Sunday, May 9, 2010

Greek Debt and the Producer-Consumer Problem

Well, I just looked it up and the Greek debt stands at euro 298 billion. Mostly goods. Mostly EU. (It joined the EU in 2001.) The EU is going to bail out Greece to the tune of euro 110 billion. Last I heard. As a loan. Basically this is really bailing out the people who loaned Greece money.

This will not solve the problem.

I figure the best thing for the EU to do is just give the money to the Greeks, and then they can go back to playing the same game. Give the Greeks back their money, so they can go back to spending it on imports from Germany, and the Germans can go back to making exports for Greece. Otherwise the interest on the loan is just going to come due, Greece won't be able to pay up, it will stop importing and put a little crimp in the German economy. And then the other little PIIGS come to market.

Another way to put this is just have Greece default on its debts.

The only other option is for Germany to buy up Greece. Which still won't solve the long range problem, which is maintaining Greece as a market for German goods.

Which is the general producer-consumer problem. No matter how much money the consumer starts with, eventually the producer ends up with all the money. Then the producer either has to give the money back to the consumer, stop producing, 'loan' the consumer the money, or buy the the consumer's assets. Buying the consumer's assets is just another step in the process, and doesn't work in the long run because eventually the producer will still end up with all the money. And the assets. And this chokes off demand. Loaning the money to the consumers doesn't solve the problem, because the loan compounds, and eventually the costs of servicing it chokes off demand. Only by giving back the money is demand maintained.

The only way for the game to continue is for the producer to work out a way to give the money back to the consumer. Otherwise the game comes to a stop. Chaos ensues. Anarchy. The death of millions, etc.

This is the general instability of the market system. This is important. Pay attention. This is the general instability of the market system. Especially under free trade, (ie a 'free' market.) And not just between countries, but between any organized entities, or any individuals. If any individual works just the slightest bit more than another, and there is free trade (exchange) between them, either the harder working individual trades down, that is accepts less that par value for what the other has to offer, and allows the other to trade up, or he eventually ends up with all the other's assets. The other ends up with no assets, and the harder worker ends up with it all.

And as between two, so between three or four or a million. The hardest worker(s) eventually end up with it all. And this might be called the most just result. Of course, it doesn't have to be the hardest worker. It could be the cleverest, or the luckiest. Or the one with the most leverage.

Because the producers don't necessarily end up with all the money. There is another class, whom we will call manipulators. The manipulators do not produce anything, but they control the money, and because they control the money, they can arrange it so that they themselves are the most efficient accumulators of money. More so even than the producers. So they are the ones who end up with all the money. And the assets.

And default will be prevented, the debts assumed by the people, so as not to offend the sensibilities of the manipulators.

Many libertarians go on about: "What ever arises from a just situation by just steps is itself just." (Nozick) Well, the end result of this 'justice' is the impoverishment of most of society, and ownership of everything in the hands of a very few. (Actually one, in the limit.) And not even those most 'deserving,' not even those who most contribute to the wealth of society, but the most skilled at manipulating. Horrorshow.

The generalization is mine, I think. The particular with reference to free trade, is: "Mathematical modeling reveals that under these conditions, outright Las Vegas decadence is not necessary for there to be a problem. It reveals that with free trade between nations with merely different discounts on consumption, the nation with the higher discount (more impatient) will tend to maximize present consumption by having past generations (who produced the assets that can be sold off) or future generations (who will service the debt) pay for present consumption. Various factors can interfere, but that's the underlying dynamic." Ian Fletcher, 'Free Trade Doesn't Work What Should Replace it and Why.' (p47) He includes this reference to Joseph Stiglitz: 'Factor Price Equalization in a Dynamic Economy,' Journal of Political Economy May/June 1970.

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