The nasty thing about Keynesianism is that when it fails, its practitioners can always claim that had they just spent more money, it would have worked. This leads to arguments in the United States about whether the stimulus package should have included a trillion-dollar platinum coin and even more government spending, but in Europe the results of these arguments can be even more devastating.
Greece has recently chosen in a referendum to unchain itself from the euro and jump off a fiscal cliff rather than remain burdened by the tied monetary policy of the eurozone, remain incapable of devaluing its currency, and drown itself in a pool of high unemployment, low productivity, and un-fundable pension payments. For Greece, neither option, oxi nor nai, was very appealing.
But then again, none of this should be very surprising. The writers of “True Detective” may believe that we get the world we deserve, but we would argue that we get the government we elect.
To join the eurozone, Greece swept away worries over excessive debt and brushed off concerns about its incredibly liberal pension system. After the financial crisis rudely showed investors and the European Union the truth, the same people who had run their economy into the ground promised to undergo reform. Four years of austerity later, in which the governmental share of GDP increased and the government hired 70,000 new workers with full benefits, the Greeks went out and elected a 40-year-old radical Marxist who promised to end “austerity” and bring the Germans to heel with ludicrous demands for war reparations.
This fantasy ended. Greece was forced to make a critical choice.
While Greece burns, our politicians still make promises they cannot keep. It worked incredibly well in Puerto Rico, where equally good intentions led to 40 years of Democratic control and a pile of unsustainable debt. The government tried reform under Luis Fortuno, incidentally a Georgetown alumnus. For his efforts, he was kicked out of office by a man promising a return to the good old days of increasing pension payments and the government dole.
Now, Puerto Rico cannot pay back its debt and has requested for Congress to let them declare bankruptcy. Meanwhile, in Chicago and Springfield, unions are declaring all-out war over the idea that profligacy cannot be solved with a higher credit limit.
None of these news stories have stopped the true believers, of course, and their stories are spellbinding. Bernie Sanders, two months ago a little-known Democrat, has shot up the Democratic polls by essentially promising the same things the Greeks were promised: more government, speculatively financed. The question of who will pay in the end is waved away like the question about Greek pensions: increased taxes, hockey-style charts, the belief our creditors will never call in our debt. But in policy, rhetoric is far more powerful than the math.
This cannot hold. Keynes may have dismissed his detractors blithely, saying that “in the long run, we are all dead,” but living Greeks have to deal with the economic crisis now. Waving away the results of poor economic policy might work temporarily, but in the end, the only thing that matters is whether the accounting sheets balance to zero.
Basic math may not be able to win at the ballot box anymore, but in the end, after the rhetoric fades and the lines at the ATMs grow longer, the mathematicians will have their revenge. It’s not the bankruptcy of finance that we must worry about; it is the bankruptcy of reason. When we look at problems like financial instability and choose just one framework for analysis, our beliefs may lead us into a mire we may find difficult to free ourselves from. Three words for the Greeks: kanete ta mathimatika.
Do the math.
Reno Varghese is a rising senior in the School of Foreign Service. James Gadea is a rising senior in the School of Foreign Service. Exit Stage Right appears every other Tuesday.