Sunday, May 2, 2010

Dickens' Advice for Greece, et al.

Charles Dickens had Mr Micawber say in David Copperfield: "Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."  ("Nineteen and six" means nineteen shillings and sixpence.)

Let Greeks (and persons in other spendthrift nations, such as Dickens' own native land) take heed!

If you spend more than you earn, you will end up bankrupt (or, in Dickens' day, in debtors' prison, as happened to his own father in reality, as it did to Mr Micawber in the novel).  When a nation overspends, it eventually reaches the crisis faced by Greece, which is at risk of defaulting on its loans, having no money to pay them.

The solution?  Cut spending and/or raise taxes, despite howls of protest, trying to spread the pain as fairly as possible – or, if all else fails, let the currency fall in value so that debts are eaten up by inflation.  That happened in Germany during the Weimar Republic; destroying the savings of the middle class, it paved the way for Hitler.  Allied to this is the hapless suffering caused when governments print money with abandon, as has happened in Zimbabwe. 

Latin American states used often to default on their debts; in the heyday of gunboat diplomacy in the nineteenth century, the Great Powers would then use military force on the miserable debtor and impose some sort of fiscal order (to offer an example from a different part of the world in the same era, the Chinese Empire was forced to turn its Customs service over to international administration, so as to provide funds for paying its debts).  Argentina has suffered precisely such a devastating economic collapse again within the last decade; these days, of course, the IMF is sent in, not the gunboats.

Whatever may be thought of one of Australia's former Prime Ministers, Paul Keating, he did early on in his time as Treasurer tell it like it is: if Australia didn't have fiscal discipline, and live within its means, our nation would have become a banana republic.  Over the last decades, Australia's governments have kept our budget reasonably within due limits, thanks be.

(Only one State government here ever threatened to default on its debts: New South Wales, during the Great Depression.  But the Federal government passed a garnishee Act under its foreign affairs power to seize the State revenue to pay what was owed to overseas, largely British, creditors, and, Premier Jack Lang having ordered public servants to act illegally to flout this, the Governor dismissed him and called an election, which threw Lang Labor out.)

Now, the threat is not to this Commonwealth, but to other countries.  I was amazed to learn that in the UK, 50% of GDP is public spending – with a capitalist, free enterprise sector that has shrunk and a state socialist half that has burgeoned!  How ridiculous, what economic suicide, when even the few remaining Communist states are nearly all going in the opposite direction in order to develop!  

Still worse, Her Majesty's home government (far worse than hers here) spends the equivalent of $1.36 for every dollar it collects – you don't need to be Einstein to see that Britain won't be Great for much longer, especially as none of her would-be political leaders are facing this issue.  They would rather win the election on Thursday than tell the truth. Well, give it some years and what Greece faces to-day will be Britain's to-morrow, with a hellish austerity budget and the IMF knocking on the door.

This brings up the real issue: political elites, contending for domination, spend money on themselves and others in order to buy votes, immorally borrowing against the future, passing on debts to the next generation, when swingeing cuts will one day be needed.  (It would be nice to think that economic growth will produce enough money to pay for it, but that is a bit wishful.)

The governments of several European states deliberately cooked the books in order to get into the Euro-zone; now the chickens are coming home to roost.  If I were a German, I'd have no desire to spend one Euro-cent on paying Greek debts for them: let them pay their own, and not steal more of other people's money.  I'd be tempted to say, Let them let go the Euro, and go back to their dirty Drachma.

If I were a Greek citizen, I'd be calling for the populists who misspent my money to be arraigned before a tribunal and tried for misuse of public funds.  Fat chance!  (Though back in ancient Athens, exactly that or worse was done.)  Alas: in this world, "virtue triumphs only in theatrical performances" (to quote Gilbert's libretto for The Mikado).  In the words of the old song,

"It's the same the whole world over, 
Ain't it all a bleeding shame, 
It's the rich what gets the pleasure, 
It's the poor what gets the blame."

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