Originally posted by KazetNagorra
Greece's fiscal woes are the culmination of a perfect storm: on the one hand, successive governments used cheap euro-denominated credit to fund projects while not raising tax revenue to pay for them, such as the Olympics. On the other hand, stupid investors assumed that euro-denominated government bonds were immune to default and thus enabled the Greek ...[text shortened]... ould have obviously raised taxes on the wealthy massively to avoid crippling austerity measures.
Richard Wolff nails it here:
I think the issue in Greece, as elsewhere, has to be explained by a number of conditions that came together. The first problem in Greece was not that they were borrowing too much, but was rather that the lenders to Greece were no longer interested in lending to Greece the way they had been. Many of those lenders had actively pushed Greece into borrowing because they made huge fees off of the national debt of Greece, as they do of most countries. Goldman Sachs helped the Greeks to develop new kinds of accounting that could disguise or misrepresent parts of the borrowing that they were doing, or at least make people think it was less than it was before.
The biggest problem for Greece was the global economic collapse of 2008. Suddenly every major capitalist country, led by the United States, was having to ramp up its borrowing by the hundreds of billions of dollars, and what that meant was that every lender around the world, every bank, every insurance company, every typical lender to a government, suddenly had an immense increase in demand for loanable funds. Many of those borrowers, like the United States, had much higher credit ratings than the Greek government, for all kinds of reasons, and the result was that the lenders saw that they could lend all they want at much lower risk to desperate countries like the United States, trying to dig its way out of a crisis, and so they turned to the Greeks and said, "Why should we lend to you, who are a risk relative to lending to the United States, or Britain, or France, or Germany?" and suddenly the Greeks discovered that their lenders, particularly German and French banks, but others as well, had a more attractive borrower, and suddenly the terms for the Greeks became much more onerous. Interest rates rose, conditions became harsher and the long-standing pattern of borrowing in Greece was suddenly confronted by a serious change of heart of the traditional lenders.
The second thing, which is just as important, and again, it is true of all countries, not just Greece, is the peculiar political economy of capitalist countries. It works something like this: divide your population into two parts, the mass of working people, the overwhelming majority on the one hand, and the large businesses and the individual, rich 5 percent on the other. Each of these groups wants the government to provide them with all kinds of expensive services. Each of them, at the same time, wishes to pay the minimum possible tax burden on themselves, and each of them, using their relative resources, tries to get out of paying taxes. Big corporations and the rich, because of their resources, are able to hire the tax accounts, the lawyers, and they do a much better job of evading taxes than the mass of people.
What the mass of people can do is threaten politically to vote against anybody who raises taxes and for anybody who lowers them and are subject to that kind of persuasion. In any case, what happens in capitalist economies is then that the government and the politicians are placed in an impossible position. They dare not raise the taxes on the masses, because that will cost them votes. They dare not raise taxes on corporations and the rich, because that will make the corporations and the rich support their political opponents and their careers will be over. At the same time, they dare not displease either of the two groups by not providing them with the demanded services and supports and subsidies that they have come to assume.
So what does the government do in that situation? The answer is obvious: It borrows money. By borrowing money, they do not have to raise more in taxes from a population that doesn't want to pay it, and yet they can continue to spend to provide the services that the population demands. And finally, the rich are specifically pleased by this arrangement, because they're the ones who do the bulk of the lending to the government. So they are able to avoid taxation, in which they would have to give money to the government, end of the story, and instead, substitute loans to that government, precisely because they didn't pay the taxes. And that money has to be returned by government to corporations and the rich, and on top of it, paying them interest all the while.
So the corporations and the rich find this a very attractive arrangement; the mass of people continues to get services without having their taxes raised. Everybody wins, ironically, while the government continues to raise more money in debt. To then blame the government as "living beyond its means," or to not see this mechanism, but somehow to ascribe all of this to some character flaw of people is to make it a personal failing rather than to understand it as a structural and economic arrangement whose irrationality speaks to the absurdity of how capitalist economies are organized and not to some individual failing.