In the short term, the world runs on words; in the long term, the world runs on numbers. It is as though the Muses came to an agreement: In the here and now, mankind is subject to rhetoric, but mathematics gets the final say. In Athens, in San Juan, in Detroit, in Sacramento, in Springfield, and, soon enough, in Washington, Mathematics is arousing herself from her torpor, and she is cranky as hell.
The long term is here. Greece has defaulted on its sovereign debt, and its banks have been shut down. Television viewers accustomed to watching a few odd ducks cheerfully prepare for Armageddon on Doomsday Preppers are now seeing a disorganized version of the same thing as panicky Greeks storm empty ATMs and attempt to stockpile food and fuel. Puerto Rico has announced that it cannot pay its debts. A half-dozen Illinois cities and the Chicago public-school system have spent 2015 teetering on the edge of bankruptcy, with the state legislature considering a new bankruptcy law to handle what is expected to be a deluge of insolvency.
The words and the numbers have long told very different stories. Let’s stay, for the moment, with the case of Greece. In the run-up to the 2008 financial crisis, Greek leaders lied to bond investors and the bosses at the European Union, claiming that they were complying with EU restrictions on the size of government deficits and national debt. In reality, the Greeks had been scheming with their bankers — notably Goldman Sachs — to keep excess debt off the books. Financial crisis or not, that book-cooking was always going to be revealed: Greece maintained an excessively liberal pension system (Greeks could retire after 35 years of work at 80 percent of their working income; for Germans, it’s 45 years and 46 percent); it is publicly and privately corrupt, with jobs in its bloated public sector being handed out as political patronage and tax evasion running rampant; workforce participation is low, and private-sector workforce participation — i.e., engaging in genuine economic production — is very low. The Greek economy takes the form of an inverted human pyramid, which is inherently unstable.
When Greece’s sham economy went ass over teakettle, it agreed to a bailout package, finalized in 2010. That deal is now widely blamed by the Left for exacerbating Greece’s economic crisis with excessive “austerity.” The problem with that line of argument is that there was no Greek austerity: Greece lied about its debts before the crisis, and it lied about its reforms after the bailout. It didn’t take the meat axe to its public sector: Greece went out and hired 70,000 new government employees instead. It stopped selling government assets, which it had agreed to do, and government’s share of GDP actually increased rather than declining.
The socialist Syriza government of Alexis Tsipras is now trying to cut another deal, one with familiar features: maintaining the pensions that Athens politicians use to bribe the Greeks with their own money (and, now, with German taxpayers’ money, too) and forestalling real tax reform. Syriza ran against pension cuts and public-sector layoffs — it is a party that claims to be of the radical Left but is in fact the party of keeping things more or less like they are: corrupt and contented.
As one Greek supporter of Tsipras’s wheedling told the New York Times: “We’re all pensioners here.” Indeed, and that’s the problem. A society’s wealth may be measured by its consumption, but its wealth consists of its production. One cannot consume what has not been produced, and consumption can exceed production only as long as your credit lasts, and credit — n.b., congressional clown conclave — is never eternal. Greece has too few people working in productive business enterprises and too many receiving government checks, either as employees or as welfare recipients — a distinction that is increasingly difficult to make in Greece and elsewhere.
One of those elsewheres is Puerto Rico. Puerto Rico tried reform under Governor Luis Fortuño, who for his labors was shown the door by the same public-sector unions and welfare pimps who run California and Illinois, who bear more than a passing resemblance to their Greek cousins. As in Greece, political patronage and an over-generous welfare state have led to low levels of productive private-sector employment, with the Keynesian stimulators offering so much stimulus that the tiny commonwealth now has a per capita public debt exceeding $20,000. The island’s most skilled and enterprising residents have fled its economic and social stagnation for the mainland United States. Alejandro García Padilla ran on increasing the public-sector payroll and opposing pension reform. That’s what the words said. The math had other ideas, and now the words are catching up: “The debt is not payable,” Governor García Padilla has proclaimed. This has been obvious for some time, as National Review readers know. That $20,000-per-person public debt is indeed a heavy burden. Our national debt comes out to $56,000 per person. Puerto Ricans have the United States as a Plan B.
What is our Plan B?
With apologies to W. B. Yeats, it is not the case that things fall apart. Rather, things turn out more or less as calculated. It isn’t that the center cannot hold — it’s that balance sheets ultimately must equal zero. Debts either will be paid or they will be defaulted on — there isn’t a third option, and the belief that Greece or San Bernardino can spend its way out of a profligacy problem is pure magical thinking. When confronted with questions about the sustainability of his model, John Maynard Keynes famously dismissed his critics: “In the long run, we are all dead.” Not so, professor, not so. In the long run, the math trumps the rhetoric.
by Kevin D. Williamson
Greece and Puerto Rico Default, Inevitably
No comments:
Post a Comment