The Greeks voted “no” on July 5. We can’t even be sure of what exactly they voted “no” on. I’m not sure that the Greeks themselves know either.
Does this mean a full default on the Greek government’s debt? Does it mean an exit from the European Union?
I really hate the term austerity. I have for quite a while now. The problem is that it is used interchangeably for higher taxes and government cuts in spending. This is how slick propagandists get away with their rhetoric. They don’t clearly define their terms on purpose.
Higher taxes are bad for an economy. They stunt growth and hurt living standards.
Lower government spending is beneficial for living standards, at least in the longer run. It enables people to use their own money. Government spending misallocates resources, and it also hurts savings. We need savings and investment for production and more wealth.
I’m not really sure how much lower government spending Greece has actually seen. It is still a massive welfare state. It is just a welfare state that has sucked up most of its resources.
Margaret Thatcher was right. The problem with socialism is that you eventually run out of other people’s money. Or maybe that is the good thing about socialism because it often brings it to an end. I don’t know how socialist Greece is, but it is at least some combination of Keynesianism and corporatism. And not only is it a massive welfare state, but it also has a big military industrial complex, which is another form of welfare.
I see complaints that the Greeks got to vote on not paying their debts. People make an analogy of someone not paying on their mortgage or credit card debt. But there is a major difference.
When a government makes a “promise” to pay back its creditors, it is promising the money of future taxpayers.
If I borrow money from Al and promise to pay him back with Bob’s money, that contract is only valid if Bob has actually signed off on it. But Bob has not agreed to it personally. The Greek people are Bob. They should not be forced to pay back debt made in their name. This is collectivist thinking that the Greek people are responsible.
As an important side note, we often hear that government debt is bad because it is burdening future generations. But this is only true in the sense that there is less capital investment today. The real burden is on the people now. This should be quite evident in Greece, where some people are scavenging for food.
So what is the best case scenario for Greece going forward, realistically speaking?
The best case is a full default, but to retain the euro. For the sake of liberty long-term, I would like to see the whole European Union fall apart. But for the sake of the Greeks, they might be better off remaining in the European Union for now, if they can do so with a full default.
The reason is because I fear what a Greek central bank will do with its own currency. It will likely try to continue the welfare state by turning on the money printing presses. High inflation or hyperinflation is only going to make things worse there.
Perhaps even better would be pegging to the U.S. dollar, but I don’t see that as likely. I think the best hope is to stay with the euro for now. But they should only do that with a full default. If Greece can somehow keep using the euro while leaving the European Union, that would be great.
The Greek people need freedom. Much of it is their own fault, in a collective sort of way. They need a stable currency with dramatically less government spending.
The people in Greece with big pensions thought they were living the easy life off of others. For a while, they probably were. But even for those still able to collect a pension, they are much worse off.
It just shows that, eventually, almost everyone suffers under big government. Even the net beneficiaries of the welfare state are worse off. Those who promote the free market weren’t kidding when they said that a rising tide lifts all boats.