This editorial in today's Los Angeles Times nails the real problem presented by the Greek melt down. It is exactly the same problem that the French priest, Alexis de Touqueville, raised in his 1835 book, "Democracy in America", a study of democracy so prescient that the book is still used as a text in colleges today. His observation is actually quite simple. He noted that in a democracy, the people have the power to vote themselves more than there is. That is exactly what happened in Greece and is happening in every democracy in the world, and especially in the U.S.
Remember that democracy is an experiment in how to govern a group of people that is quite young in the history of mankind. There is no inherent guarantee that it won't self destruct by collapsing in on itself. This is an issue of vital importance to everyone of us. Read on and do some serious thinking.
Greece's troubling gift
The economic crisis in Europe raises concerns about the abilities of democracies to respond to financial crises in a timely and effective manner.
4:29 PM PDT, May 13, 2010
The deepening fiscal troubles in Europe raise doubts about the ability of independently governed nations to band together under a common currency and monetary policy. But for observers on this side of the Atlantic, the events of the last few months pose a more troubling question: Can democracies respond to financial problems before they become crises?
The advent of the euro coincided roughly with the start of the U.S. housing bubble, and the effect was the same in Greece and several other financially weaker European states. The shift to a common currency enabled those governments to borrow at the same low interest rates as Germany or France, but they used that easy money to fund unsustainable levels of public spending. In Greece, that meant putting about a quarter of the workforce on the government payroll to curry favor with powerful public employee unions. The recession exposed Greece's problems for all to see, but the best response from its standpoint — restructuring the government's debt — would have required banks across Europe to take a sizable hit, hurting credit markets and the region's struggling economy.
Instead, the European Union dithered while German Chancellor Angela Merkel withheld support for any kind of bailout, fearing a backlash from voters. By the time policymakers finally acted, they had few good options left. The International Monetary Fund and leading members of the Eurozone agreed first to keep Greece afloat, and then to create a nearly $1-trillion bailout fund to handle any spillover from the problems in Athens. In exchange, the Greek government has agreed to slash its deficit by cutting spending and raising taxes. Those austerity measures, however, will depress the Greek economy — so much, in fact, that the government may find it impossible to make its debt payments when the bailout euros run out. And the belated rescue has proved unpopular anyway, with Greek workers rioting against the pay and pension cuts and German voters punishing Merkel's ruling coalition in regional elections.
California's budget challenges aren't as dire as that of Greece, but they are serious and structural. The state's tax system is far too dependent on income taxes, making revenues wildly volatile. Voters have compounded the problem with ballot measures that dedicate large chunks of revenue to specific uses. The tax, pension and safety-net problems are obvious, yet tackling them all would require lawmakers to make tough political decisions that could hurt them at the polls. Instead, they have resorted to a succession of stopgap measures in the hope that economic growth will eventually cure all ills. That's unrealistic, but perhaps it's equally quixotic to hope for anything better from today's political class.
Copyright © 2010, The Los Angeles Times
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