In this series, we apply SORAnomics to solve the Greek crisis using the same methods we used to analyze Venezuela In the end we will explain why the current solutions of austerity and high taxes are not the best solutions and that they are psychologically a relic of the mercantile way of thinking of an economy as a business, instead of, naturally, as a society, family, or group of friends. We will also make clear suggestions for Greece to solve its debt problem and for the EU to save its own interests and prevent the problem from recurring or even destroying the union.
As the 2008 Credit Crunch was said to have triggered the crisis, we set year 2009 as the central-point (when the effects would have been felt) and 2013 (the year with the latest data) as the last point of our Value-Trade analysis. To make a better trend analysis, we will set 2001 and 2004 as our starting points.
2001 and 2004: The relatively stable Population, Capital, Industry and Trade columns indicate that the country was in a good condition. However, the big rise in GDP in 2004 without a corresponding rise in Industry or Capital would probably indicate a bubble, of which its origin is not within the scope of our analysis.
2009 Industry (gray bar):Greece’s Industry column starts declining despite good employment, population, and trade, which is unusual. As this is the first anomaly, we will focus our analysis to its origin later.
This monetary problem must have started after 2004, but before the end of 2009. By looking at the money supply, we see that it declined in 2008-2009 and steadily after 2010. This is supported by other charts. It is true that the 2008 Credit Crunch started Greece’s initial decline in money supply just as it started those in the other countries which were exposed to it, such as Spain and Ireland. However, unlike Greece, the money supply of the latter countries were able to recover better as seen below.
So why was Greece unable to get money circulating again when Spain and Ireland were somewhat able to? Normally, industry will always attract money to it as long as it works well. Greece’s steadily declining money would indicate that its industries became so much worthless within a year or two that it stopped attracting money or circulating capital, which is impossible. If Greece’s industry, or land, labour, and stock, could not have become rapidly worthless, then what else in its GDP could have become worthless so quickly?
Bubbles begin when nominal prices go far above real prices, in a mercantile effort to increase arbitrage for profit maximization. Like the return value of Greece’s spending, the return value US houses also fell rapidly very quickly.
Ever since Keynes’ time, government spending has been advocated to stimulate economies, which previously was the task of the merchant class (those who live by profits: banks, merchants, and manufacturers). However, because of the doctrine of utility and profit maximization of the 19th century marginalists, this essential duty was only done when it was profitable. Otherwise, it shifted from the merchant class to the ruling class (governments or those who live by taxes), forcing its unnecessary attention. This attention or burden manifests as rising debt which it must then impose on its citizens. This also naturally breeds corruption as government officials find themselves in control of huge amounts of money for public projects.
Smith explained that debt is good for the merchant class, but bad for the ruling and working classes because it does not always increase the society’s productive capital and frequently drains it away through unproductive uses:
In the Greek case, the German and French banks (merchant class), for self-profit, had an interest in loaning unnatural amounts to Greece, while the corrupt Greek government (ruling class) had an interest in borrowing unnaturally also for self-profit. Of course, bankers know they are not supposed to give loans to irresponsible people, and governments know they are not supposed to spend on worthless projects, yet they do it anyway because it brings high profits for themselves. In the end, the victims are always the working class or those who live by wages, who had no say in it, and is a violation of their freedom against the oppression by the ruling and merchant classes:
Based on the chart below, Greece’s government spending, as a percentage of GDP, has been high since 2004 and highest in 2009, higher than Spain or Ireland.
In short, Greece’s monetary problem, sparked by the 2008 Credit Crunch, exposed its fiscal problem: that its government was spending non-productively and unsustainably while banks kept on feeding it.
In the next post, we will explain why austerity and high taxes, although good solutions for the German and French merchant class, are bad for the Greek ruling class and fatal to the Greek working class. Austerity can be seen as cost-cutting in a business, while higher taxes, as higher sales. These are solutions which would work well in a struggling business but not in a struggling society because the inherent nature of business and society are altogether different.
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