Thoughts on Greece, and us

A large part of what holds Greece back, and us as well, is fairly described as rent-seeking--manipulation of public power for private profit, one way or another. In Greece, as in the Latin America of my childhood, it's much more likely to take the form of simple corruption: imagine (as I was told in Greece last week) an underpaid government official who approves environmental permits, and who provides faster service for those who provide extra money. And then he slows down the uncompensated permits sharply, to encourage the trade. It's not that he is lazy or works few hours, it's not even that there are too many such officials -- all that is often said but seems to be wrong. It's simply that his work product tends to detract from actual GDP, even as it's added at "cost" to official GDP. If he weren't doing that, Greece would be richer.

Other kinds of rent-seekers include those who profit from government-imposed monopolies, like the Athens taxi-drivers now striking, unpredictably blocking port and airport. Rent-seeking is a pretty broad category in my mind. I suppose that all countries end up with issues of regulatory capture and indeed of crony capitalism; government makes rules, and these rules will tend to promote the interests of those who have something to offer to the rule-makers, or some credible threat they can make. That interest-promotion is "rent," paid to the people who've managed to make some government power into their own property, legally or not.

I spent last week on Spetses, with various extended-family events relating to my granddaughter's baptism. It's interesting and educational to listen to Greeks and Greek-Americans talking about their fiscal crisis; I'd hoped to get some time specifically listening to Yannis Ioannides and Anna Hardman, and did, but not enough for real understanding. Yannis' basic Greece-is-not-bankrupt statement surprised me considerably (see Ioannides Says Greece Not Bankrupt, Must Change Economy: Video - Bloomberg). He thinks Greece really can pay its debts -- and he thought that even before the ’Restricted Default’ deal of this week, so I presume he thinks his case has been strengthened. He's an advocate for the austerity measures, which I suppose makes him one of the Serious People of whom Paul Krugman said this week in 1937! 1937! 1937! - NYTimes.com that

OK, so we’re going to demand harsh austerity in the debt-crisis countries; and meanwhile, we’re also going to have austerity in the non-debt-crisis countries. Plus, the ECB is raising rates. So demand will be depressed in both crisis and non-crisis economies; this will lead to a vigorous recovery through … what? The Serious People are determined to destroy all the advanced economies in the name of prudence.

I'm mostly on Krugman's side there; we're combining monetary policy from the ECB which may be reasonable for Germany but not for Greece, along with drastic contractions of an uncomfortably the-beatings-will-continue-until-morale-improves flavor. Or so it seems to me. But Yannis isn't supporting austerity to reassure bond markets as Krugman says; Yannis thinks that the "austerity" (including the deregulation of taxi medallions being protested) is part of breaking or at least limiting the rent-seeking system. Well, I'm not sure he or Anna ever said "rent-seeking" but that's my understanding of what they did say, and when I look for related material online I find things like BusinessInsider's querying a member of the `professional "elite" class' of Greece, who said

We want the Greek economy reformed. An end to the of unimaginable waste of taxpayers money,...cronyism and corruption. A much smaller and reformed public sector... A pursuit and prosecution of presently wide spread tax evasion practices. The above would immediately provide us with a considerable primary surplus, enabling us to keep repaying our debt, an obligation we wish to honour. ... Unfortunately it appears that the average Greek, does not view things the same way.

That certainly sounds like the viewpoint of the Greeks with whom I spoke. And how big is the corruption problem? Well, Transparency International said

The Greeks paid an average of €1,355 ($1,830) in bribes [in 2009] for public services such as speeding up the issue of driver's licenses and construction permits, getting admitted to public hospitals or manipulating tax returns, ... Bribes paid for private sector services such as lawyers, doctors or banks were even higher...

So really, Yannis and those he supports (to the extent that I understand what's going on here) are not so much engaged in economics as in political action aimed at restructuring Greek culture. Otherwise, the bailouts fail. In The Painful Arithmetic of Greek Debt Default | e21 - Economic Policies for the 21st Century I see

How does corruption limit the capacity for tax and spending reform? Tax avoidance, which relies on bribery to avoid prosecution, is a national pastime in Greece – the envelope used in the bribe even has its own name, the “fakelaki,” confirming the age-old adage that the Greeks “have a word for it.” Bribery is so rampant in Greece that real estate developers’ method of obtaining cheap land is to burn down public land, squat on the burned parcels, and pay off public officials to permit this. Greece’s forest fires, particularly in the Peloponnese in 2007, have been a source of public outrage for years, and yet the developers continue to squat on the land with impunity. Is a society that permits that sort of lawlessness capable of tax reform?

Maybe. Maybe not. I respect Yannis, but if the average Greek doesn't believe in it to begin with, I don't see a happy ending to this story.

Corruption is by no means the only problem, and an end to rent-seeking would not necessarily make Greece fit comfortably into the Eurozone. Clearly, little Greece will never be the target of the ECB's monetary policy. Krugman, in Anatomy of a Euromess, said that

Spain’s troubles are not, despite what you may have read, the result of fiscal irresponsibility. Instead, they reflect “asymmetric shocks” within the eurozone, which were always known to be a problem, but have turned out to be an even worse problem than the euroskeptics feared.

David Beckworth took Krugman's analysis and extended it in "Optimal Currency Area" terms within Eurozone Periphery and the Euro, saying

If a region’s economy is not in sync with the currency union’s business cycle and the above listed shock absorbers ("flexible wages and prices, factor mobility, fiscal transfers, and diversified economies") are absent then it does not makes sense for a country to be a part of the currency union. Instead, the country should keep its own currency which itself will act as a shock absorber.

It's no great surprise to see that in his graphs, Greece ends up as the most ill-placed. But I believe that part of the "austerity" program is intended to increase the flexibility of the job market (by pruning job protection programs, as has been tried before) and maybe, if the austerity programs are accepted, maybe things will work out. For a while. Public Pensions and Labor Force Participation: The Case of Greece

The pension system of Greece is a representative case of the “Mediterranean welfare state”, which is characterized by extensive segmentation, very high payroll tax rates, and yet inadequate pension benefits. In order to explain this paradox we construct an economic–demographic model. We show that in the period 1980–2000, the segmentation of the system and the very low labor force participation rates of the Greek economy have resulted in very high payroll tax rates in relation to the current level of benefits. On top of these problems, the expected adverse demographic developments in the period 2005–2050 will render the pension system completely unsustainable.

Still, the near-term need is to cut the rent-seeking (including corruption) and collect the taxes and shrink the regulatory/welfare state. Maybe. And can it be done? Well, my own approach in Greece, even more than in the US would be:

automate, eliminate, simplify, outsource.

Almost all of a government's functionality should be virtual... Well, maybe I will make a separate post about that, sometime.

Meanwhile, a little more time has been bought. The Economist remarks that

the biggest risk to the euro zone is that its leaders will begin thinking that they've solved the problem. As growth figures worsen in coming months, markets will once again become antsy. Euro-zone officials had better be preparing for a way to convince them anew that they want this thing to work.

And I go back to the pattern I established last winter, of exercise and education

This morning I spent 45 minutes trying to pound a few modern Greek words and phrases into an aging memory; until a month ago, this would have required a major effort of willpower, but lately I've been doing it every day with no problem...

As I commented to my son's mother-in-law, see-gah-see-gah mah-THAY-no, which I think means "little by little I'm learning;" since her response was "bravo, Tom, ah-krih-VOS!" (precisely), maybe it does. And maybe I will eventually learn some economics too. Or then again, maybe not.

On Legitimacy

I see that Randy Barnett is recapitulating his Lost Constitution book as a response to Leiter on Originalism:

(1) In Restoring, I begin by denying that the legitimacy of a constitution of the sort that governs a territory like the United States could ever be grounded on the "consent of the governed" because such consent is and must always be a fiction. If such a constitution is ever legitimate at all (and perhaps none can be), it must be because it is warranted in imposing its commands on nonconsenting members of the public.

It's funny how much of his later argument I find convincing, after totally rejecting this starting point. I don't believe that either consent or legitimacy are binary values.

No government is totally consensual or non-consensual, no government is totally legitimate or illegitimate.

Considering that the whole point of government is that it requires that you change your behavior, "the consent of the governed" is never 100%, but that doesn't make it a fiction: consent is not always additive because we consent to different things. Every government, even a thugocracy, is somewhat consensual. In the absence of Madison's angels, no real-world government can be fully consensual -- and if we had such angels as citizens, then Madison correctly points out that no government would be needed. A maximally legitimate government is one for which any change would make it even less legitimate -- less consensual -- than it is. Anarchy is pretty much the least consensual form of "government" for the simple reason that practically nobody consents to it; government by (consent of) "We the People" (via representatives picking metarules by which to pick rules) is necessarily far from perfect, but it's probably better -- more consensual -- than any of the alternatives.

And that's why we should pick it. (So am I ready to define "more consensual"? Absobloominglutelynot. I know it when I see it, except when I'm not sure, or when I'm wrong. But consent is weighted, in some sense: if you come up and hit me in the nose, to which you consent and I do not, then that's a whole lot less consensual than if the nice policeman stops you, to which I consent and you do not. If you claim that you don't believe this, I am skeptical about your disbelief.)

And yet Barnett goes on to derive presumptions of liberty and all kinds of good stuff which I also find to follow from my very different premises. This may indicate that I'm being convinced, and perhaps even that he's being convinced, by something other than the ostensible basis of argument.

Or then again, maybe not.

update: Barnett now points to Solum on Leiter (and Me) on Originalism:

The truth of semantic originalism, by itself, has no normative implications. Even if the semantic content of the constitution is the original public meaning, it could be the case that constitutional practice should deviate from that meaning. For example, one might argue that precedent should trump the original public meaning. Or one might argue that the difficulty of constitutional amendment so undermines the democratic legitimacy of the Constitution that the political branches are justified in “amending constructions” that give the text new and different semantic content. Or one might believe that the constitution is so undesirable or unjust ...

As a simple-minded geek, I think that Solum is using the same oversimplification that Barnett does: I would say that semantic originalism (original public meaning) has no normative implications in a predicate-calculus prove-true-or-false sense, but that it has normative weight in that the original public meaning is what was agreed/consented to at the time, and times, of the agreement and its subsequent amendments. That's where consensuality comes in. Other issues (including justice, not always separate from consensuality) come in too, of course. I would like to disagree with Solum (and Barnett, I think) about constitutional underspecification, especially vagueness, in that if the original public meaning is vague, then surely (I wish) it does not constrain, so anything goes within the range of vagueness. Unfortunately, I can't do that, because the clear non-vague original public meaning of the 9th Amendment says that there are "rights" -- constraints on Congress -- as a part of this stuff that we're consenting to, that are not enumerated. The resolution of this underspecification in particular, and perhaps vagueness-underspecification as well, is clearly not being left to Congress and presumably not to the Executive either; it's gotta be a judicial function. I really don't like that, but maybe it was the best available option and, gee, what can I say? It's what they consented to, and I have no clarifying amendments to suggest.