I Hope You Don't Mind Greek

Riots in Greece, riots in Spain. Greece of course, was the cradle of civilization over well over 2000 years ago. Spain built the world's first global empire in the 1500s before being muscled out by the Dutch, English, French, and eventually we Americans.

Americans have already gotten a taste of Greek Tragedy, starting with the burst of the housing bubble in 2007. It's complicated: there are a lot of characters in our tragedy. No one thought they were doing anything wrong, they just thought they were honestly trying to get rich, or richer. The key criminal mastermind, Robert Rubin, was U.S. Treasury Secretary under President Bill Clinton. Few remember he engineered the repeal of Glass-Steagall, a banking reform act from the early days of the Great Depression. It was like letting all the felons out of prison at once, on promise of good behavior.

From the Great Depression until about the turn of the millennium it was well understood by economists, politicians, and even the public that government spending could act as a counterbalance to the natural, chaotic cycle of pure free-market economies. Free market capitalism tends to boom then collapse. By increasing spending during recessions the federal government could prevent depressions. It borrowed to do that, which was alright as long as it also damped booms by cutting spending and increasing taxes. Bboom-year surplusses then reduced the national debt to tolerable levels.

The resurgence of the "greed is good" crowd, with its bizarre idea that taxes on the rich should be minimized, was a long time coming. In a normal nation the Internet Stock Bubble that burst just in time for the presidency of George W. Bush would have served as a sufficient warning against the new, faith-based economics. Instead the foolish just switched asset classes. After a brief recession, unregulated lending led to the Housing Bubble.

During the bubble tax revenue skyrocketed, especially for local governments that have real estate taxes as their primary source of income. Politicians like to be generous when they can, it tends to get them reelected. They doled out the real estate tax revenue to local, county, and state employees, and promised generous pensions.

Meanwhile, we had the Bush Tax Cuts, not just on income, but on inheritances and capital gains. While the national economy was in a bubble, that seemed fine to most people. We also increased military spending for the "War on Terror." That led to federal deficits during the bubble greater than we would normally have during a recession.

When the bubble burst unemployment skyrocketed. Construction workers and bankers lost their jobs first. Some stimulus was provided by automatic government mechanisms, like food stamps and unemployment benefits, but it was not enough to break the fall. Local governments, suddenly running big deficits, laid off workers. Pretty soon, by late 2008, just about everyone was either out of work or afraid they would be laid off. Barack Obama was elected President.

Up until 2000 or so the government would have fixed the post-bubble mess by borrowing money and spending it until the economy recovered. The additional debt could be paid back when the economy recovered by adjusting taxes. Federal and local spending would have decreased during the recovery because there would not be so much money needed for food stamps, etc. If a recovery were strong enough, and the tax system had not been gutted by the Bush Tax Cuts (which, you should recall, Democrats in Congress went along with at the time), tax increases might have been minimal. But not this time around.

Now we (and don't just blame the bankers and politicians) are up sh-- creek without a paddle. We, the United States, are still running huge deficits, and have a rather significant national debt. If there is a recovery, and interest rates climb, the interest on the national debt would quickly become the largest item in the national budget. There is still stimulus: the annual federal deficit. But sooner or later bond buyers will wise up, as in Greece in Spain, and refuse to buy. Then there can be no stimulus. Even if the economy is growing at that point we would need to raise taxes to pay off the debt and interest.

Taxing the rich, within reason (say up to 70% on incomes or capital gains or inheritance over $1 billion) does not hurt the economy. Keeping taxes on the rich low is like giving welfare checks to the poor. It demotivates them. They are people who need to make and spend money; that is their identity. If someone needs to make a million dollars after taxes to be happy, if they only pay 10% taxes they will hustle to make $1.1 million and then loaf. Increase their taxes to 50%, and they will hustle to make $2 million, so they would still have a million to spend.

The only way out of the current mud trap requires getting people back to work. That will only happen if taxes on the rich are increased. Rich people do not make their own money. They make money by exploiting their workers. To make more money, to compensate for tax increases, they will need to hire more workers. They say it ain't so, but they are lying because they are, as a class, really quite lazy.

But increasing taxes significantly on the rich won't happen, because both major political parties are controlled by the rich and the nearly rich. What will happen is military spending will be increased, because while that is the stupidest economic policy, it is the most politically defensible. As interest rates rise the government will issue more bonds to fund the interest payments, until the bond buyers rebel.

I think U.S. government bonds are worthless, or nearly so. They pay no interest, and if they did start paying interest the government would not be able to redeem them without essentially closing down.

If, like me, you did not get any or much pie during the feeding frenzy, you should be mad. But you should also prepare for Greek style austerity. Don't expect to slide by on unemployment or disability or even Social Security during the next economic downturn. The Tea Party Republicans have been chewing at the public safety net, and the next time it is heavily weighed it will simply disintegrate into chaos.

Herodotus: the Histories

I am reading, for at least the second time, the Histories by Herodotus (hērŏd`ətəs or hə rŏd`ətəs), which was written before 420 B.C. I don't claim to be much of a Greek and Roman classics scholar, nor do I think there is much of a need for assigning classics from that era to school children. But contrast the level of debate on the Internet today to what Herodotus did almost four centuries before Augustus Caesar and Jesus Christ walked the earth, and modern discourse is not, in general, an improvement.

Herodotus had a simple method. He talked to a lot of people, seeking out the most knowledgeable about particular subjects, which involved a lot of walking and travel by sea. He compared the different stories people told him. He looked at things. Then he chose the version of events, or explanation, that seemed most probable.

He was a Greek from Halicarnassus in what is now Turkey. He is called the father of history, but clearly history had gone through a considerable development by 420 B.C. Chronicles had been kept in many nations. What Herodotus claims is that he is careful about what he thinks and writes. He has a clear idea that the truth is what actually happened, not a story you make up to make you feel good about yourself. He even admits that he could be wrong and sometimes presents multiple versions of an event.

Herodotus, by observing and reasoning, anticipates a number of ideas that we consider more modern. He anticipates the problem of estimating the age of the earth when he discusses the Nile delta. "Suppose, now, that the Nile should change its course and flow into this gulf — the Red Sea — what is to prevent it from being silted up by the stream within, say, twenty thousand years? Personally I think even ten thousand would be enough. That being so, surely in the vast stretch of time which has passed before I was born, a much bigger gulf than this could have been turned into dry land by the silt brought down by the Nile ... I have seen shells on the hills and noticed how salt exudes from the soil to such an extent that it effects even the pyramids ... " He goes on to compare the native soil of the desert near the Nile to the deposits brought down from the river, concluding that they originated in Ethiopia.

I feel like if Herodotus were magically moved into my living room we could have a rational discussion of whether or not Barack Obama was born in Hawaii, who is to blame for the recent Recession, and what should be done about global warming. Herodotus was not alone in his day, thriving in his adopted Athens at the time of Pericles and fellow historian Thucydides. In his era there was no shortage of people mired in superstition and unable to see a point of view beyond that of their family or clan. But you would think that 2400 years later, after the scientific revolution, with public education available for over a century now, that the culture of Herodotus would have more influence and that of ignorance much less.

What did Herodotus have that people who mindlessly believe lies told by Rush Limbaugh, Glenn Beck, the Pope and Sarah Palin (and for that matter lies told by Democrats, who deny their party has a long history of committing war crimes) are lacking? Why do some people care about what is true, and others work so assiduously to create beliefs that do not correspond to reality? Of course we all have a mixture of such traits. Most people who hold onto outrageous religious ideas can cope pretty well with the issues of ordinary life. They can be good employees or even manage and run businesses. They are often good at solving practical problems, when they have no other choice.

We live in an age of specialization. This means you can survive, usually, by learning one relatively simple thing. It could be managing a franchise, prosecuting criminals, smiling while taking orders, or digging into a remote corner of academia. You could learn to design electronic circuits but be a fanatical Moslem or Christian; you can be a good carpenter and not know basic electric circuit practices, or write C++ computer code and know nothing about, or even refuse to believe in, evolutionary biology.

It is so much simpler to just believe what makes you feel good about yourself and angry about imagined enemies than it is to walk a lot, listen to many people, and sort things out in a fair and impartial manner.

So here's to Herodotus and the occasional retreat into the comfort of the Greek classics, and the occasional long walk.

The Histories by Herodotus e-text

Could Greek Socialism Kill Global Capitalism?

Could Greece kill global capitalism?

Industrial workers were not a very important segment of our global society in 1800. People who toiled for an employer at something other farming had been around from at least the beginning of written history. At certain places and times had been significant portions of a local population. But even in Great Britain in 1800 most people had a close connection to agricultural production. Most industrial production had to do with refining agricultural products like milling grain or spinning cotton and wool.

By 1850 Britain was an industrial power and men like Mikhail Bakunin and Carl Marx had worked out ideologies that gave what they called the industrial proletariat a center-stage role. The villains were industrial capitalists, in their view. A series of political revolutions began that, at least ostensibly, tried to put the working class in control of society. There was a limited degree of success, with the Russian communist revolution and Chinese communist revolutions being the best known, and milder forms of socialism (leaving parts of capitalism intact) being much more widely adopted.

A funny thing happened on the way to utopia. The communists tried to out-industrialize the capitalists, and in some ways succeeded. In a sense the state bureaucrats simply became substitutes for the capitalist class.

The biggest threat to capitalism, it seemed in the 20th century, was capitalism itself. The Great Depression caused even our capitalist heartland, the United States of America, to adopt some socialist measures like social security, unemployment insurance, and a progressive income tax structure.

In the 1980s and 1990s the trend was to undo socialism, with Presidents Ronald Reagan and Bill Clinton presiding over the process in the U.S. The economic disasters of the first decade of the 21st century followed.

Capitalism showed its resilience as an economic, political, and social structure in the 20th century. But that does not mean it is indestructible. I don't think it is about to self-destruct, but it is instructive to look at how close it is to self-destruction today.

The economy of Greece is more socialist than capitalist, but not particularly more so than the typical European nation. Usuallytempering capitalism with socialism has made for the most economically vibrant societies (which of course, are also the most ecologically destructive societies). But Greece, in its global context, shows how capitalism and socialism can still be mutually destructive at times. Perhaps more destructive than ever before.

The Greek economy borrowed money from foreign economies. Just like if you or I borrow money, it is not necessarily a bad thing. Whether borrowing is good or bad depends on what you borrow the money for, how much interest you pay on the loan, and your ability to repay the interest and principle. If you borrow from Tony Soprano at 20% per week and put the money on a horse, or up your nose, most people would agree that is bad borrowing. On the other hand, if you get lucky and your horse wins the race, it makes the loan appear to be better in retrospect than it would be considered in general. A good loan example might be borrowing money at 4% a year, resulting in some obvious benefit, like lowering your cost of living if your mortgage payments are less than your old rental payments, or being able to hire more workers and make more profit if the loan is used to buy crucial machinery for your business.

The Greek loans were somewhere in between, but leaning towards the Soprano model. On a national scale the loans allowed civil servants (who make up over a quarter of the work force) to retire early with cushy pensions. That sounds lovely, but the problem is the world is becoming more competitive, not less. Greeks in general, and civil servants in particular, need to work more years, and longer hours, to justify their consumption levels. Those who loaned to Greece were the greater fools.

In politics politicians want to please people. Capitalist and socialist, Republican and Democrat and independent alike. If you don't please enough people, you don't get re-elected, and if you don't allow elections, you may get overthrown. Pleasing people means keeping taxes as low as possible relative to benefits. So almost every government borrows money. If economies grow, the tax base grows, and the loans can be paid off with relatively little pain.

But economies can grow in different ways. If they grow by everyone consuming more without producing more goods or services, they are going to get in trouble, no matter what the socialist to capitalist mix.

Capitalists of the banker sort want to loan money. It is nice clean work. They want to believe that loans will be paid back. It makes everyone happy.

Greece and the United States have much in common. The main difference is not the socialism to capitalism mix, though that should not be discounted. The main difference is that America borrows money mainly for military expenses.

Would you lend money to Tony Soprano? How would you get it back if he decided not to pay? All you could do learn from your folly, and resolve to not loan to him ever again.

Loaning money to the United States, especially to the federal government, is beginning to look suspiciously like loaning money to Tony Soprano. I think the Chinese and Japanese are fools to do it. So are American investors.

I don't think the Greek crisis in itself will kill global capitalism, but it is a warning. Socialism, originally, was supposed to be for all the workers, not just government workers. Capitalism was supposed to be about the wise deployment of capital. But mix the worst of both together, as has happened in the U.S. and in Greece, and you have a truly toxic brew.