by Larrey Anderson –
As their economic orgy fades to its inevitable end, the people of Greece find themselves in a country that resembles more of a debtor’s prison than a representative democracy. The Greeks have sold their freedom for a mess of pottage. If the United States is not careful, we could soon find ourselves in a very similar situation.
Unlike the former Soviet Union, there was no violent Marxist “revolution” in Greece. Freedom was taken from the country’s citizens without a single shot being fired. The Greeks squandered their freedom by electing, time and again, politicians who promised an unsustainable socialist utopia. The Greeks committed political suicide by creating socialism without guns.
It’s hard to feel sorry for the voters of Greece. For years they have elected politicians who produced a progressive paradise: high wages, extended vacations, a shorter workweek, early retirement, and lavish public benefits. Think of a carnival of cash for clunkers — where “clunkers” are the citizens of Greece.
The tab for these extravagant programs is past due — and it shows. The economy of Greece is shrinking at an annual rate of at least 5.5%. Unemployment is officially at 20.9% and rocketing higher. Greece is way beyond bankrupt.
For a second time the economy of Greece is being “reorganized.” Neither the citizens nor the elected representatives have much input; the bankers and bureaucrats of the European Commission, the IMF, and the European Central Bank are handling the economic and political restructuring of Greece. The elected representatives of the people of Greece have been reduced to casting “confidence votes” for the new order. Meanwhile, Greek citizens riot against … whatever. Even George Orwell couldn’t have imagined the new Greek dystopia.
The Greek politicians will do as they are told, not by their constituents, but by a number of international organizations and committees. In short, the Greeks have managed to create a situation in which they have no say in their future.
According to the press reports, a second bailout was initially approved by “European leaders” on February 21. Yet more than a week later, Greek Prime Minister Papademos was in Brussels, hat in hand, trying to get “final approval” for the actual cash.
The New York Times has reported that when the second bailout is finally approved the money will probably go into an “escrow account” and be doled out to Greece by bureaucrats from some agency of the EU — assuming Greece jumps through all the economic hoops established by those mysterious “European leaders.” Not even that is clear:
The bailout cash is likely to be paid into a special “escrow” account that will prioritize debt servicing before money is released to general government coffers.
If this is true, we are witnessing the birth of Pavlovian economics. The Greeks are rats in a political Skinner box. In order to be fed by their European masters they must push the right buttons.
Oddly enough, one of the requirements is a 22% reduction in the minimum wage. Notice that the economic geniuses behind this second bailout did not call for a repeal of the minimum wage. This would allow the market to set entry level wages and get the government out of the role of deciding how much employers should pay new, unskilled workers. No — a 22% decrease in the minimum wage ought to help fix things. Why 22%? The answer is: because a bureaucrat in Brussels said so. (Brussels is in Belgium — not Greece.)
Other aspects of the “reorganization” are just as suspect. And they demonstrate how powerless Greece has become. Private bondholders of Greek debt are being “asked” to take 30% of the face value of their bonds. (Remember what happened to the stockholders of General Motors during that bailout?) Yet the “sacrifice” demanded of Europe’s Central banks merely is to forgo any profit on their currently held Greek bonds. The rich get richer — especially under socialism.
Finally, there are the simple-minded requirements, coupled with the simply silly predictions, of the International Monetary Fund. The IMF has approved the second bailout because it believes that the terms of this second reorganization will decrease the ratio of the Greek debt to GDP from 160% to 120% by 2020.
Progressives have a knack for attempting the ridiculously impossible — like predicting the future and then setting up state run programs that seek to make that prediction come true. (Think of the IPCC predictions of impending climatic doom and the failed attempts to establish “carbon trading” to end global warming.)
The IMF has already admitted that it failed to predict the cascading debt of Greece, Ireland, and Iceland. But, hey, maybe this time the IMF has it right. Perhaps they’ve changed crystal balls.
The economist Charles Wyplosz has persuasively argued that the IMF’s predictions (and/or its crystal balls) won’t work. The abstract of his article sums up the problem:
Debt sustainability is an essential attribute of good macroeconomic policies but its precise definition is elusive and its assessment is even more challenging. The IMF has developed a sophisticated approach but it must be recognized that, because the future is unknown, any debt sustainability assessment is only valid within the bounds of the underlying guesses. There is no support for the view that added complexity allows for more precise assessments. As a consequence, policy conclusions drawn from debts sustainability exercises must be considered with care. Sacrificing growth – in the short and even in the long run – to imprecisely known risks can be very costly. [Emphasis added.]
“The future is unknown.” That’s a shocker to progressives and commons sense to conservatives.
Back in Greece the citizens are picking up rocks — and trying to figure out who or what to throw them at. This is socialism without guns.
HT: American Thinker
