LITTLE ROCK — It’s a tad poetic that portentous events in Europe regarding government debt and fiscal irresponsibility are emanating from the very regions that gave us mythology and fairy tales.
By now everybody is getting a glimpse of what can happen when superstition is allowed to prevail as policy, no matter how well-intentioned.
The mischief attributed to Greek gods and goddesses was never more duplicitous than the means used by Athens to circumvent debt-ceiling treaty agreements and creditors. The Greeks took derivatives to new heights, cresting Olympus in their efforts to prop up plans that were little more than pyramid schemes and houses of cards.
And how in Zeus’ name did anybody in Greece think that there would be no piper to pay for trying to create a neverland of nectar and ambrosia?
Government economists are quick to caution against simplistic explanations for the sovereign-debt crises, and while it’s true that solutions will not be easy or simple, some of the major causes behind Greece’s and other nations’ woes can be laid at the doorstep of basic, flawed thinking.
It took imagination to dream up the fantastic legends we learned as children involving heroes like Achilles (dipped by his heel in the river Styx to make him invincible, but leaving that one spot of human vulnerability) and villains like the diabolically vain queen in Snow White. But fantasy in fiscal affairs spells disaster, and there is a fine line between visionary and imaginary that is often either lost or dismissed when political gains are at stake.
Greece is hardly a mirror image of the United States, but fundamental truths surrounding government debt transcend national traits. There are enough reflections of goings-on in Greece and other European countries in our own situation to warrant worry.
The unraveling in Greece, particularly, escalated quickly. It was only a little more than a decade ago, in 2000, that Greek national debt first flirted with exceeding 100 percent of gross domestic product.
But once government spending took off—and much of it was committed to continuing future expenditures such as public wages and pensions—the debt-to-GDP ratio fell below 100 percent only once in the next 11 years. In the mid-2000s, despite debt levels of 107 percent of GDP, Greece was still widely considered a fast-growing economy.
As world markets cooled, however, Greek spending didn’t, creating enormous deficits: 129 percent of GDP in 2009, 145 percent in 2010 and 165 percent in 2011. These debt levels fostered a couple of bailouts, conditional on austerity measures which were ill-received by the Greek citizenry (many of whom had grown accustomed to government largesse, regardless of its artificiality), leading to protests and riots.
Our own government debt ratio has only recently begun mirroring that of Greece. Prior to 2008, gross federal debt in the U.S. had only reached 100 percent of GDP once, during World War II.
That cataclysm created a shortlived period of huge deficits (by 1950 the GDP-debt ratio had fallen to around 70 percent and was on its way down to 30 percent). But debt forecasts for 2012 and beyond look less like post-war America and more like pre-crash Greece.
There’s no end in sight, at least through 2017, for government debt to fall below 100 percent of GDP. Toss in any sort of unexpected warlike engagement, and figures of 110 percent of GDP or higher don’t seem far-fetched.
Just this past summer, the European Union finally got serious about balanced budgets. Undoubtedly the creditors to Greece (who are now facing write-downs) wish that the foresight to push through such a plan had existed 15 years ago.
Austerity is an unlikely candidate for a riotous word. It’s derived from “austere,” which is normally defined as a sternness or coldness in manner, or an extremely plain and simple aesthetic in style. Indeed, the word epitomizes what ought to be the ideal in terms of frugal self-government for a republic founded on liberty and independence.
What waste is more dishonorable than that of resources under public trust?
Yet government nature is inherently opposed to the libertarian ideal. We tend to think of government fiscal irresponsibility as a recent phenomenon, confusing our mortal memories with the nature of the beast.
What would constitute riotous austerity today? Schools without airconditioning were the norm when I was a child, and schools without electricity in rural Arkansas for many in the generation just preceding mine. Have basic rights become so lavish as to exclude lifestyles led by the bulk of Americans in our history?
I am always reminded, during discussions of governmental fiscal responsibility, of Thomas Jefferson’s footnotes to his “Act for Establishing Elementary Schools,” in which he favored austere schools of log construction through local funding.
Were the schools to be established under state “public funds,” he warned, expensive buildings and high wages would be “badly managed, depraved by abuses and would exhaust the whole literary fund.” What Jefferson knew is that sovereign debt crises are the natural evolution of governments, unless limited by a constitution like ours. That’s what we must remember—and diligently act upon.
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Dana Kelley is a freelance writer from Jonesboro.
Editorial, Pages 17 on 09/28/2012