“The problem with socialism is that you eventually run out of other people's money.” – Margaret Thatcher
Greece is liberal economics on steroids, Detroit writ large, and a place where the "takers" outnumber the "makers." In other words, if you want to know what the end road is for the sort of economics pushed by people like Barack Obama, Hillary Clinton and Paul Krugman, Greece is it.
According to the World Bank, Greece’s labor participation rate is only 53%. It’s hard for private industry to take advantage of an underemployed populace because government regulations and powerful unions make it difficult for new job-creating businesses to get off the ground.
"Among those obstacles are the role the government plays in many sectors of the economy — either through outright ownership of assets, such as a utility; price controls; and high barriers to entry, such as strict limitations on the number of players in a profession, and/or difficult licensing requirements, according to the McKinsey report. Add to all that very tough labor restrictions on large enterprises. The result is that very few businesses have been able to get started or grow in size..."
Then there are pension problems, which are even worse than the ones we have in the United States.
"The Greek Reporter notes that according to the data, almost 75 percent of Greek pensioners retire before the age of 61" and "according to the IMF, pensions account for around 17 percent of the country’s GDP."
Greece has also been running a deficit four times bigger than EU members are allowed to have by law and papering it over with phony statistics. Incidentally, Barack Obama’s favorite Wall Street firm, Goldman Sachs, was involved in those shady dealings all the way up to its eyeballs.
Its government is so big that even Michalis Chrysochoidis, Greece’s minister of development and competitiveness admits it’s dragging down the economy.
Perhaps the most difficult hurdle for Greece to overcome, at least politically, is the size of the public sector versus the private sector.
“We cannot serve this huge public economy," said Chrysochoidis. "The small private sector cannot serve the huge public sector.”
In other words, America has many of the same economic problems that Greece does. Unfortunately for the Greeks, liberal policies have been adopted longer and more readily there than they have here, which has led to a more rapid deterioration of their economy.
The Greek solution to this has been to demand that people from other nations pay its bills. Unsurprisingly, the IMF, the rest of Europe and its creditors have grown increasingly disenchanted with Greece’s attitude.
Critics of Greece’s creditors have rightly pointed out that the draconian conditions being forced on the Greeks in return for keeping the money flowing are causing a lot of pain in Greece, infringing on their sovereignty and they are unlikely to work in the end. While that may be true, it’s also a natural long-term consequence of adopting liberal economic policies. Eventually, the government gets so big that it crowds out the private sector, which can no longer afford to pay for politicians and bureaucrats to be “generous” with its money. Then once spending gets so out of control that money can no longer even be borrowed under normal terms, the you-know-what hits the fan. At that point, there are no good options. Either you deal with demeaning, difficult cuts forced upon you by the people paying your bills, you default, or if you have your own currency, you inflate it until it’s practically worthless.
So, you may ask, why should we be happy that Greece voted “no” on the bailout package that was offered to it?
It’s because Greece is simply a decade or two (and that may be optimistic) ahead of America. Unless we make major changes, what’s happening to the Greeks now will happen to us in the future. In fact, it will actually be worse because no one is big enough to bail out the United States and a default by our country would likely lead to a global depression.
Unfortunately, that message hasn’t resonated with the American people because as a practical matter, they see no consequences to our spending. If you’re Joe Smith living in flyover country, you’ve been hearing people toss out all sorts of scary numbers for over a decade. You’ve heard all sorts of terrible stories about what will happen if America goes “bankrupt.” You’ve heard people from both parties say our spending is “unsustainable.”
However, as far as you can tell, the impact on your life has been zilch. Also, even though people talk a big game, what has been done about our spending? Nothing of consequence by anyone in either party. When push came to shove, even Paul Ryan who’s supposed to be this diehard fiscal conservative, helped undermine the Republican sequester cuts that had started taking a bite out of the deficit. Nothing that has happened in Greece would have made much of an impact either because enough money has been chipped in to keep the country from shaking apart.
However, that may be about to change because of the “No” vote in Greece. Hopefully, the rest of Europe will let Greece leave the Euro and make it on its own with no cash. That’s tough love, but not only does Greece need it, the rest of us need to see what happens when a country consistently spends more money than it has.
If it goes that far, what will happen in Greece? Some of this is speculation, but we can expect the government to steal part of the money from its citizens that has been deposited in the banks. The banks also seem likely to run out of cash. Money paid out by the government may simply stop or be replaced by IOUs. That includes salary, pensions and payments to the poor. The life savings of many Greeks may become almost worthless overnight. Richer and more able citizens may flee the country. Tax collection may become almost unmanageable even as taxes skyrocket. Everything from medicine to key industrial supplies may stop coming in because they won’t have any money or the ability to get any credit. Food and oil may have to be rationed. Thousands of businesses may shut down which would spike Greece’s already sky-high unemployment rate. Widespread rioting and disorder are also certainly possible.
Even if they deserve this because of their irresponsible behavior, you should pity the people of Greece. Whatever happens from here, they have a hard, ugly road ahead of them. However, the disaster of their own making that is befalling them may ultimately do some good. If Greece can’t be a good example, then the fiscal nightmare afflicting it can at least be a warning to Americans about what our future looks like unless we make some real changes.