Friday, 13 August 2010

Economics for dummies aka us

I don’t know why we bother with government and the IMF in Greece.
The sort of policies we end up with could have been devised by a 7-year old who read the back flap of an economics textbook while waiting for his mum to take him to school.

Ignoring the complicated charts, omitting the long words, leaving out the hard bits involving money supply, employment statistics, growth, sustainability and other such luxuries that Greece has no time for anyway, our industrious 7-year old understands the basics and proceeds from there.

The first idea he grasps is that governments need cash and cash comes from taxes so let’s increase those because we need loads of cash. And since he’s only 7, he can’t be expected to come up with convoluted systems for establishing how taxation is to be calculated and collected. He can’t be expected to assess equitable burden sharing or sensible collection timings. He can’t be expected to ponder on the free rider problem or tackle tax evasion. He’s 7 for crying out loud. He has realised taxes are needed so he shall collect taxes by extraordinary collections. It’s simpler that way. I need, I take.

The second idea he grasps from the blurb at the back of his ‘economics for dummies’ book is that any economy needs people to spend money in order to keep going. Stimulating consumer spending is indeed a vital parameter in overcoming a recession so our 7 year old has done well here. But how can you make sure people spend? Especially when times are hard, salaries low, basic goods expensive and the financial insecurity of the job market is exacerbated by 7 year olds imposing extraordinary tax collections?

Well, how does mum make sure you brush your teeth before bed? She makes you.

So, our 7 year old has sensibly concluded that, if you need people to spend in order to stimulate the economy, then you make them spend. And if they don’t spend enough – ‘enough’ here being determined on the basis of what the state believes you make and what the state believes you should be able to ‘spare’ – then you get fined.
It’s neat, it’s simple, it works. And if you are 7, it also shows rare acumen.

Only the Greek Prime Minister is not 7.
And he should know that increased taxation, extraordinary collections and fines on under-spending based on income assumptions made on the basis of tax return figures simply squeezes one segment of your population dry: The ones who pay taxes already. The ones who declare their income already. The ones that are doing what they can already.
In a country where tax evasion is an epidemic, the government’s tax policy penalises those who fail to tax evade. The government is punishing the good guys.

What would my 7 year old have to say about that?
He’d say that if you are damned if you do and damned if you don’t, then you might as well not and at least stand a chance of not getting caught. But he’d also tell you that his mummy never taught him that. His mummy taught him to be good. His mummy taught him that being good is never punished.

And although, given his age, he’s doing a decent enough job at understanding the bare bones of economics 101, which is all he is going to need if he chooses to go into government, his mummy is really doing a lousy job preparing him for his subsequent career as a Greek citizen and taxpayer.