A recent article from The Economist was written to refute claims made in a Vox article related to the best course of action for Greece.  I think the Vox article is right and I won’t get into those details in this post but I think the Economist article gives us a rare view into Liberal Group Think and I’d like to take a detailed look at that.

The Vox article made a great case against more bailouts for Greece from the EU banks and referenced a similar situation in Mexico during 1994.  Mexico was in a very bad situation in 1994 and while they had other countries help them out, Mexico (unlike Greece) didn’t increase their domestic debt (social programs) and didn’t prolong the inevitable and sure enough they entered a very deep and painful recession in 1995.  But in 1996, the country rebounded, exports increased and their Current Account Deficit improved.  Greece, on the other hand, is using the bailouts to prop up its social programs and avoid a very painful recession.  The Vox article sums it up best here: 

It is time to address Greece‘s economic policy options in a holistic manner, and stop the emergency measures that only provide Greece with another lifeline. Greece’s fresh financing needs are much larger than those considered in the Greek rescue package. The financing gap has been covered with de jure revolving loans from European central banks to the Greek central bank, that de facto have become long-term debt. This backdoor financing, however, cannot go on indefinitely. Jurgen Stark’s resignation should help concentrate minds in finding a long-lasting solution. 

The Economist takes issue with this in their article but I paid the most attention to the last three paragraphs of the article (emphasis mine). 

Of course, Greece’s adjustment has been delayed by the expanded credit offered by the Bank of Greece. That credit has kept domestic demand above the level to which it might otherwise have fallen. That, in turn, has slowed deflation and the process of adjustment.

In the authors’ view, this seems like a bad thing. Yet it’s hard to imagine a better alternative. To achieve the crash decline in prices needed to facilitate an adjustment in the current account equivalent to 12% of GDP, the Greek economy would be plunged into a deep depression. Unemployment might well rise to 30% or more, and the political environment, already touchy, would be downright poisonous. To prevent the dissolution of the state, the Greek government would probably need to eject itself from the euro zone, thereby touching off a nasty round of financial fall-out.

The pressure of adjustment will find an outlet. If that pressure is not vented through emergency lending to the Greek central bank, it will burst out, perhaps violently, in some other way. It’s easy enough for economists to talk about the need to rip off band-aids and deal with adjustments promptly. But societies have their limits; they can only be pushed so far before they break down. And it is a very good thing that, so far, Europe has not pushed Greece very much farther.

The Economist is frightful of Unemployment rising to 30% and I agree that the thought of that is indeed dreadful but it doesn’t mean the end of civilization and not even the end of Greece.  The US (and most of the world) went through a Great Depression starting in 1929 which lasted over 10 years and saw estimated unemployment at 20%.  I think it would benefit The Economist and the rest of us to browse through the economic and social conditions during that time and see really how bad things were.  For the US, industrial production dropped by almost 50%, unemployment increased over 600% and foreign trade dropped 70%.  Those are absolutely horrific to think about now but these conditions really happened and while it is hard for Liberals to admit, the US (and the rest of the world) survived.  Nobody wants this type of medicine but remember that actions have consequences and we must learn from our failures.  Greece embraced the Socialistic form of government and now they are reaping the fruits of those labors.    

It appears that The Economist is not disagreeing with the Vox article on Economic principles but instead on touchy-feely reasons.  They admit that the bailouts have prolonged the process of adjustment but they “can’t imagine a better alternative.”  They are afraid the people can’t survive high unemployment or a “poisonous political environment.”  They are afraid to push Greece much farther because they might have a break down. 

Their objections to avoiding the inevitable get to the heart of Liberal Group Think.  Liberals have no faith in the Human spirit and their policies seek to lower our expectations on what we can do and what we can endure.  Liberal policies have always been about reducing the freedom of citizens and increasing the power of government over the people.  They don’t think people can take care of themselves and therefore it is up to the government to develop programs and handouts to help the poor souls which amounts to slavery.  We can’t reduce or alter Welfare, Social Security, Unemployment Insurance or Healthcare without seeing some bleeding heart story on the news which ends in demonizing the other side as ‘heartless’.  On the contrary, I view Liberal policies as heartless because they always result in less Freedom for the people.  

In case you don’t know, the US is on the same path as Greece and thankfully we have a majority of citizens rising up and saying that we are willing to take the medicine and endure the pain for the long term good of our country and providing a better future for our children.  We live in tough times that call for tough actions and we’ll get through it because humans are tough.  The Human Spirit is relentlous and we are here because Evolution has given us the DNA to adapt, change and overcome.  All we need is Freedom and we can accomplish anything.