Wednesday, August 5, 2015

In Greece, Reliance on Public Funds Is the Central Problem

by Justin Murray

Mises Daily

August 5, 2015

Greece is a hot topic at the moment, mostly with the continued negotiations over bailouts from the European Union and, through institutions like the IMF, the world at large. Much of the discussion paints the image that Greece is only a debt-restructuring away from a stable economic situation. However, without understanding how Greece got into this problem in the first place and identifying the root cause of an over-indebted society, any plan or solution has a high probability of failure. To crack into this root cause, I had to develop an entirely new metric called “implied public reliance.”

Employment Data Doesn’t Tell the Whole Story

The main puzzle behind Greece is simple from a praxeological standpoint — you get more of what you subsidize and less of what you tax. Greece, being a nation with a high tax rate on production and a high subsidy rate on public assistance, will generate a population that finds greater preference toward public assistance and away from productive labor.

The problem with this is that the data doesn’t, on the surface, support the statement. Calculating the average annual hours worked, Greece actually ranks far ahead of nations with lower public sector subsidies and lower taxes:

If it were true that higher taxes dissuaded labor, then Greece shouldn’t report higher worker hours than much lower tax burden nations like the United States and Canada. This indicator would also identify Germany as the European Union’s economic basket case, not its economic powerhouse. Even nations like Spain and Portugal, which have a negative stereotype for sloth, both come ahead of Germany, but are suffering economically.


No comments: