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The · Psychohistorian


The following graph of Greek bank deposits over the past 10 years…

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The following graph of Greek bank deposits over the past 10 years sheds light on what economic policies actually work, and what policies do not work, in this case, with respect to the confidence of bank depositors.


http://si.wsj.net/public/resources/images/EM-BF040_GRBANK_16U_20150529083607.jpg


Half way through the graph, in 2009, the financial crisis hit Greece and deposits started falling. Thereafter, three policies were attempted, with the following effects.

1. The initial bailout in 2010, accompanied by austerity measures cutting government spending and increasing tax rates, did not stem the losses; the losses continued at the same or a greater rate.

2. New Democracy's election victory in June 2012 on a supply side platform - cutting government spending but decreasing tax rates - immediately reversed the bank deposit losses and stabilized deposits.

3. SYRIZA's election victory in January 2015 on a neokeynesian platform - increasing government spending, with neutral tax policies - resulted in renewed withdrawals of bank deposits.

It's not entirely clear how much of the bank deposit withdrawals are due to capital flight - the sudden shifts suggest most of it - and how much due to spending of savings during recessionary periods, which may have had some effect as well. Either way, though, the data is additional evidence that supply side policies work better than either pure austerity or neokeynesian economics.

Graph from Wall Street Journal article:
http://www.wsj.com/articles/greek-bank-deposits-fall-to-lowest-level-in-more-than-10-years-1432906601
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