Lesson From Greece: Government Handouts Are “Sticky” in a Downward Direction

3.11.2010

John Maynard Keynes argued that the problem with a free market was that certain parts of the economic world, such as wages, did not correct down when the overall economy corrected. Therefore, it was better to stimulate the economy to keep the effects of a downturn minimal. Though I prefer a freer market, I do understand Keynes’ point.

If wages were the only thing that was “sticky” (as Keynes said) in the downward direction, perhaps we could plan for that; but unfortunately, it looks like handouts, requiring people to pay taxes, and paying people not to work are also sticky in a downward direction. Case in point: Greece.

As we see people rioting over having to pay their bills, tipping cars and smashing windows because they have to take a paycut, and general lack of civility among what I would call in some cases, “rioters,” we can begin to see what may happen all over the world if governments lose the ability to paper over problems. I have mentioned in past articles, especially when I commented on Hugo Chavez’s efforts to make his people adult dependents (such a sad thing to be a CAPABLE ADULT DEPENDENT), and I mentioned this at the end of my article on Tuesday of this week, that it is quite sad to see adults, especially adults in a country where they are free, be reduced to dependent leaches (or turn into complete losers) that riot whenever their government “benefits” are reduced.

As I said before, Greece is merely the contractions in the process. Eventually the real pains will come as there will be less capability to satiate an angry population when price increases take hold. As Marc Faber says, we will likely then go to war to take the population’s mind off of our problems and project them on someone else. Remember, Greece faces problems because they don’t have Helicopter Ben and his printing press. Imagine a time when we can not print money at will – it is quite a scary picture…

  • Boston AL

    In Greece, low population growth has finally caught up with their overly generous, Socialist entitlement programs. When in a country like Greece, every 10 adults produces only 2 children, there isn’t anyone left to pay for frothy, early retirement programs anymore.

    The next ones coming are France, Italy, Spain, Portugal, & Ireland. Not necessarily in that order.

    If America is not careful and allows Obama to head us down the Socialist entitlement road, we may find ourselves in the same boat in the not too distant future.