Rational Capitalist on Facebook

Thursday, September 9, 2010

Greece, aka, Dysfunctionalopolis

Most people know Greece is in financial trouble. But, it would be hard to appreciate just how much trouble until you read Michael Lewis recent piece in Vanity Fair, Beware of Greeks Bearing Bonds. The summary reads:

As Wall Street hangs on the question “Will Greece default?,” the author heads for riot-stricken Athens, and for the mysterious Vatopaidi monastery, which brought down the last government, laying bare the country’s economic insanity. But beyond a $1.2 trillion debt (roughly a quarter-million dollars for each working adult), there is a more frightening deficit. After systematically looting their own treasury, in a breathtaking binge of tax evasion, bribery, and creative accounting spurred on by Goldman Sachs, Greeks are sure of one thing: they can’t trust their fellow Greeks.
Let me just say that "economic insanity" is a gross understatement. I can not do this article justice with a few quotes, so I just urge you to read it. However, if investors and intellectuals only take away the obvious, albeit not unimportant, question "Will Greece default?," they will miss the forest for the trees. That is because I believe Greece is a microcosm of the problems that are destroying the world. Greece, as a living (or dying) symbol of welfare statism and its underlying philosophy of collectivism, is a window into America's future if present trends continue - a future marked by chaotic stagnation and a culture of malevolence.

One enduring myth is the idea that free markets lead to "dog-eat-dog" competition, a kind of atavistic rat race in which greedy, immoral brutes crush each other for profit. The flip side of this myth is the idea that central planning leads to order, harmony, and "social" justice. Yet, the facts show exactly the opposite. In practice, capitalism is characterized by a miraculous coordination of human effort leading to untold efficiency, prosperity, and a benevolent culture of achievement, cooperation and charity. Meanwhile, in practice, socialism results in chaos, stagnation, and a culture of suspicion, guilt, and depravity - exactly the state in which Greece now finds itself. Lewis keenly observes:

The Greek state was not just corrupt but also corrupting. Once you saw how it worked you could understand a phenomenon which otherwise made no sense at all: the difficulty Greek people have saying a kind word about one another. Individual Greeks are delightful: funny, warm, smart, and good company. I left two dozen interviews saying to myself, “What great people!” They do not share the sentiment about one another: the hardest thing to do in Greece is to get one Greek to compliment another behind his back. No success of any kind is regarded without suspicion. Everyone is pretty sure everyone is cheating on his taxes, or bribing politicians, or taking bribes, or lying about the value of his real estate. And this total absence of faith in one another is self-reinforcing. The epidemic of lying and cheating and stealing makes any sort of civic life
impossible; the collapse of civic life only encourages more lying, cheating, and stealing. Lacking faith in one another, they fall back on themselves and their families.

This is a profound observation although the author does not seem to completely understand it. He states:

The structure of the Greek economy is collectivist, but the country, in spirit, is the opposite of a collective. Its real structure is every man for himself. Into this system investors had poured hundreds of billions of dollars. And the credit boom had pushed the country over the edge, into total moral collapse.
Note that he observes that it is collectivism, not capitalism, that has led to a kind of dog-eat-dog culture and a "total moral collapse." So, how is it that a system based on the supposed morality of egalitarianism and welfare statism has led, yet again, to "total moral collapse," while economic systems relying on freely acting self-interested individuals historically have led to cooperation, benevolence, and prosperity?

To start, consider the following two scenarios.

First, imagine you live in a free society where you own your work. You work hard accumulating savings and grow wealthier each day. All around you, others do the same. You are free to choose with whom you trade either labor or goods, where you live, and what you do. Your life is yours and you accept this responsibility, making decisions based on your own independent judgment. If someone suffers a hardship through no fault of their own, you gladly donate to help them, because you see the potential in people, you want to make your world a better place, and because you can afford to do it. You value other people's achievement because it only benefits you - cures for cancer, new methods of production, faster computers, space travel, etc.. You know if someone else is wealthy, it is only because they worked hard and earned it, and so you admire them.

Now consider life under collectivism. Your life is not your own. To the extent you resist the legal obligation to turn over the fruits of your labor to the state, you are considered a criminal. Others live off of your work, so if you evade taxes, you are regarded to be cheating them. Costs are all socialized since everyone is responsible for everyone else and so other people's choices become your business. For example, if you are paying for everybody else's health care, their fitness, lifestyle, and diet becomes your business. Everyone is a potential cost to you if they get sick or don't work. You will have to only work harder to pay for them. Others are a threat if they turn you in to the secret police. If someone is wealthy, you assume they got rich through corruption and theft. You resent them. You wonder if others are paying their fair share? You resent the idea of giving to charity since you already have most of your work taken from you.

These simple thought experiments make the practical consequences of individualism and collectivism fairly obvious. Of course, the idea that the mass behavior of self-interested individuals actually leads to prosperity and order is not new. In 1776, economist Adam Smith referred to this phenomena as the "invisible hand." It is unfortunate that this term is used since it is hardly invisible or mysterious. In fact, building on two hundred years of work since Smith, George Reisman's treatise, Capitalism: A Treatise on Economics, is virtually dedicated to nothing other than demonstrating "the harmony of the rational self-interests of all men under freedom." He writes:

Economic progress is the leading manifestation of yet another major institutional feature of capitalism: the harmony of the rational self interests of all men, in which the success of each promotes the well being of all. The basis of capitalism's harmony of interests is the combination of freedom and rational self interest operating in the context of the division of labor, which is itself their institutional creation.

And how specifically does individual rights lead to this harmony?

Under freedom, no one may use force to obtain the cooperation of others. He must obtain their cooperation voluntarily. To do this, he must show them how cooperation with him is to their self interest as well as his own, and indeed, is more to their self interest than pursuing any of the other alternatives that are open to them. To find customers or workers and suppliers , he must show how dealing with him benefits them as well as him, and benefits them more than buying from others or selling to others. As will be shown, the gains from the division of labor make the existence of situations of mutual benefit omnipresent under capitalism. The division of labor, in combination with the rest of capitalism, represents a regular, institutionalized, arrangement whereby the mind of each in serving its individual possessor, serves the well-being of a multitude of others, and is motivated and enabled to serve their well-being better and better.
That there is a "harmony of rational self-interests under freedom" can be proven at an even more fundamental level. When Lewis writes "the structure of the Greek economy is collectivist, but the country, in spirit, is the opposite of a collective" he is observing the logical consequence of a philosophy that holds an inverted view of man's nature and the relationship of the individual to the state. Men are independent, sovereign individuals, not appendages of some collective organism controlled by some philosopher king elite. "Cooperation" enforced at the point of a gun is not cooperation - it is slavery. Rights are necessitated by man's nature. He must be free to think, work, and trade if he is to survive properly, i.e., individuals need protection from the collective. A system based on such a recognition was the unique American achievement. Quoting Ayn Rand:

The most profoundly revolutionary achievement of the United States of America was the subordination of society to moral law. The principle of man’s individual rights represented the extension of morality into the social system—as a limitation on the power of the state, as man’s protection against the brute force of the collective, as the subordination of might to right.
Note that she recognizes that morality consists of pursuing one's values based on one's independent judgment, not on the dictates of a king, priest, or government bureaucrat. She continues:

The United States was the first moral society in history. All previous systems had regarded man as a sacrificial means to the ends of others, and society as an end in itself. The United States regarded man as an end in himself, and society as a means to the peaceful, orderly, voluntary co-existence of individuals. All previous systems had held that man’s life belongs to society, that society can dispose of him in any way it pleases, and that any freedom he enjoys is his only by favor, by the permission of society, which may be revoked at any time. The United States held that man’s life is his by right (which means: by moral principle and by his nature), that a right is the property of an individual, that society as such has no rights, and that the only moral purpose of a government is the protection of individual rights.

(Rand dramatized this issue magnificently in Atlas Shrugged with the story of the 20th Century Motor Company which I discussed in another post related to the harmony of interests principle.)

Certainly, you can see that collectivism is the essence of modern Greek culture as described by Lewis. What's more frightening, is the extent to which we can observe the transition to collectivism in America. For example, when pundits discuss a tax cut, i.e., government proposals to steal less money from workers, it is regarded as a "cost" to government as if the government owns their work and as if the government could not possibly reduce its spending. Leviathan government Ponzi schemes like social security are considered untouchable by the political class despite being under water by trillions of dollars. There are so many laws, regulations, and taxes that virtually everyone could be regarded as a criminal if they were audited. Many of us are so taxed as it is, we wouldn't think of giving money to charity, except perhaps as a tax deduction. Already, under the quasi-socialized medical system, there are efforts under way to regulate lifestyle - diet, exercise, smoking, etc. - under the justification that health care costs are "everyone's" problem. Sadly, once immigrants to America were valued since they came here to work and were given nothing but the freedom to pursue opportunity, whereas today, immigrants are often reviled as leeches since in many states they are eligible to receive welfare or government services without paying taxes. Rand wrote:

In its great era of capitalism, the United States was the freest country on earth—and the best refutation of racist theories. Men of all races came here, some from obscure, culturally undistinguished countries, and accomplished feats of productive ability which would have remained stillborn in their control-ridden native lands. Men of racial groups that had been slaughtering one another for centuries, learned to live together in harmony and peaceful cooperation. America had been called “the melting pot,” with good reason. But few people realized that America did not melt men into the gray conformity of a collective: she united them by means of protecting their right to individuality.
Another important feature to recognize about this situation pertains to the necessity of violence under socialism. The article makes it tragicomically clear that one of Greece's many problems is failure to enforce the laws underlying their welfare state. For example, Lewis reports that during election season, tax collectors are pulled off the job for fear of angering voters, and evidently, it is a 15 year legal process to enforce tax evasion cases. In other words, for this type of collectivism to "work", in terms of effectively expropriating loot to redistribute, Greece will have to crack down and begin a process of draconian law enforcement, i.e., it will have to truly persecute its most productive people.

When the government is constrained to performing its proper function, the enforcement of laws which protect individuals from violence and fraud, people welcome and urge vigorous government action. It is in their own interest to do so. However, when the government takes to initiating violence against its own people, seizing income and property or jailing dissenters, people naturally and rightfully resist and evade. That such people are considered "criminals" is the hallmark of the twisted ideology of collectivism.

Greece still has a choice, as does America, to continue on their path or reverse course. Both theory and practice are clear as to what will happen in either case. The west once underwent a Renaissance by rediscovering the ideas and culture of Ancient Greece. Perhaps, this time, we can start a Renaissance by discovering the terrible ideas and culture of modern Greece!


mtnrunner2 said...

Great post -- and title :) I'll take a look at Lewis' article. Thx.

The Rat Cap said...


thanks. I was proud of my title - glad at least one person appreciated it! Yes, these are the things a poor blogger relishes...

Shane Atwell said...

excellent post

Trevor said...

Great article as usual. I later found the following article about some Spanish coal miners who're conducting some sort of strike to show solidarity with the trapped Chilean miners and to also coerce the insolvent Spanish government into passing more subsidies for their own antiquated industry.


I think this is another example illustrating the point of your post. Because collectivism stifles any kind of productivity, the only recourse people have to effect change is coercion. The use of force becomes the accepted norm for dealing with one another. And in this case, people who are unwilling to change with circumstances and update their skills hope to force their government to continue the policy of stagnation. A possible rebuttal would be that in Spain it's not easy for workers to "update their skills" so they need these subsidies, but if that's the case it's the government's policies that have made updating one's skills hard.

This reminds me of the essay by Nathaniel Branden entitled "The Divine Right of Stagnation". See "The Virtue of Selfishness".

The Rat Cap said...

Thanks Trevor.

You said: "Because collectivism stifles any kind of productivity, the only recourse people have to effect change is coercion. The use of force becomes the accepted norm for dealing with one another."

I think this is true, but I wouldn't put it as the primary. Collectivism replaces voluntary cooperation with physical force as the essence of human interaction. Individuals are regarded as sacrificial appendages of a greater whole, to be commmanded as chattel. The judgment of bureaucrats replaces the judgement of individuals motivated to pursue their own values and thus individuals are not able to make rational decisions nor are they allowed to cooperate voluntarily with others. The lack of productivity and stagnation follows.

So, I would just reverse the chain of cause and effect from how you put it.

What's interesting is that when physical force becomes primary, one man's gain is another man's loss - so warring factions develop to battle over the loot like in your example. When force is banished, i.e., government protects rights, people must cooperate, and one man's gain is another man's gain.

This is exactly the opposite of what the Left would have us believe. According to them, capitalism results in dog-eat-dog chaos and brutality while socialism results in a utopia of harmony. What a laugh.

Richard said...

Well wow. Reparations for 14th century sackings, firebombing pregnant women, total corruption. I had no idea Greece was as bad as all that.