Greece Goes Broke

 

Economics isn’t hard to understand. All you have to do is fully understand your household economics, or your small business economics. Of course, the brilliant economists will tell you this isn’t true; they say that international economics is much more complicated. It’s too complicated for simple minds, like ours, to understand. So just listen to the experts, and accept their interpretations of the phenomena of international economics.

For instance, just listen to Paul Krugman, a columnist for the New York Times, an Economics professor at Princeton, and a Nobel Prize winner.

He says that Europe’s problem with Greece is that the European Central Bank didn’t lend them more money. Then forgive much of the past debt. Then continue to lend them money until Greece’s economy recovers. Eventually Greece’s economy will grow so much that they will have a big budget surplus and then they will pay the European Bank some of it’s money back.

But you and I know better than that. We just have to accept our own financial experience and apply it to international economics. What happens to us when we borrow money and don’t pay it back? What happens to us when, over a long period of time, we spend more money than we make?

That’s right, we go broke. And eventually other people simply don’t want to lend us any more money. Krugman says they should lend us more money. But they just simply don’t want to.

However, as all of us mature thinkers know, the experts might be right. But they all can’t be right, because they all contradict each other! So you and I have a chance of being right, even with our simple minds.

With our economic analysis, here’s what seems to be the problem:

Greeks are spoiled and lazy — not unlike many Americans and many people around the world. Greeks live in a beautiful climate, right on the Mediterranean Sea. They haven’t been invaded since the Nazi’s invaded them over 70 years ago. Their main income is tourism, thanks to the great work their ancestors did over 2,000 years ago. Plus, just like in America and all over the world, modern machines and computers do much of the work that their ancestors had to do. Also, economic slaves in developing countries – like China – will produce goods for the fraction of the costs that it takes for Greeks to produce them. And, Lord knows, the Greeks export very little.

So the Greeks have the good life: they lay back, take afternoon siestas, go to cafes at night, entertain the tourists, and borrow money from their harder working neighbors.

They believe in the miracle of the government:

“Somehow, if we elect the right people, they will figure out way in which we can consume more goods and services than we produce. If we’re clever enough, we won’t even have to pay reasonable taxes. If the taxman tries to take too much of our money, we’ll just vote him out of office!

 “If the government charges too much taxes, we can also simply put our money in other countries. We can also get a free lunch other ways: we can have rent controls; we can insist that the police don’t arrest people for small crimes, such as not paying on the subways and buses; we can make it difficult for businessmen to fire unproductive workers; and we can vote in politicians who will give us generous unemployment, welfare, and retirement benefits.

“There is a free lunch! We can insist on a free lunch and we’ll vote for it. And this will work!” (Until other countries get tired of lending us money)

Slovakia gives interesting evidence for Caruso economics, that is, the economics of a simple island in which the inhabitants can all understand the economy.   Slovakia was the only country in the European Union to have voted against a recent bailout for the Greek economy. Their argument was this:

“We are a poor country. We work hard, we sacrifice, and we balance the national budget. Why should we give money to Greece so they can live a richer and more leisurely lifestyle?”

Sooner or later, more and more lenders (countries) will arrive at this conclusion. But Krugman and other brilliant economists will argue:

“Oh, you just don’t understand. International economics is above your thinking ability. Just listen to us. Give Greece all the money they ask for. They’ll pay you back someday, trust us.”

The danger for the U.S.

But here’s a danger for the U.S. The economic problem that Greece has is that their national debt is as high as their GDP (their “gross domestic product,” which is the total amount of their yearly production of goods and services). Their national debt is around $300 billion and their GDP is also around $300 billion. Thus they can probably never pay their debt back.

In the United States our national debt is around $19 trillion and our GDP is around $17 trillion. And thus we can probably never pay back our debt.

Sure, the dung won’t hit the fan for a few more years, because we are so much bigger than Greece and we have so much equity. But our economic philosophy is basically the same as Greece’s. Eventually the consequences will be the same: Other countries will get tired of lending us money (buying our bonds). And we will be broke.