Archive for July, 2015

Economics, and the Greek Tragedy

July 1, 2015

We’re watching a tragedy unfold in Greece right now, and no one can do anything to head it off. It’s going to have to run its dreary course, creating suffering for most Greeks and death for a few.
Yes, it’s that bad. As politicians and bankers try to work out something, anything, Greeks cannot withdraw enough money daily to live. Companies cannot pay their employees. Customers can’t buy goods. A Greek man being interviewed on television confessed that he hadn’t eaten in two days.
For the elderly and the ill, it’s worse. Their pensions have been systematically cut. Taxes on food are absurdly high by our standards, in excess of 20%. ‘Capital flight’ has been going on for some time as wealthy Greeks moved their money beyond the reach of government tax collectors.
The reason for all of this is simple: Greece has not been in control of her own economy since the country joined the nations using the euro. The euro is controlled by the European Central Bank, which acts in a fashion similar to the US Federal Reserve system.
There are implications for the US in all this. We’re part of a financial system that is  interconnected. Goods flow almost interrupted from nation to nation and finance flows with them. This is getting worse. It’s good for the financialists, that free flow of capital, but it’s dangerous for the rest of us. That flow of capital is not restrained. It goes to where the most profit is to be made, creating booms in economies, but inevitably it goes too far, creating busts. The system is unbalanced.
But no one, no entity, is responsible for the ‘system’. There’s no one to say ‘Stop!’ So Greece now finds herself starved of capital and the Greek people find themselves literally starving, in a world of plenty.
Because it’s all about profit, you see. Earn profits, you can invest those and put the money to work for you. You can earn even more profits. Eventually, you can occupy yourself not in producing value for others but in managing your money. You too can become a capitalist.
What’s forgotten in all this is that capitalism also carries risk. It’s called ‘risk capital’ for a reason. European bankers forgot that. They loaned money to a government, then forced that government into economic depression in an attempt to get the investment (and the high profits from the associated risk) back. Which cause the economy of Greece to shrink even further, leading to a kind of economic death spiral. That is the Greek tragedy.
There’s a place for capitalism in a modern economy. But economies must have balance. There must be private enterprise. There must be socialism, and also social support systems.
And someone, or some agency, must exercise control. We’ve lost control of our system. Capitalism has become financialism, where the capital pool is an industry in itself, divorced from creating more wealth for the system as a whole. This is done through banks and investment agencies and insurance companies, which in turn have grown to the point that they’re ‘too big to fail’. Allowing the system to fail crashes the conomy of the world, it’s just that simple. Because the fortunes of all of us are tied to capitalism, and capitalism isnt’ subject to any controls, including those of the market. There is collusion, not competition. The system itself drives it further and further, the oscillations between economic increase and contraction become ever greater, nations loan money to each other (expecting, of course, to profit thereby), and the whole house of cards totters.
So what’s the solution? In my view, it’s balance. Nations must exeercise balance, and by doing so they balance the system as a whole. They do this by judicious infusions of capital into their own economy, something Greece can’t do because their capital comes from the European Central Bank, which Greeks don’t control. So Greece has been starved for capital; business can’t borrow, can’t expand. Workers get laid off. Pensions to the elderly and sick are cut. The system contracts. Capital fluctuations at the top are followed by hunger, illness, and death at the bottom.
The cure for this system is to start at the top. Break up the too-big entities. That includes not only financial but multinational corporations. This allows portions of the system to be reduced to manageable size, and market forces may finally, through actual competition, make the system stronger. If one of those smaller entities goes bankrupt, let it. The system can survive that, where it could not survive the collapse of a national economy.
Reinstate controls. We had those once, but capitalism bought politicians who in turn allowed the growth of the companies to behemoth size. They became too big to fail. We allowed companies to buy up weaker competitors, reducing competition.
And somehow we were taught to fear direct investment by government in their economy. That’s socialism, evil. Government must always act throught a bank and a private company, paying them a profit to do what has to be done. Government can’t hire people to build roads, that’s socialism. Government must instead hire contractors, and the hiring of such brings with it corruption. That corruption is a form of competition in itself. Your company can deliver a better product cheaper, or it can bribe the people who make decisions. That latter course is most profitable, so that web of corruption spreads, despite laws to the contrary.
This principle is ignored by theorists, but it’s there. Far better to simply decide that a task must be done, replace a bridge perhaps; hire supervisors/architects/managers/workers and get it done. That injects capital directly into the system, which means it’s a form of socialism.
We need to understand that an economy that contains socialism as well as private enterprise and capitalism, including regulated capitalism, is the only way to have a balanced economy.
And until we get that balanced economy, we’ll watch economic tragedy continue. Greece is the current victim of unrestrained capitalism, but it won’t be the last.