Wednesday, November 02, 2011
Not a game post
Benjamin Franklin once said that "When the people find that they can vote themselves money, that will herald the end of the republic." Smart guy, old Ben. This week's massive drop in stock prices all over the world is a direct result of the markets believing that he is right. Europe offered Greece a deal in which Greece is forgiven half of its debts in exchange for enough austerity measures to not just pile up new debts endlessly afterwards. The Greek prime minister surprised everybody by insisting that the Greek should vote on that in a referendum. And most people believe that this will end badly, that the Greek are unable to vote for acting responsibly, and would rather just default and not pay back any of their debts. They would "vote themselves money" in the short term, although the long term consequences of that might well be less favorable for Greece.
Most people mistakenly believe they live in a democracy. In reality nearly all "democratic" countries are in fact republics. That is people can't vote themselves money, they can only vote for candidates for offices promising them money. That does slow the money voting into your own pocket down a bit, but doesn't stop it. Politicians everywhere promise "earmarks" and other forms of pork to the people voting for them. Even right-wing parties, who would like a slimmer state, always only talk about lowering taxes, never about what services they want to cut when the state has less money. The result is that just about every republic is in debt, usually around one annual gross domestic product (GDP). Which means it would take all the market value of all final goods and services produced within a country in a year to pay back the debt. And because the debt is so huge, countries spend a considerable chunk of their money just to pay back interests.
Debt can be useful. You might want to take out a student loan so that you will have higher earnings later. You might want to take out a mortgage and pay it back over the years while already living in your house, instead of saving up 20 years first and buying the house then. But the important thing is that debt should be cyclical: You get into debt when you earn less than you spend, but that is balanced by a foreseeable future in which you earn more than you spend, where you pay back your debt. Countries apparently don't work like that. The current stated goals of various governments is to borrow "only" about 3% of GDP when times are good, which then usually leads to deficits of about 10% when times are bad. It is easy to see that a cycle which always stays in the red and only goes from "little new debt" to "a lot of new debt" without ever reaching the "repaying debt" phase is going to come crashing down sooner or later. Not just in Greece, but the USA and everywhere else as well. You simply can't live on borrowed money forever. At "best" you can postpone the day of reckoning, which basically means leaving the repayment of the debts to our children and grandchildren.
I would like to live in a country with a positive budget, with a plan to pay back all its debts over the next 20 or so years. I am willing to discuss whether that positive budget is best achieved by having higher taxes, or lower spending and entitlements, or both. Unfortunately none of the candidates I could vote for in the republic I live in is offering any of these choices. I only get to choose between those who want to make new debt by lowering taxes without reducing entitlements, and those who want to make new debt by increasing spending and entitlements. I don't think that is okay, and I don't even *have* children.