The Greek Path to Fiscal Disaster

February 11th, 2010 at 2:01 pm | 5 Comments |

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Being a proud native of a nation in the cutting edge of societal decline I am here to offer you five easy steps that would make your country – no matter how small – the epicenter of world finance. This is the golden age of sovereign debt or as it is otherwise known the great sovereign debt bubble. By following these five easy steps your country can be part of it. No money down and no commitment are necessary. The plan comes with a 30 years free trial.

Step 1:
Generate huge multiyear budget deficits. It’s the first very important step to financial turmoil. Of course not every budget deficit is the same. Consistency is important (multiyear) but also quality. Deficits that are generated by spending in a multitude of programs serving a plethora of constituencies are to be strongly preferred to those generated by tax cuts.

Step 2:
Focus on creating a sclerotic labor market and lots of government red tape. This might seem tangentially related but it is actually very crucial. What you are looking for is an economic environment where economic growth is steadily below debt growth. In Greece people in their 20s and 30s have a 25% chance of being unemployed while at the same time the government bureaucratic costs to the economy are estimated to be around 6% of the GDP.

Step 3:
Do absolutely nothing about the incentive structure of government entitlements. Furthermore convince yourself that any new expansion of any entitlement without any fundamental change in its architecture will lead somehow to the process by which its long-term costs will come under control (see Krugman, sovaldi sale Paul)

Step 4:
Ignore demographic trends. Make the central and implicit assumption of all your budgeting the absolutely false certainty of many future baby booms. Make sure that the costs of retirement and care of an exploding growing elderly population are borne by an already heavily taxed and shrinking young demographic.

Step 5:
Assume that the many special interests heavy on tax consumption will act altruistically in a time of crisis. This will be the final blow as the political class will belatedly realize that not only has it created a sclerotic economy but also an equally inflexible political environment that makes adjustments to mitigate grave crises politically untenable.

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5 Comments so far ↓

  • blowtorch_bob

    The Greek path of fiscal disaster? Look who’s talking! We should be focusing our energies on the fiscal disaster in the good ole U.S. of A. instead of pointing fingers.

    Bring back Glass-Steagal!

  • blowtorch_bob

    After re-reading this I never laughed so hard in my life.

    “…do absolutely nothing about the incentive structure of government entitlements…” What a laugh. To say nothing of the trillion dollar bailouts of Wall Street and then, get this, executives are handed bonuses as a reward.

    “…generate huge multiyear budget deficits…” Another knee-slapper! This is obviously aimed at the U.S. and its policy of generating huge multiyear budget deficits.

    Congrats to David frum and his team for producing such fine satire.

  • Demosthenes

    Patrioti mou:

    Do you really blame the Greeks for all of this? How about blaming the gullible EU for letting Greece into the common currency to begin with. All of us (Hellenes) knew Greece was cooking the books to get admitted and the EU — which must be run by absolute dolts — let them into the common currency. Then, Greece decided to keep up spending more than a nation of theirs can economically afford under the theory — that is now proven correct — that the Germans would bail them out.

  • Mandos

    And what about German mercantilism? Aren’t they supposed to be like China or something?

  • Carney

    blowtorch_bob, the Wall Street banks were forced to lend money to the undeserving at rates too low to cover the predictably high default rates, in other words forced to take on more and more toxic debt, lest they be excoriated as “redliners” and “discriminators”. The government treated home loans as yet another entitlement, and in typical fashion did so in an unsustainable manner.

    So yes, the collapse was another entitlement problem.