Tuesday, May 11, 2010
"Anything above the level of a savage's precarious, hand-to-mouth existence requires savings. Savings buy time." -- Ayn Rand
Either of these will make you queasy, but both are worth full reads.
First, Bill Frezza, writing for RealClear Markets, takes a look at Athens, and then draws an unflattering cultural comparison between Turkey and Greece (and, by implication, the United States as well), which he left just before the fiscal crisis rioting broke out.
The spectacle of government workers, cranky retirees, militant unionists, and mad dog socialists locked arm in arm protesting reality is a sight we'd better get used to. The Germans may think they can staunch the panic with a mere hundred billion because Greece's feeble economy is so small. But the same fatal flaw that gives democratic majorities everywhere the power to vote themselves a comfy retirement now infects a greater part of the developed world. It's only a matter of time before a demographic tsunami swallows us all.Frezza makes an interesting cultural observation by contrast just a bit later:
The Turks we met reminded me of what Americans used to be - a nation on the hustle. The Greeks? Take a good hard look at the donkey boys, Pinocchio, because that's what we are becoming. You can't imagine how hard this is for a Greek American like myself to say, raised to believe that our ancestors single handedly invented Western civilization.Frezza doesn't seem to grasp the role of altruism in shaping modern Greek culture (not to mention giving rise to the welfare state), but anyone with an inkling of such a connection will be able to connect the dots easily enough.
Second, we have the very ugly, looming economic consequences that attempting to defy reality will inevitably bring, courtesy of Peter Schiff (HT: Doug Reich). His comparison, though, is between Greece and the United States. Particularly interesting is how efficiently injustice towards the prudent can meted out by central planning through inflation:
The main reason the Greeks are protesting in the streets is that they do not want their benefits reduced or taxes raised to repay foreign creditors. But despite the likely domestic popularity of a drachma-printing policy, would it really get the Greeks off the hook? They would stiff their creditors by repaying them in currency of diminished value. But the same result could be achieved through an honest debt restructuring, which would involve "haircuts" for all creditors. In a restructuring, the pain falls most squarely on those who foolishly lent money to a "subprime" borrower.This kind of pain, Schiff warns, may be just around the corner for us.
But with inflation it's not just foreign creditors who would suffer. Every Greek citizen who has savings in drachma would suffer. Every Greek citizen who works for wages would suffer. Sure nominal benefits are preserved and taxes are not raised, but real purchasing power is destroyed. If the cost of living goes up, the reduction in the value of government benefits is just as real.