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Greece is a good example of what happens with an over-reaching government, high taxes, and expensive social programs. If things continue, the US won't be far b

by rick888 16y ago

Greece is a good example of what happens with an over-reaching government, high taxes, and expensive social programs. If things continue, the US won't be far behind.

duairc 16y ago
What? How is that the cause of the situation in Greece?
trevelyan 16y ago
Respectfully, this is a classic liquidity trap. Falling government spending is exacerbating the collapse of demand in the private sector. If this were simply an issue of inefficient government activity "crowding out" the private sector, austerity cuts would have stimulated an increase, not collapse in private sector economic activity. The problem is that Greece has very few policy options given its existing debt burden, and inflating out of the crisis is not an option given its need to support the Euro. As with the US government, what Greece can afford to spend on social programs in equilibrium depends largely on what it spends elsewhere.
- SamAtt 16y ago
  I disagree. Nothing was going to create immediate improvement in Greece so they were going to be in this mess no matter what they did. No one is going to invest in Greece right now regardless of how much the Government spends. So I don't see how the austerity cuts are "causing" this. They are clearly not helping yet either but keep in mind the current cuts were only enacted in May of this year. What the government is trying to do is send a message to the world that they'll be prudent with their finances from this point on. That's why they've gone above and beyond what was required of them as far as austerity cuts go. It's a long term strategy that will hopefully draw private investment back to Greece in the future.
  - trevelyan 16y ago
    You argue that cutting spending will attract investment to Greece and thereby solve the country's problems. Points of disagreement: I do not understand why increasing Greek debt is supposed to be a solution to a crisis of overindebtedness. The conventional solution to debt crises is reducing the size of debt relative to GDP. The problem with Greece is that the country is stuck in deflation. It's GDP is contracting and that is making it even harder to pay off its debt. So the situation is getting worse because the government is pulling money out of the economy. The more insidious problem with your proposed solution as I understand it is that investment is not highly responsive to interest rates in a liquidity trap. Keynes was the first one to talk about this. He has been proven empirically right: people don't borrow for a host of reasons in protracted economic slumps. This is why Japan can have a nominal interest rate of effectively zero for a decade and yet the private sector hasn't invested enough to create much growth. The solution for Greece is fairly simple: debt restructuring to reduce its debt burden relative to GDP, so that the government doesn't need to plunge the country into deflation by pulling money out of the economy. France and Germany seem to prefer forcing economic contraction on Greece since this avoids their bondholders taking a cut or opens them to accusations of being soft on Greece. I'm not sure what the best balance of interests here is in part because I don't know how bad it really is in Greece, but however the distributional politics play out, I don't think your post makes much economic sense. So I'm not sure if I'm missing the picture, or if you're trying to get at something else.
frossie 16y ago
Greece is a good example of what happens with an over-reaching government, high taxes, and expensive social programs. You are joking, right? Greece is a good example of what happens when the state fails in two of its most important functions: efficient tax collection and an incorruptible civil service.
- d2viant 16y ago
  I haven't heard this before. How was their tax collection inefficient? Are you referring to tax evasion?
  - ramanujan 16y ago
    He's talking about the satellite photo story from a while back in which Greeks had many more (taxable) private pools than were reported to the government. http://boingboing.net/2010/05/04/satellite-photos-cat.html http://boingboing.net/2010/05/04/satellite-photos-cat.html The question though is whether "more efficient tax collection" is really the cure for Greece's ailments. It really boils down to whether you think a centralized government can better allocate your dollars to your benefit, or whether you can. You could certainly make an argument that people would free ride and/or greatly underestimate the benefit that spending 10 cents of each dollar on (say) the military or roads would provide, and this furthermore justifies taking that 10 cents by force as part of the price of membership in a community. However, I personally find it less persuasive to argue that centralized allocation programs will produce greater wealth than distributed ones. A remote government simply doesn't have all the information and can't know your preferences. One thing I find interesting is that many people can come to fairly good agreement on what the problem is (bad economy, low unemployment, etc.) but disagree very dramatically on what the solution should be. frossie is likely a Keynesian and rick888 is probably a Hayekian; in my experience, Keynesianism is in the water supply and the "default belief" for most college graduates, but most entrepreneurs tend to end up Hayekian: http://www.youtube.com/watch?v=d0nERTFo-Sk http://www.youtube.com/watch?v=d0nERTFo-Sk
    - StavrosK 16y ago
      Speaking as a Greek, a centralised government would be far worse at allocating funds simply because it would embezzle a good chunk.
okaramian 16y ago
Also mass tax evasion, which is ignored for obvious reasons. http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748704182004575055473233674214.html http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748704... http://www.nytimes.com/2010/05/02/world/europe/02evasion.html http://www.nytimes.com/2010/05/02/world/europe/02evasion.htm...
die_sekte 16y ago
Not exactly. Sure, Greece has all those things, but also: extremely shoddy regulations and high levels of tax evasion. High taxes and expensive social programs seem to work in Germany, Denmark, Sweden, ...
- rick888 16y ago
  "High taxes and expensive social programs seem to work in Germany, Denmark, Sweden, ..." Give them time. Talk to people in those countries. It's very difficult to find a job right now in any of those countries. Not to mention the fact that 70%+ of our monthly income goes to the government (which means less freedom and choices for you).
  - die_sekte 16y ago
    You do realize that the US has higher unemployment rates than any of those three countries? And, yeah, it's not always easy to find a job and there have been layoffs, but there's a bit of a worldwide recession. The welfare programs in Germany have worked for some time (started around 1900, IIRC). And I'm not sure were you got that tax rate. Because it's certainly false. I think you are deluding yourself.
    - lionhearted 16y ago
      > The welfare programs in Germany have worked for some time (started around 1900, IIRC). I'd say Germany 1900 to 1950 is a pretty compelling argument against government authority and managing of the economy and welfare of the people.
      - Robin_Message 16y ago
        And the US 1950–2000 has been a great argument for government authority and leaving the economy to the rich and welfare to chance? </sarcasm>
    - rick888 16y ago
      "You do realize that the US has higher unemployment rates than any of those three countries? And, yeah, it's not always easy to find a job and there have been layoffs, but there's a bit of a worldwide recession." You do realize that many of the states that are failing (California and Michigan) have had some of the highest taxes, largest wages for city workers (Some in California were paid > $200,000/year), and many expensive social programs (Just look at all the money that was pumped into Detroit over the past 20 years). In Michigan, businesses are taxed on gross income rather than net (A few other states do this too). I don't see how anyone can think this is a good idea. The more difficult you make it for a business, the less likely a business will want to be there (and there will be less jobs). "And I'm not sure were you got that tax rate. Because it's certainly false. I think you are deluding yourself." You can't just look at income tax. You need to include VAT, sales, and everything else that you need to pay on a yearly basis.
seanalltogether 16y ago
I disagree. American culture still idolizes the self made man & entrepreneur more then any other country in the world. Countries like Greece tend to have decades of influence telling them that the community will provide you a job, and the government will help with your problems.
- StavrosK 16y ago
  Ugh, that's really frustrating. There's a prevailing mentality that the best sort of job you can find is a government job. That's not far from the truth, really, since people who work in companies tend to work 12-14 hours a day for a bit over minimum wage, but most Greeks don't even know how easy it is to start your own business. I was chatting with someone on a flight once, and I mentioned that I have my own company, and he said "yeah, but it was, like... your dad's, right?" I said no, "I founded it". He couldn't believe that someone under 40 could start a company...
- oiuytghyuj 16y ago
  Yes they admire the flinty eyed self reliant cowboy - while he collects his farm subsidy check and writes his humvee off as a work truck.
barredo 16y ago
Sweden is a good example of what happens with an over-reaching government, high taxes, and expensive social programs. Denmark is a good example of what happens with an over-reaching government, high taxes, and expensive social programs.

by rick888 16y ago

Greece is a good example of what happens with an over-reaching government, high taxes, and expensive social programs. If things continue, the US won't be far behind.

duairc 16y ago

What? How is that the cause of the situation in Greece?

trevelyan 16y ago

Respectfully, this is a classic liquidity trap. Falling government spending is exacerbating the collapse of demand in the private sector. If this were simply an issue of inefficient government activity "crowding out" the private sector, austerity cuts would have stimulated an increase, not collapse in private sector economic activity. The problem is that Greece has very few policy options given its existing debt burden, and inflating out of the crisis is not an option given its need to support the Euro. As with the US government, what Greece can afford to spend on social programs in equilibrium depends largely on what it spends elsewhere.

SamAtt 16y ago
I disagree. Nothing was going to create immediate improvement in Greece so they were going to be in this mess no matter what they did. No one is going to invest in Greece right now regardless of how much the Government spends. So I don't see how the austerity cuts are "causing" this. They are clearly not helping yet either but keep in mind the current cuts were only enacted in May of this year. What the government is trying to do is send a message to the world that they'll be prudent with their finances from this point on. That's why they've gone above and beyond what was required of them as far as austerity cuts go. It's a long term strategy that will hopefully draw private investment back to Greece in the future.
- trevelyan 16y ago
  You argue that cutting spending will attract investment to Greece and thereby solve the country's problems. Points of disagreement: I do not understand why increasing Greek debt is supposed to be a solution to a crisis of overindebtedness. The conventional solution to debt crises is reducing the size of debt relative to GDP. The problem with Greece is that the country is stuck in deflation. It's GDP is contracting and that is making it even harder to pay off its debt. So the situation is getting worse because the government is pulling money out of the economy. The more insidious problem with your proposed solution as I understand it is that investment is not highly responsive to interest rates in a liquidity trap. Keynes was the first one to talk about this. He has been proven empirically right: people don't borrow for a host of reasons in protracted economic slumps. This is why Japan can have a nominal interest rate of effectively zero for a decade and yet the private sector hasn't invested enough to create much growth. The solution for Greece is fairly simple: debt restructuring to reduce its debt burden relative to GDP, so that the government doesn't need to plunge the country into deflation by pulling money out of the economy. France and Germany seem to prefer forcing economic contraction on Greece since this avoids their bondholders taking a cut or opens them to accusations of being soft on Greece. I'm not sure what the best balance of interests here is in part because I don't know how bad it really is in Greece, but however the distributional politics play out, I don't think your post makes much economic sense. So I'm not sure if I'm missing the picture, or if you're trying to get at something else.

frossie 16y ago

Greece is a good example of what happens with an over-reaching government, high taxes, and expensive social programs. You are joking, right? Greece is a good example of what happens when the state fails in two of its most important functions: efficient tax collection and an incorruptible civil service.

d2viant 16y ago
I haven't heard this before. How was their tax collection inefficient? Are you referring to tax evasion?
- ramanujan 16y ago
  He's talking about the satellite photo story from a while back in which Greeks had many more (taxable) private pools than were reported to the government. http://boingboing.net/2010/05/04/satellite-photos-cat.html http://boingboing.net/2010/05/04/satellite-photos-cat.html The question though is whether "more efficient tax collection" is really the cure for Greece's ailments. It really boils down to whether you think a centralized government can better allocate your dollars to your benefit, or whether you can. You could certainly make an argument that people would free ride and/or greatly underestimate the benefit that spending 10 cents of each dollar on (say) the military or roads would provide, and this furthermore justifies taking that 10 cents by force as part of the price of membership in a community. However, I personally find it less persuasive to argue that centralized allocation programs will produce greater wealth than distributed ones. A remote government simply doesn't have all the information and can't know your preferences. One thing I find interesting is that many people can come to fairly good agreement on what the problem is (bad economy, low unemployment, etc.) but disagree very dramatically on what the solution should be. frossie is likely a Keynesian and rick888 is probably a Hayekian; in my experience, Keynesianism is in the water supply and the "default belief" for most college graduates, but most entrepreneurs tend to end up Hayekian: http://www.youtube.com/watch?v=d0nERTFo-Sk http://www.youtube.com/watch?v=d0nERTFo-Sk
  - StavrosK 16y ago
    Speaking as a Greek, a centralised government would be far worse at allocating funds simply because it would embezzle a good chunk.

okaramian 16y ago

Also mass tax evasion, which is ignored for obvious reasons. http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748704182004575055473233674214.html http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748704... http://www.nytimes.com/2010/05/02/world/europe/02evasion.html http://www.nytimes.com/2010/05/02/world/europe/02evasion.htm...

die_sekte 16y ago

Not exactly. Sure, Greece has all those things, but also: extremely shoddy regulations and high levels of tax evasion. High taxes and expensive social programs seem to work in Germany, Denmark, Sweden, ...

rick888 16y ago
"High taxes and expensive social programs seem to work in Germany, Denmark, Sweden, ..." Give them time. Talk to people in those countries. It's very difficult to find a job right now in any of those countries. Not to mention the fact that 70%+ of our monthly income goes to the government (which means less freedom and choices for you).
- die_sekte 16y ago
  You do realize that the US has higher unemployment rates than any of those three countries? And, yeah, it's not always easy to find a job and there have been layoffs, but there's a bit of a worldwide recession. The welfare programs in Germany have worked for some time (started around 1900, IIRC). And I'm not sure were you got that tax rate. Because it's certainly false. I think you are deluding yourself.
  - lionhearted 16y ago
    > The welfare programs in Germany have worked for some time (started around 1900, IIRC). I'd say Germany 1900 to 1950 is a pretty compelling argument against government authority and managing of the economy and welfare of the people.
    - Robin_Message 16y ago
      And the US 1950–2000 has been a great argument for government authority and leaving the economy to the rich and welfare to chance? </sarcasm>
  - rick888 16y ago
    "You do realize that the US has higher unemployment rates than any of those three countries? And, yeah, it's not always easy to find a job and there have been layoffs, but there's a bit of a worldwide recession." You do realize that many of the states that are failing (California and Michigan) have had some of the highest taxes, largest wages for city workers (Some in California were paid > $200,000/year), and many expensive social programs (Just look at all the money that was pumped into Detroit over the past 20 years). In Michigan, businesses are taxed on gross income rather than net (A few other states do this too). I don't see how anyone can think this is a good idea. The more difficult you make it for a business, the less likely a business will want to be there (and there will be less jobs). "And I'm not sure were you got that tax rate. Because it's certainly false. I think you are deluding yourself." You can't just look at income tax. You need to include VAT, sales, and everything else that you need to pay on a yearly basis.

seanalltogether 16y ago

I disagree. American culture still idolizes the self made man & entrepreneur more then any other country in the world. Countries like Greece tend to have decades of influence telling them that the community will provide you a job, and the government will help with your problems.

StavrosK 16y ago
Ugh, that's really frustrating. There's a prevailing mentality that the best sort of job you can find is a government job. That's not far from the truth, really, since people who work in companies tend to work 12-14 hours a day for a bit over minimum wage, but most Greeks don't even know how easy it is to start your own business. I was chatting with someone on a flight once, and I mentioned that I have my own company, and he said "yeah, but it was, like... your dad's, right?" I said no, "I founded it". He couldn't believe that someone under 40 could start a company...
oiuytghyuj 16y ago
Yes they admire the flinty eyed self reliant cowboy - while he collects his farm subsidy check and writes his humvee off as a work truck.

barredo 16y ago

Sweden is a good example of what happens with an over-reaching government, high taxes, and expensive social programs. Denmark is a good example of what happens with an over-reaching government, high taxes, and expensive social programs.