There is a report out that households in Greece suffered an annual drop of 10.6 percent in disposable income in the third quarter of 2012. This article says that “Greek austerity policies cut Q3 household incomes”.
Greece is now a symbol of the end result of a welfare state. The people of the country allowed a government that promised big benefits to people, while trying to pay for it with high taxes. In the long run, the promises just couldn’t be kept. They were not possible. Now their day of reckoning has come.
In America, we sometimes hear people say that we need to fix our spending and debt problems or else we will end up like Greece. Actually, it is a reasonable statement, although there are major differences between the countries. Unfortunately, the U.S. has its own central bank to print money and can therefore make the game go on longer. But it can also make the problems bigger.
The U.S. also has far more wealth than Greece to start with, so there are more resources to be consumed. Hopefully America will not get to this point of consuming most of its resources. The good news is that the American people are much more entrepreneurial and individualistic than the average Greek. And while many Americans look for government handouts, it is not nearly to the same extent as in many European countries such as Greece.
People can blame “austerity” all day long on Greece’s problems, but they simply don’t understand what they are talking about, unless they are outright lying. Austerity is not causing Greece’s problems any more than a wet sidewalk is causing it to rain. The so-called austerity in Greece is essentially being forced on the people there because of the situation there. They have consumed their resources and have almost nothing left to consume.
This is why today’s Keynesians are a joke. They think we just need stronger demand to drive the economy. You don’t think that the Greek people are demanding enough? Many people in Greece are living in virtual poverty, barely being able to put food on the table. Is this due to a lack of demand?
It is obvious that the people there have consumed their resources and their productivity has diminished dramatically. Once you have consumed your previously saved resources, then there are no more resources to consume anymore, other than those currently being produced. The low production is due to government policies, which in many ways reflect the mentality of the general population.
The majority of the population, while they are not necessarily getting what they deserve, are getting what they asked for. Actually, they asked for the impossible of endless benefits. But they are getting the government that they asked for. And at this point, it doesn’t matter who is elected or who is in power. There simply are not many resources to go around any longer. Politicians can’t magically create food and clothing for the population out of thin air.
The one other point here is that a big government debt is not the most harmful to future generations. It is the most harmful to people here and now. It reflects big spending by government, which means a massive misallocation of resources. It means less production. It means a lower standard of living. It can mean major poverty, as we are seeing in Greece right now.
If the Greek people want to recover, they must end their government welfare state. They must get back to free markets, which will encourage production and savings. It will set a base for future economic growth. Until this happens, I’m afraid that the Greek people will suffer greatly, at least for those who don’t move away.