[When a nation’s debt becomes unmanageable, what is the responsible next step?]
The Greek mess is complicated, but in sorting through complex messes it’s useful to start with simpler cases and build up.
All sides in the discussion are appealing to moral considerations about responsibility, fairness, and prudence. Part of the debate is over what those principles mean. An intimately-related part of the debate involves sorting the many parties involved and figuring out what each owes and is owed.
Two pairs of competing moral principles are in conflict:
(1) Always repay your debts, and (2) If you have bad habits, reform your ways,
versus
(3) Show mercy for those in distress and (4) You can’t get wine from a stone.
Here is a simpler case: Consider your ne’er-do-well cousin Stevie. He works sporadically. He lives high on the hog and has much credit card debt, as well as some loans from dodgy characters. Sometimes he tries to cut back on his expenses, but he also has a history of fibbing about his financial condition. He’s also borrowed lots of money from you over the years. Now it’s a family gathering — Stevie shows up, declares he’s broke again and asks for a loan to tide him over.
What’s the right thing to do?
* Do you (1) point out that Stevie has much debt already and should first manage that before asking for more?
* Do you (2) insist that before you can consider another loan Stevie needs to get a steady job and show he can control his expenses?
* Or do you (3) feel an obligation not to be judgmental and to help him out of a jam — isn’t he family, after all?
* Or will you (4) write Stevie off as a hopeless case, cut your losses, and wish him well on his own?
Stevie is one guy. But we should be able to decide what’s best to do with him before considering more complex cases.
Like the Enron disaster, for example. Enron was a large corporation involved in many private and government partnerships. It had thousands of people dependent upon it for their energy supplies, their jobs, and their investment and retirement incomes. Enron was also mismanaged badly for several years, and as it became more desperate its top management resorted to lying about its finances.
When the Enron excrement hit the fan, what should we have done? Virtually everyone rightly condemned Enron for its misbehavior. Its irresponsible officers were prosecuted for fraud, and its debts were wound up in relatively civil fashion.
So next let’s scale up to Greece and its millions of people. Virtually everyone agrees that the Greek government has handled its economic policy poorly for decades and that it has occasionally lied about its financial state. But we are divided deeply about what to do. What’s different?
Two factors are different. One is the element of compulsion. Stevie cannot force anyone to associate with him, and Enron could not force anyone to do business with it. But the Greek government can decide policies that are backed up by its police and military, including seizing its citizens’ present assets and binding them to debt obligations into the future.
The other factor is the element of collectivism. Governments have the power to set policies that apply universally to their citizens. But an especially robust version of collectivism has been operative in the debates — treating the Greek government as the embodiment of its people, as speaking for all of them, and as having its disposal all of their assets, present and future.
The parties and relationships involved in the Greek mess badly need to be particularized. A first cut of the parties involved will yield something like this:
1. The Greek government.
2. Non-Greek economic institutions that have loaned money to the Greek government.
3. Non-Greek political institutions that want Greece’s continued participation in the Eurozone.
4. Greeks who’ve chosen to be dependent upon the Greek government for their livelihoods.
5. Greeks who are living independently and supporting themselves in the private sector.
6. Greeks who are not yet adults or born.
So if we are asking, Who should reform their ways? or Who should absorb the cost of the debt? and so on — then the answers should vary depending upon whom we are talking about. Not all of the parties responsible in the same way, and some are not responsible at all.
Who should actually pay?
One group is the adults Greeks who are living off the government teat. They made their choices, and they knew or should have known the risks involved. Maybe their government lied to them and made false promises. That’s sad, but they are now in a position analogous to the former Enron employees and investors who had to make other arrangements.
Another group is the central bankers and the private financiers who made the bad loans. They were informed enough to know the reality of the Greek government’s finances, and of course they were counting on political manipulation rather than sound economics to keep the interest payments flowing. They were complicit in the irresponsibility, so they too should absorb the costs.
Another group is the Greek government officers, past and present, who took the irresponsible loans — and those who lied about the state of Greek finances. Any government officers, past or present, who lied should be held accountable for fraud — just as were Enron’s top management. Current administrations often try to avoid responsibility by claiming that they inherited an unfixable mess from previous administrations. Maybe so. But in politics cleaning up after one’s predecessors is part of the job — and if you don’t know how to do that then you shouldn’t be in that line of work.
Fixing the mess should not include using all Greeks’ assets as a piggy-bank to be raided — and this brings us to the next group: those millions of Greeks who are supporting themselves in the private sector and paying their ordinary taxes. They are generally living responsibly, and a key principle of morality is that one does not make the responsible pay for the sins of the irresponsible.
Nor should parents eat their children. Entirely blameless are young Greeks and the millions of Greeks to come, whom many in the current adult generation want to burden with a lifetime of debt and stunted opportunities.
Thomas Piketty and Vinay Kolhatkar come from very different political worlds, but I agree with both of them on this one point. As Piketty puts it:
“The Greeks have, without a doubt, made big mistakes. Until 2009, the government in Athens forged its books. But despite this, the younger generation of Greeks carries no more responsibility for the mistakes of its elders than the younger generation of Germans did in the 1950s and 1960s.”
(I hope that those leftish intellectuals who love Piketty remember that this principle applies also to the history of racism, sexism, and ethnocentrism.)
Greece is a small economic player with huge symbolic significance. Yet there is no good reason why Greece cannot become a prosperous nation. It has an outstanding location, good human capital, and access to knowledge about what has enabled other nations to become successful.
The most important value to be gained from the Greek debt mess is a lesson in moral and political philosophy. Worldwide, government debt worldwide is over $60 trillion, most of it driven by the same irresponsible ideas that led to the Greek disaster.
Much of that debt will have to be written off — but it is critically important that only those responsible for the debt pay for it. Shifting any part of the pain to individuals who are innocent and living responsibly is a profound immorality.
[This article was originally published in English at EveryJoe.com and in Portuguese at Libertarianismo.org.]
[Related: The full archive of my articles in The Good Life series.]