Greek-like Conditions Coming To Your Government

https://grantcoulson.files.wordpress.com/2014/04/incentiveseverywherepicturecorrect1.jpg?w=444&h=288

    Do not think about, write about or deal with  human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.

     Wherein we see that, when everything goes wrong, it’s because everything was done wrong.

National Post
Lessons from Greece’s fall

Reckless spending, even to help the poor, ends up hurting the vulnerable most

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    And now the poor are poorer, socialism’s inevitable result. Like an army that concentrates only on its casualties, a government concentrating on the unfortunate will eventually get many more.

Since the onset of the 2008 economic meltdown, Greece has been a country on the edge of catastrophe.

For years, Greek governments attempted to buy popularity by padding public payrolls. Tax evasion was rife. Transparency International calculated the Greek public sector was the most corrupt among the 28 members of the European Union. The self employed habitually under reported their income, professionals sometimes reported no income at all, while politicians and the wealthy slipped money out of the country to safer havens abroad, sometimes evading the very restrictions they’d helped to put in place. At a meeting with Greek leaders, one banker joked: “If I could get everyone in this room to pay their taxes, I wouldn’t need to be here.”

The result was a country permanently living beyond its means, racking up debts with no expectation of ever being able to pay them. No government was willing to make the painful corrections necessary to avoid the inevitable collapse.

The long-delayed response has proven no more sensible than the cause. Spurred on by Germany, the EU’s strongest economy, lenders from the European Commission, the International Monetary Fund and the EU central bank prescribed severe austerity in return for a bailout totalling €240 billion, about $335 billion at current exchange rates. The package was supposed to stabilize the country, but produced a 25% fall in the economy, a spike in homelessness and mass unemployment. Six years after the crisis, joblessness remains 28% overall and 65% among young people. Although recent figures indicate the economy has finally stopped shrinking, it faces a recovery one observer termed as “nasty, brutish and long.” The European Commission estimates it will be years before Greece’s economy returns to pre-2008 levels.

It is not surprising voters eventually tired of such hardship, especially given the scant rewards. On Sunday, they elected a left-wing government headed by Alexis Tsipras, a 40-year-old former communist youth leader who named his son after Ernesto “Che” Guevara. Mr. Tsipras says he will write off about $450 billion in debt, restock the civil service, reverse pay cuts and pension reforms, raise wages and cancel some tax hikes. If he keeps his promises, he will all but guarantee a confrontation with Europe and perhaps force a currency crisis that drives Greece out of the Eurozone. It’s a formula for more chaos in Greece, with the potential to spread across Europe.

The lessons in this are many. Governments that rack up debt do eventually have to pay the piper. Spending beyond one’s means, even in the name of social equity, eventually does the disadvantaged greater harm. Mr. Tsipras’s proposed formula is a return to discredited practices that have already failed, and decrying the unfairness of the situation won’t make them work now.

The country’s creditors must also reassess their approach, however. Rigid austerity will not produce recovery if the pain is so great as to negate compliance. As much as Chancellor Angela Merkel may decry the fact, Greeks will not suddenly adapt northern European ideals of thrift. The expectation that 28 cultures could somehow be expected to hew rigidly to similar practices was always a dubious notion, and the ongoing struggles of the EU underlines that fact.

People will rebel if asked to shoulder too much pain over too long a period, even if the problems they face are of their own making. This is especially the case if they view the cure as being dictated by distant powers in Berlin or Brussels. The Greek vote was a statement that people would rather control their own misery than be dictated a cure from abroad. If Greece’s lenders ever hope to get their money back, they will have to allow for that.

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     Greek creditors will never get their money back. The government has done its damage, now the free market will fix it, but not before there is more damage. Who will lend to the Greek government now?

Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Days of Songs and Mirrors: A Jacobite in the ‘45.”
Cui Bono–Cherchez les Contingencies

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