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Greece . . . or how NOT to do austerity

There hasn’t been mch discussion about Greece in the blogosphere. You see endless references to Greece as the poster child for all that is wrong about social democracy, Europe, or out-of-control deficits. Yet no one around here in cyberspace seems to have paid attention to how Greece is trying to balance its books. That’s unfortunate, because the Greeks are showing us all how not to do it – and neatly impugning the IMF and EU as a bunch of fools in the process.

Like most outsiders who didn’t pay close attention, I assumed Greece was going with a combination of crippling tax increase and painful service cuts. As it turns out, I was wrong . . . badly wrong. Here’s the New York Times [1]of all papers – detailing the missing piece of the puzzle:

Since 2010, the government has raised taxes and slashed pensions and state salaries across the board, in an effort to rein in the bloated public sector that today employs one in five Greeks. Last week, the government announced it would put 30,000 workers on reduced pay as a precursor to possible termination and would cut pensions again for nearly half a million public-sector retirees.

Notice something missing? That’s right, no bureaucrat has actually been fired. They’re hinting about it, but not actually doing it. The Times delves deeper (emphasis added) . . .

Critics say the country has failed to adequately crack down on tax evasion among the wealthiest segments of society — and failed to carry out more focused cuts because it is reluctant to take on some public-sector unions that protect a small, powerful cadre of workers who have deep ties to the governing Socialist Party.

It’s so blaringly obvious that even a Greek government archaeologist demands the government take on the aforementioned unions. When the folks on the public payroll are calling for that, you know something is seriously amiss.

Supposedly, the left-wing Greek government is finally considering letting bureaucrats go (Guardian [2], UK), but ths is nearly two years into the crisis, with nothing but sky-high taxes, a bloated public workforce with massive pay cuts, and no lightening of the heavy burden of government that helped cause this in the first place.

The lesson is abundantly clear: big government on the cheap is no better than big government high on the hog. So long as the size and scope of government is still huge, it will have the same damaging effects to the economy no matter how much money is “saved” by cutting everyone’s taxpayer-funded salary. Government power and influence must be reduced, not just the budget. Sure enough, the Greek Leviathan – even on half-pay – continues to erode the private sector , while tax increases are strangling it. Suddenly, the continued and unyielding opposition from the right-wing New Democracy Party in Greece makes more sense (although they did nothing do reverse state growth before they were bounced in 2009).

In short, Greece is trying to balance its government books while enlarging government’s role in the nation and its economy. Its repeated failure to make it work should be a lesson to all of us.

Cross-posted to the right-wing liberal [3]