(Preface: sometimes I think I started this blog as an homage to the letter ‘p’)
Every time that a story about Greece’s debt crisis comes up on the news I rant a little. My family is used to it.
Many people are, in my opinion, dead wrong on this. Even my husband seems to lean toward the idea that Greece is just a bunch of deadbeats that want to have 16 weeks vacation, retire at 50 and not repay their debts. That’s a fairly common perception. But it doesn’t take account of the root cause of the global (not Greek) financial crisis that precipitated Greece’s current woes. Which is not to say that Greece will not have to scale back their lives and roll up their sleeves, they will. What I am saying is that what the Greeks are being asked to sacrifice is extreme, and they are being asked to make do with considerably less than they could sustained had financial markets been better regulated.
It was not Greek excesses that created these messes.
No good can come of forcing Greece, and Greeks, to suffer more. Pushing people to the edge of an economic precipice has never yielded good results. People on the edge will grab and hold onto anything to keep themselves form falling. Pushing the post WWI Germans and the German economy to the limit of economic endurance and devastating the German economy was a significant contributing factor to the development of the political climate and social conditions under which Hitler’s Nazi ideology gained credibility.
What made John Maynard Keyes mutter under his breath as he stormed out of the Paris Peace Conference is eerily similar to economists are saying about Greek Austerity today. The potential for it to not end well is real. Economics and politics cannot be separated. Greece has some unstable neighbours and aside from potential internal civil unrest, they could be unstable enough to become a gateway into Europe for some unsavory groups.
It will also not come anywhere near resolving the root problem or preventing similar crises in the future. The global financial problems were made possible by a few irresponsible/unfettered wealthy corporations, largely banks. It was not dissimilar behavior that contributed to the great depression; bad borrowing and lending, lack of oversight for banks, markets expanding beyond their ability to sustain the growth. It was capitalism unchecked, unbalanced.
We, globally, must recognize that capitalism has no soul and no remorse and no conscience. For these reasons economic activity must be guided by regulations to prevent them from wealth accumulation at the expense of economic stability. No austerity or ideological doctrine of market efficiency will prevent unhappy history from repeating itself until we admit capitalism has limitations.
Not that you need a degree in economics to see where this could be headed but to drive the point home, I will point out that some noted economists are saying this exact thing about the Greek debt crisis. Economics is one of those fields that people claim is subjective, almost more an art than science. This is true to an extent. What you see as the economic solution depends entirely on what you believe is the acceptable economic and social outcome. If you believe that the acceptable outcome is long term stability for the majority at the expense of short term wealth for the few, then you will agree with what I have said. If you believe that unfettered pursuit of wealth is a right and that the accumulation of wealth is in and of itself the goal, you will disagree.
However, there is also some science to economics, and it’s science worth noting.
Read this article by Joseph E. Stiglitz. He is a Nobel laureate in economics. He won for modelling how asymmetric info begs a larger role for government intervention in markets, and how regulation leads to pareto efficiency – the market alone is not efficient. There is no invisible hand guiding capitalism.
And read this article. Maybe you’ll recognize the name Thomas Piketty, Professor of Economics at the Paris School of Economics and author of ‘Capital in the Twenty-First Century’ and current left-wing darling. The other signatories are Jeffrey D. Sachs, Heiner Flassbeck, Dani Rodrik, and Simon Wren-Lewis. Looking them up is your homework.