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The Greek Debt Crisis and the Importance of Government Trust

Two Greek-Americans in Chicago—two of our most widely read political writers of different generations and ideologies—both see America’s future in Greece. What went wrong there, and what lessons can we learn?

Greek riots

 

John Kass and Georgia Logothetis are both Chicagoans and children of Greek immigrants, and both two of the city’s most widely read writers. Kass came up the old-fashioned way—a Daily Calumet intern, a Tribune beat reporter, and then a columnist with a national audience. Logothetis is from the new generation: as a DePaul law student, she started blogging for DailyKos, and slowly built a national following; despite her youth and pseudonymous identity, she built a readership that likely rivaled anyone in Chicago.

So I was intrigued to see them both taking on the extreme crisis shaking their parents’ homeland, from very different ideological perspectives. Kass is currently on the ground there (along with photographer Chris Walker), filing vivid reports:

Angry street protests — and the tear gas that accompanies them—have become such a part of life in downtown Athens that the five-star hotel graciously provides platters of lemon slices and hot towels in the lobby for guests like me who catch a whiff of gas.

I called in the story to the Tribune newsroom. Then a friend and I ran out the back door to get a better view of what was happening outside. The rock throwers had been run off the street, but they were still in Syntagma Square, also known as Constitution Square. There were loud chants, and the smell of tear gas, and the sounds of marble hitting pavement, walls and glass. But eventually the sounds and the tear gas faded away.

In a video, Kass asks if Greece’s present is America’s future. Or is it Illinois’s?

Of course you can see what’s happened, can’t you? The government continued to grow, feeding an entrenched, carnivorous bureaucracy that smothered entrepreneurship.

[snip]

It is a corruption that includes everything from do-nothing patronage jobs to luxurious public pensions, to university admission for the children of the politically blessed. And no real means to pay for it all except to increase taxes on the private sector, which uses political influence of its own to cut its taxes or avoid paying them altogether.

[snip]

No, I’m not just talking about Greece. I’m talking about back home too. The bill hasn’t come fully due yet in America. It will. But it’s past due in Greece, and guess who pays?

Logothetis, on the other hand, is focused on the cuts that are happening right now, in a piece entitled “This Is What Social Darwinism Looks Like”:

Greece should be a part of the national budget debate here in the United States, but it shouldn’t be used as a convenient boogeyman to scare voters, much less as an excuse to chop away at programs that help the middle class and the poor. As Krugman says, our politicians should look to Greece as a prime example of what happens when a nation seeks to correct its mistakes on the backs of those who already carry the weight of a depressed economy on their shoulders.

[snip]

Pensions have been slashed down to stumps of ineffectiveness – retirees are seeing their incomes plummet by 40%. Earlier this year, the minimum wage in Greece was cut by 22% – to about $770 a month (before taxes). Minimum wages for the under 25 set are set at a bleak $575 a month. Unemployment assistance under the austerity measures has been cut back to $467 a month.

It is true that Greece has had a very generous pension system:

In a book rife with supporting data, the most memorable statistics are those related to corruption, both in and outside government, as well as to Greece’s retirement provisions. Consider that before last year’s reforms, the official retirement age in Greece was 58, versus an average of 63.2 in other countries in the Organization for Economic Cooperation and Development. And the average Greek pension paid almost 96 percent of average annual lifetime earnings; versus 61 percent in other O.E.C.D. nations.

But they also had a revenue problem. Taxes in Greece are higher than they are here, but collection is awful. The size of the government in comparison to its peers is not outlandish (as is the case with Illinois, which has a comparatively low number of government employees per capita), but it’s terribly bad at functioning as a government:

Having worked in a number of Greek ministries over the past two years, I can tell you that it was a sobering experience. Their social security system—eight million records—was kept manually by 70 thousand civil servant workers. This is more than the number of employees in the United States’s Social Security system, which handles 20 times the amount of work. They lag in the use of technology, and the consequence is that there’s a lot more labor input into government than is reasonable.

Greece’s government has been accused of being anti-business. But they also have a government that’s anti-government. Its ostensibly high taxes mask the fact that they aren’t actually collected:

According to a remarkable presentation that a member of Greece’s central bank gave last fall, the gap between what Greek taxpayers owed last year and what they paid was about a third of total tax revenue, roughly the size of the country’s budget deficit.

And the death spiral of Greek finances is as much a social death-spiral as an economic one. Greece is terrible at collecting taxes and punishing tax evaders, so people who would otherwise pay taxes see that it’s easy not to, feel that it’s unfair that they do pay their taxes while others don’t, and don’t want to pay their taxes because the government misuses them. So tax revenues fall, making the government’s performance and enforcement measures that much worse, meaning that people want to pay their taxes even less… and so on into massive debt. Which has not so much been the case here:

Countries where people feel that they have some say in how the state acts, and where there are high levels of trust, tend to have high rates of tax compliance. That may be why Americans, despite being virulently anti-tax in their rhetoric, are notably compliant taxpayers.

Some Greek small-business owners are combining the spirit of protest with the frustration over taxes, openly refusing to pay, and they have a right to be hostile. Kass found on-the-street evidence of a regulatory madhouse, a finding buttressed by the New York Times and McKinsey & Company (PDF). Meanwhile, the government is terrible at collecting taxes from the small businesses that do make it, allowing some quite wealthy Greeks off the hook as retirees face the brunt of austerity. It’s a worst-case scenario: government overreach and inefficiency stifles businesses, but the government overreach stops at the one point that would at least allow the government to pay for its overreach and inefficiency. It decreases revenue twice over—it’s no wonder they have a debt crisis.

Greece’s government doesn’t just have a debt crisis; it has a trust crisis, and the two are inexorably linked. America, and even Illinois, are nowhere close to that right now, but there are concerning trends on both counts.

 

Photograph: Chicago Tribune

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