How Is Greece Like A NASCAR Driver?
‘They keep turning left and smashing into walls’.
So goes an old joke about liberals from conservatives.
However, let’s face the truth of the matter:
‘If the country of Greece was a NASCAR entry, it would have already been smashed to smithereens in the past 10 races and disqualified from ever running again under current management.’
Greece points out the problems of socialism that former Prime Minister Margaret Thatcher of England once opined:
‘The problem with socialism is that you eventually run out of other people’s money!’
We don’t have a problem with people being liberal and wanting to help other people live better lives. We think one of the great strengths of America is the amazing generosity you see every day where people of their own volition put their money and their time into helping those who are less fortunate than many of the rest of us.
Even with that amazing amount of private generosity, however, we recognize that that just isn’t enough to take care of the millions of Americans who live below the poverty level or are sick or infirm in any way. That is where the ‘social safety net’ of America comes in, one that conservatives view as more of a ‘trampoline’ on which to bounce to get back on your feet so you can provide for yourself and your family, not one that becomes a self-trapping ‘safety net’ in which many poor people find themselves mired after generations of government dependency.
One of the oddest things to have happened to American politics over the past 2 decades is the extinction of the fiscal conservative/socially conscious ‘majority middle’ that used to constitute over 30% of Congress. Southern Democrat and so-called ‘moderate Republicans’ used to be the centrist fulcrum in Congress by which programs were passed to help people BUT were also held to a very simple standard: ‘Will it break the budget or can it be done without adding on more federal national debt?’
Nowadays, just like in Greece, liberal Democrats pass bills without any regard to whether they will break the bank or balance the budget (see ‘ACA’ aka ‘Obamacare’). And, just like in Greece where tax avoidance is considered the national pastime, liberal Democrats talk about ‘raising taxes on the rich!’ as if that will ever bring in enough money to balance the budget (it won’t) without understanding the rich are the only ones with the resources necessary to find ways to avoid paying those higher taxes.
For those reasons, we think it would be helpful to the American people, especially the young people now entering the workforce to see what would happen if a country, namely Greece, was allowed to finish their own self-destruction through overspending.
It would be very painful for the Greeks, there is no doubt. But they have had numerous chances to straighten up and fly right and elect mature adults who could lead them to the real solutions that would have avoided this disaster for the past 30 years…and they didn’t.
No human society has yet figured out how to repeal the laws of economics and fiscal gravity, as in what happens when a nation can’t pay its bills, service its debt or conduct themselves in responsible ways. Greece and the EU might try to delay the ultimate outcome for awhile but they can’t fool Mother Nature who also controls the immutable real-world of economics and finance.
Sooner or later, She will get you.
First, some facts that might surprise you:
- The GDP of Greece is about 1/2 that of North Carolina: $250 billion to NC’s $500 billion.
- The GDP of Greece is about the same size as that of Connecticut.
- The debt-to-GDP ratio of Greece is close to 175%.
- The debt-to-GDP ratio of the United States is 73%.
But guess what? At one time in history, the ancient Greek drachma was the ‘world’s reserve currency’ as were the Roman coins with Caesar’s face on them as was the British pound sterling. The US dollar will not be the world’s reserve currency forever, you know.
Unless steps are taken to support it which means getting our fiscal house in order in Congress and the White House, some other currency could become the world’s reserve currency and then we would lose all sorts of flexibility such as the ability to expand the Federal Reserve’s balance sheet in times of distress without any tie whatsoever to gold or silver underlying the intrinsic value of the dollar.
This debate is not even about the size of government. It is about the size of indebtedness caused by spending more money than a country takes in each year from tax revenues.
Calvin Coolidge presided over a booming American economy in the 20’s when federal spending amounted to about 3% of GDP all the while cutting spending and taxes in each of his 6 years in office and reducing debt by close to 75%.
Bill Clinton presided over a booming American economy in the 1990’s where federal spending amounted to about 20% of GDP. The last 4 years of his term in office saw the last balanced budgets we may ever see in our lifetimes.
It is not the ‘size’ of the government that is so dangerous. It is the ‘size’ of the indebtedness a country piles up in excess of what they can pay for on an annual budgetary basis that really matters most.
What would be the exact process of the Greek economy melting down if they don’t get any more aid from the EU?
It varies from country to country and time in history but generally, once a country has effectively become bankrupt and unable to pay its foreign debt, here’s what happens:
- Their bonds become worthless. Who would buy them if they can’t be paid interest or repayment of principle?
- Credit becomes scarce internally in the country at hand.
- Commerce becomes next to impossible to transact on a daily basis.
- Inflation erupts. Competition for scarce goods bids up the price of everything.
- Interest rates internally sky-rocket.
- Unemployment explodes. People who can’t conduct business can’t buy food or pay the rent.
- The rest of the world views your country as a basket-case.
The truth of the matter is that the rest of the world should be saying to Greece: ‘There but for the grace of God go us’
Because it can happen anywhere at any time. And has about 250 times around the globe over the past 200 years or about 1 time per year (see Sovereign Debt and Default)
The young people of this country don’t remember the 12% unemployment, the 13.5% annual rates of inflation and the 21% interest rates that beset this country during the Jimmy Carter years. Those are 3 main reasons why the only time most Americans ever hear about former President Carter is when he does something good with his work for Habitat or Humanity or something really off-kilter when he opines on Iran, Israel or Iraq or any other foreign policy matter since he really wasn’t very good on foreign policy as President either.
Those years were 1978-1981. That is not ancient history. That was not in Greece. That was in the good old US of A.
The way the US got out of that mess was when Ronald Reagan became President in 1981 with Paul Volcker as Fed Chairman and basically electro-shocked the heart of the economy to start beating again. The 1982 recession was the nastiest one since the Great Depression at the time but it was a 1-year painful fix that ushered in a economic recovery and revival of 4-5% per year which is way above the anemic 2% annual growth we have had in the Obama years by comparison.
Which is why we think it is so important for the Greek Tragedy we are now witnessing to play out on the world stage. It may be painful for the Greek people and economy in the short-term, yes. However, for the long-term, declaring national bankruptcy and going through that painful process might lead to a re-adoption of the drachma outside of the EU, a diminished economic value to its currency and a much higher demand for Greek products in world markets which would bring about economic growth and prosperity to the small businesses that make up 2/3rds of the Greek economy.
Seeing the painful process from afar might awaken younger Americans to more responsible political action. Namely to ‘vote for some people who will help fix this fiscal time bomb in America before something crazy happens…like to us!’
Maybe Greek NASCAR drivers should start a new sport where they race clockwise around a race track and turn right all the time. Maybe some of it will rub off on their elected leaders and people in the first place so they avoid getting into this dire situation again and again and again.
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