By Kevin D. Williamson
Thursday, July 2, 2015
In the short term, the world runs on words; in the long
term, the world runs on numbers.
It is as though the Muses came to an agreement: In the
here and now, mankind is subject to rhetoric, but mathematics gets the final
say. In Athens, in San Juan, in Detroit, in Sacramento, in Springfield, and,
soon enough, in Washington, Mathematics is arousing herself from her torpor,
and she is cranky as hell.
The long term is here.
Greece has defaulted on its sovereign debt, and its banks
have been shut down. Television viewers accustomed to watching a few odd ducks
cheerfully prepare for Armageddon on Doomsday Preppers are now seeing a
disorganized version of the same thing as panicky Greeks storm empty ATMs and
attempt to stockpile food and fuel. Puerto Rico has announced that it cannot
pay its debts. A half-dozen Illinois cities and the Chicago public-school system
have spent 2015 teetering on the edge of bankruptcy, with the state legislature
considering a new bankruptcy law to handle what is expected to be a deluge of
insolvency.
The words and the numbers have long told very different
stories. Let’s stay, for the moment, with the case of Greece.
In the run-up to the 2008 financial crisis, Greek leaders
lied to bond investors and the bosses at the European Union, claiming that they
were complying with EU restrictions on the size of government deficits and
national debt. In reality, the Greeks had been scheming with their bankers —
notably Goldman Sachs — to keep excess debt off the books. Financial crisis or
not, that book-cooking was always going to be revealed: Greece maintained an
excessively liberal pension system (Greeks could retire after 35 years of work
at 80 percent of their working income; for Germans, it’s 45 years and 46
percent); it is publicly and privately corrupt, with jobs in its bloated public
sector being handed out as political patronage and tax evasion running rampant;
workforce participation is low, and private-sector workforce participation —
i.e., engaging in genuine economic production — is very low.
The Greek economy takes the form of an inverted human
pyramid, which is inherently unstable.
When Greece’s sham economy went ass over teakettle, it
agreed to a bailout package, finalized in 2010. That deal is now widely blamed
by the Left for exacerbating Greece’s economic crisis with excessive
“austerity.” The problem with that line of argument is that there was no Greek
austerity: Greece lied about its debts before the crisis, and it lied about its
reforms after the bailout. It didn’t take the meat axe to its public sector:
Greece went out and hired 70,000 new government employees instead. It stopped
selling government assets, which it had agreed to do, and government’s share of
GDP actually increased rather than declining.
The socialist Syriza government of Alexis Tsipras is now
trying to cut another deal, one with familiar features: maintaining the
pensions that Athens politicians use to bribe the Greeks with their own money (and,
now, with German taxpayers’ money, too) and forestalling real tax reform.
Syriza ran against pension cuts and public-sector layoffs — it is a party that
claims to be of the radical Left but is in fact the party of keeping things
more or less like they are: corrupt and contented.
As one Greek supporter of Tsipras’s wheedling told the
New York Times: “We’re all pensioners here.”
Indeed, and that’s the problem.
A society’s wealth may be measured by its consumption,
but its wealth consists of its production. One cannot consume what has not been
produced, and consumption can exceed production only as long as your credit
lasts, and credit — n.b., congressional clown conclave — is never eternal.
Greece has too few people working in productive business enterprises and too
many receiving government checks, either as employees or as welfare recipients
— a distinction that is increasingly difficult to make in Greece and elsewhere.
One of those elsewheres is Puerto Rico. Puerto Rico tried
reform under Governor Luis Fortuño, who for his labors was shown the door by
the same public-sector unions and welfare pimps who run California and
Illinois, who bear more than a passing resemblance to their Greek cousins. As
in Greece, political patronage and an over-generous welfare state have led to
low levels of productive private-sector employment, with the Keynesian
stimulators offering so much stimulus that the tiny commonwealth now has a per
capita public debt exceeding $20,000. The island’s most skilled and
enterprising residents have fled its economic and social stagnation for the
mainland United States. Alejandro García Padilla ran on increasing the
public-sector payroll and opposing pension reform.
That’s what the words said. The math had other ideas, and
now the words are catching up: “The debt is not payable,” Governor García
Padilla has proclaimed. This has been obvious for some time, as National Review
readers know. That $20,000-per-person public debt is indeed a heavy burden. Our
national debt comes out to $56,000 per person. Puerto Ricans have the United
States as a Plan B.
What is our Plan B?
With apologies to W. B. Yeats, it is not the case that
things fall apart. Rather, things turn out more or less as calculated. It isn’t
that the center cannot hold — it’s that balance sheets ultimately must equal
zero. Debts either will be paid or they will be defaulted on — there isn’t a
third option, and the belief that Greece or San Bernardino can spend its way
out of a profligacy problem is pure magical thinking. When confronted with
questions about the sustainability of his model, John Maynard Keynes famously
dismissed his critics: “In the long run, we are all dead.” Not so, professor,
not so.
In the long run, the math trumps the rhetoric.
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