Greece, at the Keynesian Endpoint
Smart money says Greece will calm down in a week or so.
Europe and its respective banks will come up with some kind of delay tactic and push the day of reckoning back a month or two.
I can’t imagine what this compromise will be, but these guys have gotten so good at hiding consequences and shifting money around, only a fool would bet against them.
They can push it back for another month or another year, but eventually something will have to be done about Greek debt. The banks, the governments, the creditors, and the politicians involved will come up with some kind of solution and that solution will become the model for all the toppling dominoes that come after.
The reckoning will be slow but inevitable. The welfare states of Europe have finally reached the Keynesian Endpoint. These economies are so screwed up, so crippled by waste and malinvestment, the amount of stimulus required to sustain the bubble is greater than the amount these nations are able to borrow.
Libertarians have stumbled over this for decades because we always expect the collapse too soon. We see the fundamental contradictions in these economic models and say, “Well, that won’t last.”
Libertarians have been predicting the failure of the Euro since 1999. The model is fundamentally unsound, but they’ve held it together for a decade, and if they can figure out a way to kick the PIIGS out, they may hold on for a decade more.
Consider the Soviet Union. Mises knew the experiment was doomed in 1921, but it took 70 years for the contradictions to catch up with reality. In that time the Soviet Union used force, fear, nuclear brinksmanship and sheer weight of numbers to become a worldwide superpower. The flaws in the system were evident from day one, but they kept the plates spinning for a lifetime.
People wasted their whole lives waiting for this impossible system to break down, and when it finally did, no one was more surprised than the economists.
The modern welfare state isn’t quite as old as Communism, and mixed socialism isn’t nearly as fragile as the real thing. Our prices may be insane but we still have them.
This Greek thing may fizzle in a few days, or we may be facing a full-on Berlin Wall moment, as the contradictions inherent in the welfare state finally become too obvious to ignore.
Greece was the birthplace of democracy, and it may be the place where democracy starts to die. What happens when people take to the streets demanding the impossible? Ask any ten people on that street today and I’ll bet eight of them believe that things can go on just as they are, if the people just want it enough.
There’s no fundamental problem here, the politicians just aren’t listening to us. We don’t need tax hikes, we don’t need spending cuts, we just need to elect a group of politicians who will stand up and say, “No! Screw your austerity measures! We’re going to keep things just the way they are.”
France and Germany will throw up their hands and say, “We give up! The Greek people have spoken! Give them the credit card back.”
But that’s not going to happen. That’s what these rioters don’t understand. They still think this is a political problem. But we have stepped beyond the bounds of politics and entered the realm of finance. The Greek voters can vote any crazy shit they want on each other, but they can’t make France and Germany give them money.
They can’t force the bond market to pretend they have good credit when they don’t. All they can do is default, or leave the EU entirely. Sounds fun, but the moment they do that, Greece becomes a third world country again.
Imagine what the world must look like to these Greek politicians. For decades politics has been an awesome job. All you had to do was get elected and hand out money all day. All you had to do was sit at your desk and write checks from an infinite pool of money. Go home for brandy and a cigar and spend all night thinking up new ways to say “Yes!”
But then somebody pulled the credit card. Goldman Sachs is on the phone telling you you have to say No. Not only can you not hand out new money, you have to go back to your constituents and ask for most of it back!
You made promises based on somebody else’s credit, and that credit has just run out.
(I suspect politics will be a lot less fun now that the default answer has shifted from “Yes!” to “No!” And it’s going to be a lot harder to find people to run for office now that the job has changed. How will we know when politicians have finally accepted reality? Expect resignations, lots and lots of resignations.)
This is the real lesson we’re about to learn from Greece. Who really controls a democratic country — the people in the streets, or the guys who hold the credit card?
The citizens can riot, I suppose, but I’m afraid these protests are going to look a lot like Egypt. You can’t stage a revolution from the Middle Class. Send out the police, bust a few heads, spread some tear gas around, and these guys will go straight back to their homes. The people who protest for more welfare aren’t the kind of people who start revolutions.
They’ll kick out the old politicians, but the new ones won’t be any better. The new guys can promise whatever they want on the campaign trail, but they can’t make the money come back. Voters will elect people who say they can make the money come back, but none of them actually can.
Say it with me, “When it finally comes time to cut spending, it won’t matter who the president is.”
And that is life at the Keynesian Endpoint. What happens when voters demand the impossible? In the old days this would be simple. Germany and France would demand repayment of their debt and if the Greeks didn’t cough it up, the bigger countries would invade.
Good old-fashioned military conquest. How many of our wars have actually been large-scale debt collections? (Most of them? All of them? I’d look it up but I’m not sure I could sleep tonight.)
Military conquest isn’t really a “thing” anymore. I suspect we’ll end up with some European Union “supervisors” sent over to “help the Greek transition” to austerity. They’ll have bodyguards, of course. And politicians that oppose them, well, I’ll be very interested to see what happens to them.
This is all just a Greek thing, of course, an isolated scenario that has no bearing on Spain, Ireland, Italy, or Portugal.
And it certainly has no relevance for the United States. We don’t need any pushy foreign countries buying our debt. We invented a bank to do that for us. Nope, no austerity for us. We’ll just keep adding zeroes to the end of prices until our debt goes away.
We won’t even have to print new money. None of that tacky Zimbabwe shit for us. We do all this on computers now.
Imagine how efficient hyperinflation will be in the age of the Internet. We can change prices as fast as we want and machines will do the math.