, the United Kingdom and France. This was public and private debt accrued before and after World War 2 that stood in the way of a rebuilt and stronger Germany. Greece needs the same strategy.

The current ratio of debt to GDP in Greece is at a ridiculous 177 per cent. While austerity as an economic panacea as espoused by Carmen Reinhart and Kenneth Rogoff is pretty well disproven. Although austerity measures still seem to dominate the minds of economists who have had careers espousing the austerity paradigm. In short, austerity isn’t the cure. Slowing down an economy isn’t going to fix it.

And if Greece has the little money it generates heading offshore as interest payments on further accruing debt then how can Greece rebuild a healthy economy? Is it about Greek debt? Or having collectors go around to break some legs?

Think of this as a simple business problem. A sunk cost problem.

Let’s forget about how much and how many countries have thrown billions of dollars at Greece to fix its economy. This is bad money. Lost. Sunk. Think of it as having been blown at the casino on a dangerous gamble. Sunk costs should have no place in a business decision. Instead, in business, you would stand at this point in time and ask “What is the way forward (ignoring sunk costs)?”

You can’t get blood out of a stone. A Greece with no money in five-to-ten years time is not going to have a larger economy.

So tear up the credit card. Relinquish claims to Greek debt. Restart Greece at Year 0. The World won’t end. The European Union won’t end. Greece might struggle to correct itself in the short term, but that money leaving Greece to pay foreign interest and debt would be available within Greece to generate employment. And employment puts money back into the system. Stimulate the economy.

There seems to be an obsession around collecting that debt from Greece that looks like a sunk cost problem. Business 101.

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Steven Clark Steven Clark - the stand up guy on this site

My name is Steven Clark and I live in the Derwent Valley in Southern Tasmania. I have an MBA (Specialisation) and a Bachelor of Computing from the University of Tasmania. I'm a mazer & a yeast farmer (making beer, fruit wine and mead as by-products of continuous improvement in my farming practices). I'm a photographer, although my film cameras are currently silent. I do not tolerate idiots. I do not tolerate bigotry. I do not tolerate excuses. Let's be clear, if you sit with my enemies you my are my enemy for life.

Blogger. Thinker. Brewer. Drinker. Life partner to the amazing and incredible Megan.

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