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Greece and Germany as Seen Through American Eyes

Friday, July 10, 2015

Right up front I have to admit that my headline is a bit misleading.  No one elected me spokesperson for all Americans, so really this is how I - one American - see Greece and Germany.  But I am confident a fairly large share of my country-men and -women will share most, if not all, of the sentiments I'll share here.

In a sense this my open letter to the people of these two great countries.

The Birthplace of More than Just Democracy

Greece is also the birthplace of the Christian liturgy.  Most people in the West think of Rome, and culturally this not hard to understand.  Rome was the center of what became know as the Western Church (Latin speaking/writing).  Constantinople (now Istanbul) was the original center of the Eastern Church (Greek speaking/writing).

A few years back I was finishing up my third class in ancient Greek (the Greek of the New Testament - as opposed to classical Greek).  This was about May, so the Paschal season (Easter) had just passed.  That year a Greek friend invited me to a prominent Greek Orthodox church here in San Diego, California for their Good Friday liturgy.

The Greek Orthodox have a thick "prayer book" just for Holy Week services.  It is printed in both Greek and English, with the Greek on the left and its English equivalent on the right as you turn pages.  My friend lent me his while he and his wife shared hers.  I was delighted - nearing completion of my Greek courses - to discover that I could sing the responses to the choir along with the rest of the congregation in Greek, reading from the Greek side of the book.  The English side was actually a distraction because I found myself disagreeing with its translation.

Participating like that, even in the procession around the church's neighborhood, was a remarkable experience realizing the liturgy is largely unchanged since the beginning - over 2,000 years ago.  Every Christian worship gathering derives in some sense from the Greek Orthodox liturgy.

Later, while finishing up a paper for that class, the Greek Paschal greeting "Christ is risen!" (Χριστος Ανέστι) came to mind.  For thousands of years the Greeks have used the letter Chi (X) as a shorthand for 'Christos' (this is where we get Xmas for Christmas).  The second word would be spelled 'Anesti' in the Roman alphabet.  So I took that - and as is typical of Americans and their automobiles - I checked to see if anyone had the vehicle registration plate 'XANESTI'.  Much to my pleasant surprise, no one in California had applied for a plate with those characters.  That became my graduation present to myself - and is the registration plate on my car to this day.

But Cultural Pride Cannot Overcome Math

When we realize that not only do Europe's political traditions owe their origin to Greece, but their religious traditions as well, it is not hard to understand why the Greek people feel so strongly about being a part of Europe.  The same can be said for Italy - a source of Western European polity and culture.  But in order to truly be part of something you have to own its past, its present and its future.  Greece certainly owns Europe's past.  But it has never really owned its present and is currently incapable of owning its future.  The reason for this is simple: two-plus-two will never equal anything other than four.

Greek political society has been pretending otherwise for a long time, and gained entry into the Eurozone by "cooking the books" as we Americans like to say - presenting fraudulent financial reports to European political society.  This runs partly to the heart of the problem - which is something all of Europe struggles with.

In an excellent article, Andrew Alexander shows how the European Union is an inherently subversive enterprise - subverting nationalist loyalties from being able to engage in another arms race as a prelude to another war.  The main aim of the EU is not democracy, but peace.  This helps us understand why 'mainstream' European leaders were aghast when Greek Prime Minister Alexis Tsipras called for a referendum on the terms of the recently proposed bailout (Greek's third bailout).  The whole enterprise of the EU is designed to suppress potential conflict between the democratic passions of its several members.

The problem is Europe has never had an appropriate cultural construct to channel those democratic passions.  We in America would call that construct "civil society."  And those among us like myself - conservatives - believe civil society to be superior to political society for almost all of the challenges that cannot be faced by individuals on their own.  There are a number of reasons for this - and I'll cover some of them below - but not only for Greece but for all of Europe as well, the birth of an energetic civil society is the only thing which will save Greece, and ultimately the Euro itself, from an otherwise mathematically inevitable collapse.

Thirty Year Old Students and Fifty Year Old Retirees

The problem Greece faces is - on its face, at least - purely mathematical.  Tax revenue is and always will be a function of transactions in the economy.  When a motorist buys a liter of petrol, the government will assess an 'excise tax'.  The filling station will add this excise tax to the price of the petrol, so it all looks like one price to the motorist.  But the excise tax is actually not part of the price of the petrol; it is the price of the transaction.  If taxes are assessed  on income it is the exchange of time and skills that is charged.  If a 'sales tax' is assessed on the sale of groceries, that percentage (the sales tax rate) is the price of that grocery store transaction - not the food that is bought.

Therefore an increase in tax revenue is a function of an increase in the volume and value of transactions in the economy.  This means the more people are engaged in economic activity - transacting - the more revenue is generated.  The opposite is also true: the fewer people engaged in economic activity, less revenue is generated.  And here is where the problem stops being a math problem and becomes a cultural problem.

To simplify the cultural problem we can divide our lives into three basic phases: We are students; we are workers; and we are retirees.  Generally speaking, we can all agree that it is better for children to be in a classroom than in a factory or field.  And it is obvious to us that as we age we are less able to be productive in the economy.  So even if not formalized in a political arrangement, in just about every human society those in the middle - those who are working - provide for the younger (students) and care for the elderly (retirees).

But when we formalize this sort of thing politically, it falls to political society (government and its constituent bureaucracies) to make and fund these arrangements for the young (public education) and the old (public pensions).  This is where it gets tricky: Political society is led by politicians, and their first objective has nothing whatsoever to do with either educating children or caring for the elderly. Their first aim is to get elected.

And so if they can get away with making promises which otherwise cannot be kept, they will do so.  This is an immutable truth of human nature - trying to either deny this or change it is futile. The question, then, is how the damage from this sort of thing can be mitigated.  This is where an energetic civil society comes in.

But before we get into exactly what that is, we have to get our heads wrapped around the math problem.  The retirement age in Greece is ostensibly 67 years.  But like any rule, when you bury it in a compost pile of exceptions, after a while when you dig through the compost pile you realize the rule itself has decomposed into meaninglessness.  So - for all of the exceptions like hairdressers being considered an arduous profession - Greece's retirement age might as well be 50.

For every person on a public pension, that is a person who is no longer transacting their time and skills in the economy, and therefore those transactions are lost as a source of tax revenue.  To maintain the compost pile which has become public pensions in Greece, the government has to increase the tax burden on the middle - those working and running businesses.  Every Euro taken from them is a Euro not being deployed toward economic innovation and creativity (more on that in a moment).  It is economic innovation and creativity which creates jobs, so now there are fewer jobs for Greece's young people.

This, then, leaves those young people - who might otherwise transition from that first phase (student) to the second (worker) to remain longer as a student.  Where they might otherwise make the transition in their early 20's, they now have to wait until they are 30.  And so now you have 50 year old retirees and 30 year old students.  The math problem now becomes obvious: there will never be enough workers between 30 and 50 to transact in the economy in support of the public expense of such a large population of students and retirees.

Growth vs. Austerity: Mistaking the Head for the Beer

The answer, though, is not 'austerity'.  It is 'growth', but that will not come by having German savers sacrifice their purchasing power to inflate away Greek debt.  Growth that is 'poured' by political society (printing money for bailouts) is like the 'head' on a glass of German beer.  It only makes the glass look full.  Once the bubbles dissipate, there isn't quite as much beer as you thought.  Looking to political society for economic growth is to mistake the head for the beer.  And when the bubbles dissipate, it isn't "deflation" - it is what happens when the bartender (the ECB - or the Federal Reserve for that matter) doesn't know what he's doing to begin with.  It isn't only the Greeks who need to learn this - all of Europe needs to realize this before it is too late.  America is not quite as far down this road as Europe. But we, too, are headed in the same disastrous direction. 

Genuine economic growth comes in only one way. Creative people innovate and improve things.  In America we like to call this the "better mouse trap."  If you can invent a better mouse trap, you might file a patent and then take out a loan to set up a factory and hire workers to make and sell your better mouse trap. The creation of wealth comes from the increase in value because you improved the mouse trap - it is not because the bank lent you money to set up the factory.  Economic growth is about the better mouse trap, not the loan.

Creativity in political society is about looking for new ways to spend the peoples' money - and then new ways to tax them after they have run out of the peoples' money.  When this is unrestrained by an energetic civil society, the creativity of civil society is misdirected away from wealth creation and invested instead in tax avoidance.  If the Greek people put even half the energy into wealth creation as they put into tax avoidance, Greece would be rich beyond imagination!

American professor Jeffrey Sachs took note of this (arguing for another bailout) in a recent article:
In 2013, for example, resident inventors in Germany filed some 917 patent applications for every million inhabitants. Resident inventors in Greece, by contrast, filed just 69 patent applications for every million.
Sachs has, probably without even realizing it, explained in just two sentences why another bailout will not solve the problem.  This kind of innovation cannot be lent by a central bank or legislated by political society.  It must be born in the hearts and minds of the Greek people (civil society) who then demand that political society step aside so the adults in the room can actually get to work solving problems, improving things, and growing the economy.

An Energetic Civil Society: Ownership, Responsibility, Community & Dignity

An energetic civil society is one that pursues a four-fold dynamic: The first is ownership: Energetic civil society does not wait for the government to fix something that is broken. Philosophers describe a dynamic known as "the tragedy of the commons."  This is simply a way of noting that when something is broken and nobody owns it, fixing it is always someone else's job.  Energetic civil society refuses to pass off problems to political society; they seek to own the problems themselves.

The second dynamic is one of public responsibility.  When one owns public problems, they naturally develop a sense of public responsibility to fix the problem.  As they pursue public responsibility they discover their neighbors who share this same sense of ownership and responsibility; in doing so they have discovered the third dynamic: community.  As they band together, if they are not first suffocated by regulations dreamed up by political society, they then enjoy the dignity of seeing problems fixed by the work of their own hands. Political society, on the other hand, will always be more concerned about fixing the blame (on someone else, of course) rather than fixing the problem.

Political society is also animated by inevitable rivalries between bureaucracies.  These rivalries will always boil down to money.  This means that political society will always be looking for something else to do in order to justify their budget.  Without energetic civil society to push back - in essence to tell the government to get lost - the scope and expense of government expands without restraint.  This dynamic, more than anything else, is the difference between America and Europe.

In Europe it seems civil society only does those things political society allows them to do.  In America it is (or has historically been and should be) the opposite.  Civil society assumes first responsibility, and then looks to political society for help with the things which we cannot otherwise do for ourselves.  It is a dictum of American conservative philosophy that the role of government is to do for us what we cannot do for ourselves - and to otherwise leave us alone.

Civil Society and Social Responsibility

But by "leave us alone" I expressly do not mean everyone is on their own.  We all agree - throughout human history and under just about every form of government - that those in the middle who can work are responsible to provide for the young and to care for the old.  By "leave us alone" I mean leave us free to ensure those who are in need know the dignity of being lifted up by someone who knows their name.

And because among civil society we know each others' names, we will always be superior to political society when it comes to meeting most social needs.  In order to do this we need to be free to innovate and improve things in the real economy - not the political economy.  In Greece this need is acute because of the relatively large number of aging retirees.  It is crucial that the Greek people be free to grow their economy so they can provide for their aged.  But that freedom requires a single public pension program (rather than the numerous programs - each with their own bureaucracy) with rules that actually mean something the Greek people can agree on - without a compost pile of exceptions.

If the number of the working can be enlarged by sound pension reform, and an energetic civil society can assume much of the social responsibilities they now look to political society to meet, the tax burden on the working people of Greece can be lessened, freeing up resources for innovation.  It will be this innovation - not the next bailout - which will create wealth, create jobs, and save Greece.  It will be what allows a 21 year old to graduate from college and actually find a job.  And it might be what actually shows the rest of Europe the only way the Euro itself can ever survive.

But Germany has a role to play.  Throughout the entire Western world - starting here in America where we insisted on having "guns and butter" - an entire generation has bought political promises which cannot possibly be kept.  The political sector has leaned on the financial sector to print money to buy sovereign debt so that the truth about these false promises could be hidden from civil society. That money printing and lending enterprise has run its course and born its fruit.  As the International Monetary Fund has pointed out, their really is no future for Greece that does not involve a "haircut" on the part of its creditors.  Irresponsible borrowing is not possible without irresponsible lending, and irresponsible lending is inevitable with "fiat money."

A "haircut" for Greece's creditors will teach us all this lesson now, before an economy like Italy's or Spain's fails and makes the lesson exponentially more painful.  Some will warn of disaster.  But the disaster will really only be for political society.  With an energetic civil society to fill the eventual vacuum, we can take care of each other when it becomes clear that political society can no longer rely on free money to make false promises.

The future of Greece is not in the hands of Frau Merkel, the German people, the ECB or the insufferable bureaucrats in Brussels.  It is squarely in the hands of the Greek people themselves.  If they can give birth to an energetic civil society which can then take the social reigns from Greek political society (and demand a smaller government), the Greek government can actually lower overall taxes and free Greek civil society to actually begin creating wealth again.  This has to begin with meaningful pension reform which disposes with the compost pile of exceptions.  Tax code simplification - focusing on a Value Added Tax (remember the better mouse trap?) will free the Greek people to transact honestly and create incentives for political society to simply get out of the way of wealth creation.

The people of Greece must own more than just Europe's past. They must own its present as well.  But even more importantly - not only for them but for all of Europe, the people of Greece have the opportunity to both own and lead Europe's future. So much of what is beautiful in our world was born in Greece.  Europe's only hope is an energetic European civil society - and the prosperity it will bring.  Hopefully this will be born in Greece as well.

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