I visited several customers this month, and along the way I learned some interesting facts about how other countries are handling problems like the ones we face in the United States. In this post, I will discuss Greece, the first stop on my trip. What I wanted to learn in Greece is if their economy is as bad as we hear it is from the U.S. news media.
It seems they still have money to try to keep the Acropolis from falling down.
I asked several Greeks about the state of their economy, including my customer and some of his employees, two policemen patrolling the street, my hotel concierge, the rental car clerk, and many others. The responses ranged from “our economy is terrible” to “we are in a depression” to “it’s not getting any better.” Just how bad is it? Unemployment surged from 20% in November 2011 to 27% this past November. The Greek economy contracted 6% in the 4th quarter of 2012. Listening to Greeks talk about their economy actually sounded a lot worse than hearing about it from the media.
I was glad they didn’t shoot me when I asked them about their economy.
When the going gets tough in Athens, what do government employees of the metro system do? They go on strike. The Athens metro system was shut down during my visit, hence my opportunity to talk economics with the Hertz agent. In protest over cuts in their pay imposed as a result of wide ranging austerity measures, the striking metro workers have figured out how they can stay off the job each week but still get paid for 4 days of work.
Here’s how the metro workers game the system: the train operators will go on strike on Monday and forfeit their pay for the day, while all the other metro departments get a paid day off. On Tuesday, another department will return the favor and forfeit a day’s pay by going on strike, allowing the train operators and their other non-striking colleagues to enjoy a paid day off. The same dynamic occurs each day for the rest of the week, resulting in a rotating system of striking employees who make 80% of their regular pay without ever going to work. This sounds a lot like America’s welfare system, at least the part about getting paid handsomely not to work (for which I fault our government entirely, and not the people who cannot find jobs).
POTUS went into full campaign mode this week to drum up indignation and shock about the reductions in the growth of government spending that are slated to go into effect on March 1. Never mind that he proposed this plan, that congress passed the bill, and that his righteousness signed it into law himself. This student of power and how to use it to for social engineering purposes has been schooled, and now he is creating hysteria among the willing, particularly Chris Matthews of MSNBC, Paul Krugman and his buddies at the New York Times, and the rest of the mainstream media, who believe everything POTUS says, despite a long and still growing record of half-truths and blatant lies that are dividing the country and prolonging our economic malaise, that if left un-opposed, may eventually lead us to the same sorry state as Greece. Certainly, comparisons between the U.S. and Greece, with a population of just 11.3 million and no central bank, are not perfect; however, notwithstanding differences of scale and control over monetary policy, our position as the world’s largest debtor nation makes one wonder how long we can continue down this dangerous path before our debt load creates havoc for us like it has for the Greeks.
If we allow reductions in the growth of government spending to take effect, aren’t we just repeating the same mistakes that the austerity driven countries of Europe have made? Not at all. As the tables below demonstrate, the PIGS of Europe (Portugal, Ireland, Greece, and Spain) have actually had to make real spending CUTS, and the austerity measures have been very tough medicine, indeed. All the sequester is going to do is reduce the rate of spending growth. Shouldn’t we be willing to accept some small scale spending cuts now instead of increasing the risk that we might one day be forced to make real cuts like the PIGS have had to do?
Krugman would have us believe that we “should just call the whole thing off,” that the government should continue priming the Keynsian pump to avoid hurting the economy. Perhaps, he is right. However, what if this particular viewpoint is wrong? Is this risk something we really want to take, running $1 trillion deficits year after year. Is the $6 trillion debt increase under Obama not enough stimulus to show everyone that this approach isn’t exactly creating the robust growth we need? Why would we want to continue down this path after getting such anemic results so far? The government is a terrible steward of the money it receives from taxpayers, and that is reason enough to forget raising taxes again and let the sequester cuts happen.
The private sector endured enormous pain as a result of the financial crisis, while government payrolls continued to grow. Although the sequester may not target cost reductions in the most optimal way, the geniuses in Washington created it because it was the only compromise they could reach. I hope the president’s ego isn’t so enormous that he won’t direct his cabinet secretaries to minimize the disruption in services, rather than create maximum disruption in the hope of achieving political gain. Then again, his motives are always political, which is why he won’t ever achieve his grandiose expectations of being a transformational leader along the lines of MLK or Lincoln.
The graphs below show what real austerity looks like. Click on each graph for a larger image and hit the back button to return to the post.
This last chart shows what reductions in the rate of spending growth looks like, with the total amount spent continuing to climb into the future.
In a future post, I will explain what I learned while in Doha, Qatar, an oil rich nation with so much money they don’t know what to do with it all. Meanwhile, Obama can’t make a decision about the Keystone Pipeline, a project that would create thousands of jobs and boost the economies of many Mid-Western states. Perhaps it is better to continue employing armies of bureaucrats in Washington instead of taking advantage of real economic opportunities in the private sector. At least that’s what Obama wants to do.