Opinion

Greek Voters Got It Right, Here’s Why We Should Pay Attention

Font Size:

The Greeks got it right when they voted No this past weekend. But Greece’s formal request for a three-year bailout is a step in the wrong direction.  That’s because once debt reaches a certain limit, it is never going to be repaid. Living with a debt hangover is simply no way to live. Greece needs to wipe the slate clean one way or another.

More important, Greece matters because it is a model from which to learn. What is happening in Greece is very likely a portent of things to come.

We’ve seen it over and over again … the gradual slide into the abyss. And it’s always due to the same thing: debt.

In the movie Wall Street, Gordon Gekko famously exclaims, “Greed is good.” The same could be said of debt: “Debt is good,” except when it’s not. For the purpose of business investment, debt represents leverage. If you can earn more than your interest cost (the cost of capital), then your equity investment can earn greater returns. Similarly, when debt is to fuel investment, whether in new manufacturing capacity or a port that increases commerce, as long as the increased revenues exceed the cost of debt, debt is good.

Go back 100 years or more and almost all government served one of two purposes: fund a war, or to execute long-term investment (roads, bridges, tunnels, ports, libraries, etc.).

Today, more than 50 cents of every tax dollar in nearly every western country goes to fund some form of government entitlement program. As with most things, these programs started off small. During the course of several centuries the payments of pensions swelled and became disconnected from a sound purpose: investment, and instead became a tool with which to buy votes. Buying votes is a form of unproductive current consumption, not long term investment.

The same thing has happened in the private sector. It used to be that people borrowed money to invest in businesses and homes, but as western democracies evolved from agrarian to industrial to consumption driven, it became increasingly common for that consumption to be fueled by debt. In the United States, 70 percent of the economy is driven by consumers doing what consumers do — consuming. Today, governments all over the world borrow money to fund social welfare systems while consumers borrow money to fund vacations and everyday living expenses.

This brings us back to Greece. The “no” vote made sense because any accommodation it might achieve in terms of reduced interest rates or prolonged repayment terms won’t alleviate the hangover that condemns Greece to further pain and suffering.

Greece does need to reset. However, I’m not sure the Greek people understand what “reset” means. While Greece needs to reset its debt levels, it cannot simply start accumulating new debt to fund its social welfare system. Everything needs to be reset. Older people need to go back to work as Greece builds a new economy. For that, Greece has but two real options: tourism and low cost manufacturing. Tourism is already a major part of the Greek economy and Greece will be a relatively inexpensive place to vacation for many years to come. But Greeks will also have to go to work in factories because Greece can offer Europe a relatively skilled yet low cost place of manufacturing that is close to home. If Greece’s elders think that wiping the slate clean of debt means they are off the hook, they’re terribly mistaken. Pain for the elder generation is already a foregone conclusion in any scenario — euro or no euro.

The lessons of Greece should not be underestimated. Most of the western world is on the same path, just years, or in some cases, decades behind it. Nations whose economies are fueled by unproductive debt — both government and private — will not be able to avoid the same fate. Just do the math and ask yourself how it can be avoided.

In the United States for example, investment in bridges, roads and other infrastructure has dropped off dramatically since the end of the fiscal stimulus program that first started in the waning hours of 2008. Yet both government and consumer debt continue to grow. That debt is fueling current consumption, not long term investment.

All eyes should be on Greece, not because Greece itself matters. It doesn’t. Greece is just 3 percent of global GDP, and during the past five years, Greek debt has been systematically isolated from the rest of the world. The Greek crisis matters because it is a model from which to learn.

In the United States, Puerto Rico is about to go the way of Greece. Just as many Europeans are asking, “If Greece is allowed to default on its debt, won’t Portugal or Spain or Italy want the same,” the question in the U.S. will be, if Puerto Rico is allowed to default won’t Illinois or New Jersey ask for the same? Since Puerto Rico is not a state, some will even ask if we should simply kick it out of the US (like Greece and the Eurozone).

There are so many parallels between Greece and Puerto Rico, the EU and the U.S., that what ultimately happens in Greece matters in a very big way:

Greece (any Eurozone country) Puerto Rico (any US state)
No legal right to bankruptcy No legal right to bankruptcy
Sovereign immunity from creditors Sovereign immunity from creditors
No currency printing press of its own No currency printing press of its own
Uses major currency (euro) Uses major currency (dollar)
In debt over its head In debt over its head
If Greece is forgiven debt, why not Spain If PR is forgiven debt, why not IL or NJ
Can continue to use euro without EU consent Can continue to use dollar without US consent
Parent (EU) is afraid of setting precedent Parent (US) is afraid of setting precedent
Compromise means recurrence of problem in 3-5 years Compromise means recurrence of problem in 3-5 years

All Americans and Europeans should be keenly fixated on how things play out in Greece — and how they will play out in Puerto Rico, because both offer profound implications for the future of the US and European economies. It may be time for all leaders in the West to think about what a debt reset would look like at home.

PREMIUM ARTICLE: Subscribe To Keep Reading

Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign Up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!
BENEFITS READERS PASS PATRIOTS FOUNDERS
Daily and Breaking Newsletters
Daily Caller Shows
Ad Free Experience
Exclusive Articles
Custom Newsletters
Editor Daily Rundown
Behind The Scenes Coverage
Award Winning Documentaries
Patriot War Room
Patriot Live Chat
Exclusive Events
Gold Membership Card
Tucker Mug

What does Founders Club include?

Tucker Mug and Membership Card
Founders

Readers,

Instead of sucking up to the political and corporate powers that dominate America, The Daily Caller is fighting for you — our readers. We humbly ask you to consider joining us in this fight.

Now that millions of readers are rejecting the increasingly biased and even corrupt corporate media and joining us daily, there are powerful forces lined up to stop us: the old guard of the news media hopes to marginalize us; the big corporate ad agencies want to deprive us of revenue and put us out of business; senators threaten to have our reporters arrested for asking simple questions; the big tech platforms want to limit our ability to communicate with you; and the political party establishments feel threatened by our independence.

We don't complain -- we can't stand complainers -- but we do call it how we see it. We have a fight on our hands, and it's intense. We need your help to smash through the big tech, big media and big government blockade.

We're the insurgent outsiders for a reason: our deep-dive investigations hold the powerful to account. Our original videos undermine their narratives on a daily basis. Even our insistence on having fun infuriates them -- because we won’t bend the knee to political correctness.

One reason we stand apart is because we are not afraid to say we love America. We love her with every fiber of our being, and we think she's worth saving from today’s craziness.

Help us save her.

A second reason we stand out is the sheer number of honest responsible reporters we have helped train. We have trained so many solid reporters that they now hold prominent positions at publications across the political spectrum. Hear a rare reasonable voice at a place like CNN? There’s a good chance they were trained at Daily Caller. Same goes for the numerous Daily Caller alumni dominating the news coverage at outlets such as Fox News, Newsmax, Daily Wire and many others.

Simply put, America needs solid reporters fighting to tell the truth or we will never have honest elections or a fair system. We are working tirelessly to make that happen and we are making a difference.

Since 2010, The Daily Caller has grown immensely. We're in the halls of Congress. We're in the Oval Office. And we're in up to 20 million homes every single month. That's 20 million Americans like you who are impossible to ignore.

We can overcome the forces lined up against all of us. This is an important mission but we can’t do it unless you — the everyday Americans forgotten by the establishment — have our back.

Please consider becoming a Daily Caller Patriot today, and help us keep doing work that holds politicians, corporations and other leaders accountable. Help us thumb our noses at political correctness. Help us train a new generation of news reporters who will actually tell the truth. And help us remind Americans everywhere that there are millions of us who remain clear-eyed about our country's greatness.

In return for membership, Daily Caller Patriots will be able to read The Daily Caller without any of the ads that we have long used to support our mission. We know the ads drive you crazy. They drive us crazy too. But we need revenue to keep the fight going. If you join us, we will cut out the ads for you and put every Lincoln-headed cent we earn into amplifying our voice, training even more solid reporters, and giving you the ad-free experience and lightning fast website you deserve.

Patriots will also be eligible for Patriots Only content, newsletters, chats and live events with our reporters and editors. It's simple: welcome us into your lives, and we'll welcome you into ours.

We can save America together.

Become a Daily Caller Patriot today.

Signature

Neil Patel