The Perfect Storm in Greece

Greece, or more specifically Athens, is suffering from outbursts of rioting that have resulted in wide spread destruction of property:

In Athens, about 150 stores were vandalised and looted in Sunday night’s riot, and about 45 buildings were seriously burnt, many beyond repair, according to the Athens Chamber of Commerce and Industry. It estimated the losses in the ”tens of millions” of dollars.

These riots were started, in part, because of the recently passed austerity measures that will result in the decrease of benefits and pay for government employees:

The austerity measures include:

  • 15,000 public-sector job cuts
  • liberalisation of labour laws
  • lowering the minimum wage by 20% from 751 euros a month to 600 euros

The austerity measures were put into place in order to secure a $170 billion bailout from the International Monetary Fund (IMF) as Greece has become insolvent. While all of this has been covered by major media outlets they have failed to explain how this situation arose. When looking back at how Greece found itself in its current situation we find a road paved in collectivism and broken promises.

Let’s begin with collectivism. Roughly 22% of those employed in Greece work for the government in some capacity. As the government employes such a high number of people austerity measures, such as those passed in Greece, that effect public employees have widespread consequences. As government produce no wealth (it exists off of taxation, which is stolen wealth) every person employed by the government is a net loss as far as the economy is concerned. To pay for these employees the government of Greece has imposed an income tax that ranges from nothing all the way up to 40%. In addition to an income tax rate that can range up to 40% there is also a value added tax (VAT) that ranges from 4.5% to 23%.

In addition to paying the vast number of government employees the high tax rate in Greece is also used to fund “free” public education, state provided healthcare, and other collectivist programs.

Greece also has some interesting labor laws [PDF] including mandated maximum 40 hour work weeks (although some exceptions can be made to exceed the 40 hour maximum) and a minimum wage of €751.39 a month (approximately $987.92 a month as of this writing).

The labor laws are most interesting in this case as they compose a list of promises made by the government of Greece. Basically the government of Greece told its people they will enjoy no more than 40 hours a week of work and will make a minimum of $987.92 each month. Now the government is reneging on its promise by slashing minimum wage by 20% (making it roughly $790.34 a month) and removing other guarantees that were made. It is also laying off 15,000 people whom were promised jobs by the government. The bottom line is the people are pissed because promises that were made to them are being broken.

Worse yet these promises were made in exchange for the tax rate the people of Greece had forced upon them. The government basically said they were going to take up to 40% of each person’s income and even more money through the VAT tax to pay for the promises being made. These austerity measures void many of those promises without also reducing the tax rate. Denizens of Greece are getting less for the same price and they’re unhappy about it (rightfully so).

Unfortunately this is an outcome that can’t be avoided when the government is expected to provide services. As governments pay for everything using money stolen through taxation there is no wealth generated nor can the market provide feedback on whether or not the desired services are being provided and if they are being provided efficiently. When people expect governments to provide even more services they often fail to realize that money for those services must come from somewhere and that somewhere is the pockets of the people. Since government have no market feedback that tells them if they’re providing services efficiently the cost for those government provided services is always higher than comparable privately provided services. By having the government provide a service you’re actually costing yourself money.

But the perfect storm comes when the government is unable to continue providing its services. This happens when they not only run out of money, but also run out of people to buy up their ever increasing debet. At that point a decision has to be made; either increase taxes or cut services. When you’re taxing people absurd amounts already increasing taxes even more is not going to be received well. If you don’t increase taxes and are forced to cut services it is not going to be received well. Basically a catch-22 exists and will only lead to hardship and anger and that anger usually manifests itself into protests and sometimes rioting.

What Greece is experiencing is unavoidable when collectivists get their way.

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