Markets don’t like national suicide: Spengler

June 29, 2015 7:51 AM (UTC+8)

 

In purely financial terms, a Greek national bankruptcy is of minor importance. Private investors own just 17% of the country’s debt, and most of those are hedge funds who can eat the losses. 62% is owned by Euro-area governments, and 10% by the IMF. Greece accounts for just 2% of the Eurozone economy. In political terms, the shutdown of the Greek financial system today is probably a positive: Greece will serve as a horrible example to countries that are tempted to elect populist demogogues who refuse to come to grips with reality. The Greek people will suffer for the sin of supporting Syriza, a troupe of left-wing clowns that recalls the old 1968 graffito: “I’m a Marxist (Groucho faction).”

That’s not what worries the markets.

Nations can and do commit suicide. They do so all the time. If Greece can choose national suicide, so can others. There are any number of much larger economies that labor under the shadow of enormous debt burdens, for example Brazil and Turkey, not to mention the rest of southern Europe. The Greeks chose to go to the brink assuming that once again, German taxpayers would pick up the bill for their profligacy and fecklessness. This time they went over the brink.

At some point, all the European countries will run out of money with which to fund their pension systems, because b y 2050 half their population will be elderly dependents, according to the UN World Population Prospects database.

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This day can be pushed off into the future by raising the retirement age (quite reasonable, since aging populations are healthier than in the past) and through immigration (although the sources of skilled immigrants to Europe–Eastern Europe, Turkey, Iran, Latin America–also are drying up).

The Greek economy, to be sure, is a joke. It exports little besides food products and cotton, and cannot scale up tourism. Tax evasion is a national pastime; there are fewer actual taxpayers than revenue officials attempting to collect taxes. Greece lied about the size of its GDP to get into Eurozone in the first place. The Greek people voted themselves rich, using Eurozone status to borrow exorbitantly and raise real wages in the first half of the 2000’s.

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Nor is this the first time that a Greek welfare state has killed itself. The 5th-century B.C.E. historian Thuycicides and the great comic playwright Aristophanes derided the Athenian democracy of during the Pelopponesian war as a rapacious welfare state in which the elite pursued imperial schemes to bribe the mob. I wrote in my 2011 book How Civilizations Die:

In place of smallholding farmers, the fifth-century Athenians and the first-century Romans became soldiers and slave-masters. Half of Periclean Athens’ food supply was imported and paid for with tribute from subject cities. And as soon as the constraints of traditional society fell away, they stopped raising children.

A character in [Aristophanes’] comedy The Wasps warns [that the democratic leaders of Athens] “are the men who extort fifty talents at a time by threat and intimidation from the allies.” Pay tribute to me,” they say, “or I shall loose the lightning on your town and destroy it.” And you, you are content to gnaw the crumbs of your own might. What do the allies do? They see that the Athenian mob lives on the tribunal in niggard and miserable fashion…”

Thucydides, the chronicler of the Peloponnesian War, tells the same story as Aristophanes. He blamed the catastrophic Athenian campaign in Sicily during 413-415 B.C.E and his city’s ultimate humiliation by Sparta on the Athenians’ desire for imperial booty. Athenian democracy voted to attack a fellow democracy, the Sicilian city of Syracuse, “on a slight pretext, which looked reasonable, [but] was in fact aiming at conquering the whole of Sicily … The general masses and the average soldier himself saw the prospect of getting pay for the time being and of adding to the empire so as to secure permanent paid employment in the future.”

We tell children stories about good democratic Athens and wicked oligarchical Sparta, conveniently forgetting that the Athenian mob drove the reckless and ultimately disastrous expansion of empire. As De Toqueville warned 2,300 years later, the risk to democracy is that the people will vote themselves rich.

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It isn’t only the Greeks who have stopped working. Less than 70% of American adult men are working, vs. 87% in 1950. What do they live off? As Nicholas Eberstadt reports, “In 2010, over 34 percent of American households received means-tested benefits—households which included nearly half of America’s children.”

In the near term, the Greek example probably will discourage populism. In the longer term, the rancor of the spongers threatens the political fabric of the United States as well as Western Europe. The failure of debt-fueled populism in the Third World raises the risks of similar crises elsewhere.

Greece isn’t the real thing. It is a drill. But it is a drill for a really big, nasty thing that may erupt in the not too distant future.

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