1655 Greece, Democracy and Catastrophe -- True News from Freedomain Radio
Greek democracy - a very loooong history, a very short future. What is next for them - and us.
May 5, 2010 - Freedomain Radio - Stefan Molyneux
17:35
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| Hi, everybody. It's Stefan Molyne from Freedom Main Radio. | |
| I hope you're doing very well. This is a little video sandwich on the Greek and European currency deficit and subsidy crises, which are occurring, of course, in Europe at the moment and which will be sooner or later, and probably sooner rather than later, heading over here. | |
| And I'm going to do an analysis after we present the facts about the situation, which I think will bring it more into clarity about what is really going on over there and how I hope that you will enjoy that. | |
| Just a note before we start, I mean, if you're going to start a currency in Europe, Greece may not be the top on your list of countries to join. | |
| Trying to run a mixed economy with Greece in the midst is like trying to do Pointillism on an etch-a-sketch while being randomly hit by a taser with someone who has epilepsy. | |
| So that may not be the best approach. | |
| There's, in fact, only one great Greek financial manager in the world. | |
| Fortunately, I'm married to her, so she's really not available to help out with that crisis. | |
| So I hope that you'll enjoy the facts of this video, and afterwards please stay tuned for a presentation of the philosophical theory and the economic inevitabilities behind these current crises, which I'm sure will bring them more into focus and clarity for you. | |
| Thank you so much for watching, as always. | |
| Thank you so much for watching. | |
| Largely as a result of 400 years of savage Turkish occupation, Greeks retain an innate distrust of and hostility towards the state. | |
| As one Greek said, we never had the Enlightenment because of the Turks. | |
| As a result, and this is no different in America, political power has only been maintained through the outright bribery of special interest groups. | |
| Chief among these are the military-industrial complex, born out of a military rivalry with Turkey, which costs over 14 billion euros, or 6% of Greek GDP. Naturally, nearly 80% of the defense ministry budget is spent on administrative costs and payments to army staff. | |
| 20-30% of the entire Greek population works for the government. | |
| They cannot be fired, and many are allowed to retire with a pension in their 40s. | |
| Tens of thousands of unmarried or divorced daughters of civil servants collect their dead parents' pensions. | |
| And pension outlays are projected to rise to 12% of GDP, over four times the EU average. | |
| Some civil servants receive bonuses for using a computer, speaking a foreign language, and even arriving to work on time, and all workers get 14 monthly salaries a year, the result of a plan to keep monthly wages, and so future pensions, low. | |
| Two weeks' extra salary is paid out at Easter and also during the summer. | |
| The 14th salary is paid to government workers at Christmas. | |
| Until 2008, the government owned Olympic Airways, whose employees and their families were allowed to fly around the world for free. | |
| It was only able to sell the money pit after lavishly paying, or rehiring, almost 5,000 employees. | |
| Overall, the Greek government owns 74 companies, mainly utilities and transport firms, most of which are overstaffed and bleeding money. | |
| The state rail company warehouses over 9,000 people and reported 2,008 losses of 800 million euros. | |
| Nebulous and pointless committees infest government payrolls. | |
| One committee is supposed to manage Lake Copias, which actually dried out in the 1930s. | |
| Greece was only able to gain entry to the European Union by cooking its books and hiding its debt through swap agreements with the help of financial services firms. | |
| Greece then continued to fake its budget numbers until 2008, when it ran out of money and revealed that its budget deficit was four times larger than reported, 14% of GDP. It's important to note that this GDP measure is completely misleading, since the government does not have access to the entire GDP. It's like planning to pay down your debts by using your pre-tax income and ignoring your interest payments. | |
| The Greek public sector consumes about 40% of GDP, which represents a cost to the state, not an income, while taxation rarely rises above 50%. | |
| So at best, only 10% of the GDP is available to address the debt, which basically means that debt levels are in fact 10 times the numbers commonly reported. | |
| Like all doomed governments, Greece imagines that it can grow itself out of its financial crisis, referring to the fantasy that the Greek economy grew by almost 4% per year between 2003 and 2007. | |
| However, even if these numbers are true, and the source is not at all credible, this was largely due to massive infrastructure spending for the 2004 Athens Olympic Games and consumer borrowing as a result of easy credit. | |
| Even before this crisis, Greece was a major beneficiary of EU aid, equal to about 3.3% of GDP. If past growth was an illusion, future growth is an impossibility. | |
| What about increasing government income? | |
| There's little room to raise taxes. | |
| The top income tax rate is already 40%, but the sales tax is 21%. | |
| In addition, 44% of salary is taxed for Social Security, with employees paying 16% and employers paying 28%. | |
| These ridiculous tax rates, combined with a historical mistrust of government, have created an enormous black market and a culture of tax evasion. | |
| In one wealthy Athenian neighborhood, 324 residents admitted on their tax forms that they owned pools, while satellite photos revealed almost 17,000 pools. | |
| More than half of the doctors in a trendy neighborhood claimed incomes of less than $40,000, while a quarter claimed less than $13,000, and so were tax-exempt. | |
| It is an axiom of statism that compulsion and control must always expand, and the current bailout of Greece is an inevitable result of the long-term subsidization that has already occurred. | |
| S&P has already downgraded four Greek banks to junk status. | |
| Eurozone banks are holding about 75 billion euros of Greek bonds, about $97.5 billion. | |
| French and German banks are holding about 34 and 20 billion euros respectively, so a noticeable amount of their capital is at risk. | |
| A retreat of investors from the debt of Greece, Spain and Portugal could lead to high interest rates, declining investment and slow economic growth in Europe. | |
| This will affect countries, including the US, that export to Europe. | |
| Greece's dismal economic performance has in part occurred because it is already being bailed out by the EU and has been for the past 11 years. | |
| First, because Greek bonds are priced relative to the economic strength of the EU as a whole, rather than its own basket case economy. | |
| And second, because the European Central Bank accepts Greek government bonds as collateral. | |
| European banks that buy Greek government bonds, paying higher interest than German bonds because of the additional risk, then use these Greek bonds to obtain a loan from the European Central Bank at 1% interest. | |
| Without a doubt, and with no possible alternatives, the EU is doomed. | |
| And Greece is just the start of the avalanche. | |
| Since wages and social benefits constitute 75% of the total non-interest public spending, the Greek government will attempt to stave off the inevitable by targeting public wages and pension bills. | |
| Daniel Gross, an eminent EU economist, argues that for each 1% of GDP decline in Greek government spending, total demand in the country collapses by 2.5%. | |
| If the government reduces spending by 15% of GDP, the initial shock to demand could be well over 30% of GDP. These sorts of transitions from public to private employment can work in a low-tax, low-regulation environment – think of the millions of soldiers returning from the Second World War – but the Greek economy is crippled by suffocating state controls and crushing taxation. | |
| Firing government workers provokes violent, expensive, and destructive conflicts, raises short-term costs for severance packages and legal battles, and the resulting unemployment destroys income tax receipts and raises welfare and retraining costs. | |
| What is rarely mentioned is the basic economic reality that every EU nation is currently running enormous deficits, carries catastrophic debt levels, and so has no actual money to give to Greece. | |
| Germany remains one of the strongest European economies, but German voters, already weary from decades of bailing out East Germany, will find themselves hard-pressed to muster the motivation to cut back on bratwurst in order to pay for the sundrenched retirements of Greek public servants. | |
| England is beyond useless, since its own budget deficit is poised to surpass Greece's as the worst in the European Union. | |
| The entire European Economic Union is a house of cards with governments all loaning money to each other in order to hide their true deficits from potential bond purchasers. | |
| Bailing out Greece with imaginary fiat currency is not a solution to a problem, but only a brief respite, designed so those at the top of the political class can finish their looting before escaping the collapse. | |
| Alright, so those are some of the boring facts. | |
| Here is the important analysis. | |
| Statism as a philosophy... | |
| It's really not a philosophy. | |
| It's a balaclava for a hitman. | |
| It's a cover-up for a crime. | |
| But statism as a philosophy can only work in society if debts and inflation are in place. | |
| There's no other way that it can work. | |
| So if you want to sort of understand why, imagine you're a parent and you have two twins, right? | |
| And they both get... | |
| 10 bucks a week in their allowance. | |
| And then one twin says, well, I want more money. | |
| I want 15 bucks a week in an allowance. | |
| And you say, okay, great. | |
| I'm going to give you 15 bucks a week in allowance, and I'm going to reduce the other twin's allowance by $5. | |
| Well, clearly that's not going to work, because immediately the twins are going to start fighting with each other, and you actually have more conflict, not less conflict, moving forward. | |
| Now, statism is all about the redistribution of wealth from one twin to another, whether the twin is the public sector and the private sector, recipients of welfare versus the productive workers in society, private sector workers, whatever you want to call it. | |
| It is about the violent transfer of wealth from one group to another. | |
| Now, this violent transfer of wealth can only, only, only occur If debt and inflation occurs. | |
| So, if you are giving your kids monopoly money, you just go and photocopy some more monopoly money. | |
| You can give the twin the extra five bucks. | |
| You don't have to cut the other guy's account because it's not real money. | |
| What happens is everybody's money then becomes devalued. | |
| So this is one way that governments create the illusion of paying people off without it being at the expense of other people. | |
| So that's one way, they just print money. | |
| Now another way of course is you can pay the twin 15 bucks and you can keep the other twin at 10 bucks if you go and borrow another five bucks a week. | |
| Then you get this sort of additional money The problem is, of course, that what seems like a lot of fun candy money when you're a kid, when you grow up and you're hit with a debt of $10,000 or $20,000 because of the $5 a week that was borrowed since the age of 4 or 10 or whatever, that's not so much fun. | |
| And you realize that you had some money trickled down to you at the time, and now you're hit with this massive catastrophic debt that has accrued through interest to biblical proportions. | |
| So, the only way that statism can work, since it is about the forced distribution of wealth and power from one section of society to another, and there's many, many sections of society, which is why it's so complicated, is fundamentally through inflation and fundamentally through Through the borrowing of money, which is why all democratic governments go into debt. | |
| And this is why all democratic governments desperately want to seize control of the money supply and turn it over to private banks for profit, as is in the case with the Federal Reserve and other governments. | |
| National banks around the world, but you want to get control of the money supply, you want to get control of debt, so that you can pay off people for their political support without creating instant conflict through the zero-sum game of transfer of money. | |
| When you sort of think about it, not only does the government, if it robs Peter to pay Paul, let's say it takes $100 million from one group and gives $100 million to the other, that would be bad enough. | |
| But the reality is it's a negative sum game because the government has to pay all of the people required for the transfer of wealth. | |
| So this is why when you get money for the welfare state, only 10-20% of it ends up trickling down to the poor. | |
| So this is massive overhead of government bureaucracy, and as we saw from the statistics in Greece, like 80% of the defense budget was not even spent on weaponry or, you know, that sort of stuff. | |
| It was like payments to personnel and administrative costs and so on. | |
| So not only does the government transfer wealth from one group to another, which is a zero-sum game and is a form of civil war, in a sense, but it also scoops a huge portion of it for itself, right? | |
| So I think that's really, really important to understand, that it's inevitable and inexorable and can't It can't be solved within the system of democracy and statism, and it can't be solved in any state or society. | |
| There's this fundamental problem. | |
| In order to purchase support for political power, you need to bribe people. | |
| But if you take money directly, keeping a cut for yourself, in order to bribe people, Everybody gets onto the game pretty quickly and the system doesn't work at all. | |
| So you have to pump money into the money supply and you have to borrow. | |
| Once you pump money into the money supply, you start to raise inflation. | |
| Once you start to raise inflation, of course, the interest payments that you're paying on your national debt goes up. | |
| So the second thing that you have to do when you have a fiat currency supply is you need to control interest rates. | |
| And it is the manipulation process. | |
| of interest rates and you can look this up on mises.org or any of the Austrian school examination of this sort of issue. | |
| The moment you start mucking about with interest rates, you create these massive cycles of boom and bust. | |
| Money supply plus interest rate manipulation. | |
| So you keep the interest rates down, you get a housing boom. | |
| And then the interest rates go up and you get a housing crash. | |
| And you can see the oscillations going on in the market at the moment, fundamentally due to a fear that the euro is going to go down, plus realizing that the government is kind of out of tricks all around the world. | |
| These tricks can work for a while, a generation or two, as they've done sort of in the post-war period from the 50s onwards in most Western countries, there's been this massive trend towards socialism and ever-expanding statism, which will always occur. | |
| You always need to buy new political favors, right? | |
| So you get a whole bunch of political favors to one group, but you need continually to keep purchasing new and new groups in the political process so that you can try and get We're good to go. | |
| A government. You cannot have a group of individuals with the legal power to initiate force and fraud against the citizenry as a whole. | |
| There's no solution to any social problem that involves arming a group of lunatics massively and then disarming everybody else. | |
| That, of course, is not a good idea. | |
| It's sort of like there's no guns in the courtroom, and the way that we decide who wins or who loses a court case is we throw a gun, see who grabs it, and points it at everyone else. | |
| It's like, yay! Yay! | |
| Justice! Well, of course, that would just be lunacy. | |
| So, I just sort of wanted to point out that there's a lot to understand in the Greek crisis, and there's a lot to understand of what's going to happen to the euro. | |
| It is an absolute fast-forward of what's going to happen in our own societies all too soon, but it's really, really important to understand that it's not any particular detail of the system. | |
| It's not who's in place. | |
| It's not which political party has the power. | |
| It's not which policies are followed. | |
| The entire system is fundamentally immoral and, as we're beginning to see, impractical. | |
| I'm sort of struck this morning. | |
| There's an old quote of Winston Churchill where he says, democracy is the worst possible system of government in the world except for all the others. | |
| And I absolutely and completely and totally agree with old Winnie that all forms of statism are the worst forms of social organization in the world. |
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