Saturday, June 18, 2011

Bastiat Goes To Greece

One of the most bizarre aspects of the Greek mess is how completely out of touch with reality the Greeks who protest the reductions in government spending are. There is simply put no other option when you have a large primary (excluding interest payments) deficits and no one wants to lend to you unless you agree to spending.

Defaulting is not a solution because that doesn't reduce the primary deficit (indeed, given the havoc it would create it would probably increase it).

Leaving the euro and re-impose the drachma wouldn't eliminate the deficit either, unless you start to directly finance it with "the printing presses", but that would create a massive inflation that would bring about the very reductions in real wages that the protestors are protesting against.

Raising taxes on the rich can at most cover only a very small part of the deficit, especially considering that the rich are likely to take measures to avoid these tax increases.

And the strikes and protest themselves only increase the need for spending cuts because they by weakening the economy reduces tax revenues. The Greek unions strikes are therefore as stupid as expressing dissatisfaction with the fact that you freeze by reducing heating further or taking off your shirt

So how could people be so unbelievably clueless like the Greek protestors? I think this is really a case of them being under Frederic Bastiat's old dictum "the State is the great illusion where everyone thinks they can live at the expense of everyone else". The Greeks have for years wanted and gotten from the politicians lavish social benefits but have refused to pay the taxes needed to finance these benefits, creating the large budget deficits.

Everyone saw the state as simply a means to live off others. In reality, it is of course impossible for everyone to live at expense of everyone else. And for limited groups to be able to live at the expense of others is only possible if there is someone willing and able to provide for them. And the rest of Europe is simply not willing to allow the Greeks to live at their expense for much .

The Greek protestors are thus a group of people who still cling to Bastiat's illusion that the state must continue to be a means for them to live at the expense of others, even as it is obvious that it is not possible any longer.


OpenID savecapitalism said...

What if most of them aren't protesting austerity, rather protesting the whole system and those in charge of it?

8:15 PM  
Blogger stefankarlsson said...

If there is any system that they're protesting against, it's the system that your "openID"-title says you want to save (something the fact that Marxist labor unions are organizing it should really be sufficient for you to realize it).

Because the key relevant fact is that Greece has had for a long time and still had a very large primary deficit, and that Greece has for long had a very large current account deficit, and that means that the Marxist led Greek protestors are clearly demanding the right to live at the expense of the rest of the world.

12:53 AM  
Blogger Hoppe said...

Wow, someone from CSM quoting Bastiat! I was impressed until I read on and see that he mis- understands Bastiat.

It was not Bastiat's illusion. It is an illusion Bastiat refers to that is widely held by communists.

1:01 AM  
Blogger stefankarlsson said...

What is CSM? Are you referring to "Christian Science Monitor" (that runs some of my posts) or what?

And I think I made it clear from the context that Bastiat didn't suffer from the illusion, he described an illusion held by others. Taken out of context "Bastiat's illusion" may be interpreted as Bastiat suffering from it, but in this context it is clear that he identifies and describes an illusion held by others.

1:27 AM  
Blogger Curt said...

People are protesting in Greece largely in response to the mismanagement and corruption in govt. They are against privatized profit with socialized pain. We all should be.

2:10 AM  
Blogger carterson2 said...

Have you interviewed any of them?

My bet is those figure-head-protesters know exactly what they are doing and you aren't covering it.

4:01 AM  
Blogger David said...

You can't be an Austrian economist and for austerity, because that would imply that the government should still be taxing the hell out of people to pay back the debts.

Of course the people in Greece are mad. If you want to cut off the entitlements, then fine, stop making them pay taxes for it too.

Also, the people who loaned Greece money deserve to take a haircut. Anybody who loans a state money expecting for them to nail the taxpayers to pay it back deserves to get nailed themselves.

4:40 PM  
Blogger stefankarlsson said...

Curt: The numbers don't lie. Greeks get a whole lot more money from the government than they pay in (That is especially true if you BTW include the large amounts of money that Greece gets from the EU budget) Meaning that what the protestors object to is that they won't be able to live at the expense of others any more,

Carterson2: No, I haven't interviewed them, have you?

But I have read their statements in the media, and what all of them are saying is that they dislike reductions in government spending.

David: If "Austrian" is defined as someone that excuses government deficit spending, then I am not an Austrian. And excusing and and in effect advocating government deficit spending by the Greeks at the expense of the rest of the world is what your position means.

10:05 PM  
OpenID Mengerian said...

I agree with Stefan on this one. Greece has a deficit _excluding_ the interest payments. The response from the protesters is directed towards the very austerity measures that are needed to reverse that trend! How is that about "no bailout for the bankers"? Besides, the Greeks are not going to pay that bill - the Germans are.

There was never a significant "tea party" style movement in Greece - and there will probably never be one.

11:01 PM  
Blogger Jim Slip said...

It doesn't make any sense to just focus on the state deficit. Rather you should focus on the whole economy, i.e. the state debt in relation to private debt, the account balance, trade balance, plus consumption and investment (both domestic and foreign).

In the case of the Eurozone, most trade is done within the Eurozone, so any adjustment could be done more easily if there was political will.

Since there isn't, re-impose the drachma and let the currency rate restore competitiveness. Not to mention that the state is gonna again have the ability of fiscal policy for all things Greek, and thus subsidize key sectors in the economy.

3:45 PM  
Blogger stratagem said...

The illusion Bastiat wrote of, takes many forms. It starts out small, with a welfare program or reasonable retirements, and ultimately ends up where most of the population is attempting to live off of everyone else.
When that collapses, then the Communists come out and say that it's the system that is the problem (we're seeing some of that here on this discussion board), hoping to take over what little wealth is left and perpetuate the flawed welfare state just a little longer. Interesting how people who would never believe in an actual perpetual-motion machine, can yet believe in an economic perpetual-motion machine that gives off more power than it takes in.

4:00 PM  
Blogger tdiama said...

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4:00 PM  

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