Are there Implications for America in the Economic Collapse of Greece?
“A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing…”
~ Elmer T. Peterson
With the Greek financial debacle starting to unwind, we will see yet another nation forced to make some very tough choices about which promises they will fail to honor. Whether it is default to the International Monetary Fund, the slashing of the pensions of government retirees, or running the printing press until the currency is valueless on the international stage, these are not simple complications with clean answers. Regardless of how they choose to deal with the issues associated with insolvency, the people who are dependent on the government for their financial support will suffer the most.
As we look at Greece, we cannot help but look at our own debt fueled economy. We, and many nations on the earth, are effectively borrowing against the efforts of future generations. It is ultimately unsustainable. In Greece, we see massive youth unemployment, which provides little incentive for those young people to support or identify with a national identity that has provided them with no opportunities and saddled them with debt. That is a recipe for violence and civil unrest. It is exactly what we saw in Argentina at the beginning of the century and in the former USSR in the early 90’s.
The question many people are asking is could it happen here in America? I do not have a crystal ball, but I certainly believe that we are rapidly approaching the end of our ability to sustainably borrow. Good or bad, that debt is denominated in U. S. dollars, which gives us access to the immediate solution to simply run the printing presses. What that does is make U.S. goods and services the only affordable option for Americans. The things we are good at producing will remain somewhat affordable, but the things that we import will be become so grossly expensive that we will likely have to do without, until we can competitively produce those goods internally. The only sustainable long term solution is to cut spending, and invest what we do spend in the productive and opportunity-creating segments of society.
Senior citizens paid into social security on the promise that they would draw a stipend at the end of their years, which would keep them from living on the streets. Government employees worked on a contracted basis for a period of time after which they were promised a pension. Medicare was established to provide a reasonable level of healthcare to those same senior citizens. Welfare is set up to provide a minimal level of income for the indigent, and unfortunately that has grown to be an entire class of generational poor who are truly dependent on the government for their existence. Obama Care is the latest provided subsidy that has worsened the U. S. economies position. We simply cannot add to the national debt forever.
The question is which group of these people are we going to cut off, or default on the government’s obligation to pay? Senior citizens? How about retired military service members? The truly indigent who live paycheck to paycheck to afford to feed themselves and their children? The nations newest seven million insured who are finally getting a reasonable level of health care? That is the real meaning of “austerity measures”. The reality is more then just tough choices – it is defaulting on some segment of our society. Congress reduced military retirees’ pay increases by 1% below the cost of living per year for the remainder of our lives at the hands of Paul Ryan and other conservatives last year. None are too happy that Social security has failed to keep pace with the cost of living and been cut throughout the years. These minuscule cuts are grossly insufficient to balance the budget, let alone pay off our debt.
We need only look to Argentina and Russia’s current financial positions to see the effectiveness of lending based recovery. More relevant is the civil unrest and violence that invariably accompanies these defaults. It takes a nation who has clearly buried its head in the sand and simply hoped things would be OK to be one with food shortages in a few short weeks. We know that there are deep pockets of government dependence that will riot in the face of default on their government subsidy here in America. Just like elsewhere in the world, some of those protests and riots will turn violent.
Mr. Peterson’s quote at the beginning of the article is based in many similar notions such as those made by Alexis de Tocqueville and certainly further back in history. What I was surprised by is how the public of Greece voted. It is shocking that only 62% voted to turn down the EU’s offer of solvency, because they felt that the demands of the lenders were to severe. I have even some Greek politicians use the term “economic terrorism” to describe the restrictions the new loans would require. The vote and those comments act as if there is some unlimited pool of resources that is being withheld. Lenders can demand what ever they want. If you don’t like the terms — don’t borrow. In this case the result is economic collapse.
When you ask people whether or not they want their government-provided subsidy cut, of course the answer is a resounding “No”. I am surprised more people did not vote against it. The next few days will be quite telling for the future of the EU and for the future of international lending.
We still have the option of voting for politicians who are fiscally responsible. There is a chance that some of them may actually attempt to come through on their promises to cut spending. Further to that point, there is a small chance we can elect enough of them to actually push a fiscally responsible agenda. Alternatively, we can continue to vote for politicians promising to expand social programs despite the fact that we cannot afford the ones we have now. The reality of economic collapse is that we can suffer now to a limited extent and “right the ship”, or we can suffer extensively at some unknown point in the future.
Greece does not have to be our future, but we need to see significant changes in the way we vote and spend. This past Independence Day should serve as a reminder that we were once a nation of independence. I sincerely hope that Greece serves as warning and pushes in the direction of becoming one once again.