The Greek referendum will be done soon. Their economic wilderness will be in better focus and the lessons learned should be larger than mere economics.
The lessons in Greece are obvious and at a later time they may apply in places where they are now not so obvious.
- You cannot borrow for consumption indefinitely. You cannot spend money on consumption when you have no prospect of having the money to pay the bills later. All debt is a call on future resources.
- You cannot borrow your way out of debt.
- Governments have more options than people regarding borrowing, but they too face the wall of no more credit.
- Incompetent and ideological leaders are a menace. They tend to ignore the simple rules of economic success until it is too late. In Greece, the referendum is a cynical political ploy to divert attention from the leadership. Ideology and feelings do not go far to solve real problems.
- Democracy is not an economic idea although some of its ideas flow from economics. Democracy solves nothing. The will of the people can be wrong. In Greece, the will of the people is that at least a majority of the people would like something for nothing. That is not something you can vote for yourself. It includes the flaw of assuming the resources will exist for “worthy” social schemes.
- Democracy is not always fair. For example, democracy will not be fair when three wolves and a sheep are voting on what they will have for lunch. The economics of voting is no different. Voting something for yourself at the cost of others is not democratic, it is extortion.
The outcome will be hard on the majority of Greek people. The objective observation is that they have no money today because they spent it some day in the past. The government is no longer trustworthy or even competent. Creditors notice and as the result they cannot push the problem into the future.
People have understood this problem for at least 150 years. Governments seem not to have noticed yet. Consider French political theorist Alexis de Tocqueville in his book, Democracy in America.
“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”
The American Congress has, of course, discovered this fact but the American economy has so far been sufficient to endure. The same rules apply in Greece and their economy is now being asked to pay up or cease to be as it was.
There is some chat that Russia will help them out with money and protection from Turkey in exchange for Mediterranean naval bases. That would be an interesting outcome.
The unintended consequences of banks and bureaucrats behaving in a rule based manner will be a fine drama.
A Greek tragedy even. Sophocles and Euripides are watching from Olympus and talking to their publishers.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.