We need to stop digging before we get to Greece - Ahwatukee Foothills News: Valley And State

We need to stop digging before we get to Greece

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Posted: Wednesday, July 20, 2011 5:01 pm | Updated: 4:54 pm, Thu Nov 15, 2012.

Folk wisdom has it that the first thing to do when stuck in a hole is to stop digging. That's good advice. It's also why Greece should go into default on its debts.

It's hard to feel much sympathy for the Greeks. They have a profoundly self-indulgent political culture in which all aspire to be takers, virtually none to be the makers. Over a third of Greeks work for the government, where lavish retirement payments start at age fifty. Many more receive generous social benefits and hazardous duty pay is extended to professions like hairdressers.

Meanwhile, tax avoidance is common and accepted. With revenues insufficient to maintain Greeks in their preferred style, debt is used to cover routine operating expenses. (Sound familiar?) Government debt today exceeds 150 percent of GDP, well past the point from which even healthy economies can rally back to solvency.

Their European Union enablers, mostly Germany and France, bailed out the Greeks to the tune of 160 billion euros last year. They were worried mostly that the large European banks couldn't bear to lose their substantial Greek investments. There was also concern about the euro as well as the effect of a Greek meltdown on other weak EU economies, like Portugal and Ireland.

Last year's bailout was accompanied by a stern demand that the Greeks change their ways. Cuts in social spending, tax hikes and privatization measures were duly enacted. But the Greeks never really bought into the program, instead taking to the streets in violent riots. In their view, the European "rich" were refusing to maintain their entitlements.

Unsurprisingly, the promised reforms were never achieved and Greece is back in crisis a year later. Now they're recycling through the same scenario. The Greek parliament last month passed another round of austerity measures, except this time they really, really mean it. The EU leaders are talking up another bailout of maybe 120 billion euros. The rioters are back in the streets, convinced that if the Greeks hang tough, the lenders will ultimately have no choice but to give in and let the Greeks continue on their merry way.

Nobody except clueless Greeks believes that solving a debt crisis with more debt will lead to eventual solvency. There is no credible plan to return Greece to viability. Lenders are being encouraged to accept a "haircut" on the amount of debt owed, but further bailouts merely postpone the day of reckoning.

The discerning observer will note a vicious cycle at work. The banks, the eurozone and even the Greeks would all be better off recognizing that irreversible mistakes have been made, letting Greece default and allowing nature to take its course.

Would that be painless for Greece and its creditors? Far from it. But the modern mania for politically inspired bailouts misunderstands the basic nature of capitalism.

Democratic capitalism has a track record of providing by far the most prosperity for the most people of any economic system in history. But it's not pure nirvana. In fact, risk and failure are key components of its success.

Failure is the natural consequence of bad behavior and poor decisions. It is through failing that non-productive institutions and processes are weeded out, opening the way for healthier entities to emerge and benefit us all. Moreover, major investment banks and even countries, including Russia and Greece itself, have defaulted in the past without the devastation to the economy that is feared for such events.

In the U.S. today, unfortunately, we bail out underfunded pension plans, underwater mortgage holders and banks caught in speculative bubbles. Instead of clearing bad debt, we let it stay and gum up the system. Citibank alone has been bailed out four times in the last 25 years. Thanks, taxpayers, and keep those fat bonus checks coming!

We even bail out ourselves. When our federal government refuses to face the consequences of overspending and crushing debt, our "bank" is future Americans. We're putting them in a deep hole not of their own making.

Like the Greeks, they too may reach the point of being unable to climb out. We need to stop digging.

• East Valley resident Tom Patterson (pattersontomc@cox.net) is a retired physician and former state senator.

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