The Greek Tragedy…and America’s Future?

The fiscal crisis in Greece is fascinating political theater, in part because the Balkan nation is a leading indicator for what will probably happen in many other countries. The most puzzling feature of the crisis is the assumption in other European capitals, discussed in the BBC article below, that a Greek default is the worst possible result. It certainly would not be good news, especially for investors who thought it was safe to lend money to the government, but there are several reasons why the long-term pain resulting from a bailout would be even worse.

1. Bailing out Greece will reward over-spending politicians and make future fiscal crises more likely. In a four-year period between 2005 and 2009, Greek politicians expanded the burden of government spending from an already excessive level of 43.8 percent of GDP to an even more excessive level of 51.3 percent of GDP. Subsidies are rampant, the public sector is bloated, civil service pay is way too high, and entitlements are wildly unsustainable. A fiscal crisis – with no escape options – is probably the only hope of reversing these disastrous policies. So why, then, would it make sense for Germany and other nations to provide an escape option?

2. Bailing out Greece will reward greedy and short-sighted interest groups, particularly overpaid government workers. Greece is in trouble because the the people riding in society’s wagon assumed that there would always be enough chumps to pull the wagon. In reality, Greece is turning into a real-world version of Atlas Shrugged. Government has become such a burden that the job creators and wealth generators have given up and/or moved their money out of the country. Should taxpayers in other nations reward the greed and narcissism of Greece’s interest groups by being forced to pull the wagon instead?

3. Bailing out Greece will encourage profligacy in Spain, Italy, and other nations. The hot acronym in public finance circles is PIIGS, which is shorthand for Portugal, Ireland, Italy, Greece, and Spain. Greece is getting all the attention now, but these other countries have the same problems of excessive spending, bloated and dysfunctional public sectors, and unsustainable finances. What happens in Greece will send a very clear signal to the politicians in these nations, much as a parent who lets the oldest child run rampant is sending signals the younger siblings. Does anybody doubt that a bailout of Greece will discourage the other PIIGS from undertaking needed reforms?

4. Bailing out Greece is not necessary to save the euro. This is the most puzzling feature of this Greek tragedy (sorry, I couldn’t resist). There is a pervasive assumption that a default somehow would cripple the common currency of most European Union nations. But why would a default in Greece undermine the euro? If California went under, after all, that would not cripple the US dollar. There are unpleasant things that would probably happen following a Greek default, but the stability and strength of a currency is a function of central bank behavior. And so long as the European Central Bank does not crank up the proverbial printing press to monetize Greece’s debt, the euro should be fine.

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Tags: bankruptcy, Big Government, debt, default, Deficit
Posted Feb 10th 2010 at 12:59 pm in Economics, News, Politics | 7328656 Commentshttp://biggovernment.com/dmitchell/2010/02/10/the-greek-tragedy-and-americas-future/The+Greek+Tragedy...and+America%27s+Future%3F2010-02-10+20%3A59%3A18Dan+Mitchell

Reagan Was Noble, But Obama Got the Prize

In an age where style trumps substance in so many ways, few can be surprised that a fledging President would receive a Nobel Peace Prize.  It bears repeating that Obama was President for just a matter of days before the nomination process was closed.  Nevertheless, and without any substantive accomplishment, Obama was awarded the Prize – unanimously – apparently for things to come.  No wonder 58% of Americans believe that politics was behind the choice.

By contrast, consider the accomplishment of Ronald Reagan who, last I checked, did not receive the Nobel Peace Prize.  According to Margaret Thatcher, Reagan won the Cold War “without firing a shot.”   In the words of Henry Kissinger, it was “the most stunning diplomatic feat of the modern era.”  In the wake of that victory, millions upon millions of people were set free – and, as history has shown, a free people are far more likely to be a peaceful people.

So why didn’t Reagan get the Prize?  The answer is simple, the political Left, including the Nobel committee, didn’t like the way Reagan went about setting people free.   Reagan, we well remember, installed missiles in Europe.  He did so because he believed what Thomas Jefferson told us long ago:  “Whatever enables us to go to war, secures our peace.”  Reagan, in time, would modernize Jefferson’s wisdom by advocating “peace through strength.”

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Tags: Barack Obama, Berlin Wall, Cold War, Eastern Europeans, Europe
Posted Oct 11th 2009 at 11:00 am in Culture, History, Politics | 15406113 Commentshttp://biggovernment.com/tdelbeccaro/2009/10/11/reagan-was-noble-but-obama-got-the-prize/Reagan+Was+Noble%2C+But+Obama+Got+the+Prize2009-10-11+18%3A00%3A28Thomas+Del+Beccaro