Friday, June 24, 2011

On Greek Debts

The Greeks are at it again. It is not their fault: They, like everyone else, believed in the system they lived inside. But, if one cares to look, we have irreversibly reached the age of sovereign bankruptcies. This isn't new: This used to be common for princely states. But, succumbing to the same historical disease is mightily embarrassing for modern states, and for those economists who claimed to have seen the end of history.

The world we live in, shall we now admit, isn't sustainable. What we are witnessing are not minor blimps, but the death pangs of an aged system which has been on life support for a long time. We are living with hope that an unlimited supply of oxygen, in this case, bail-out money, will keep us going. But we are very very close to bankrupting everyone.

To understand what might be, and how we can get out of the mess, it may be a good idea to turn to, yes, Greeks. More specifically, to this ancient Greek statesman, Solon (638 - 558 BC). Solon, a worldly wise trader, who could be called the first global salesman with some justification, took to a career in politics and introduced many reforms in ancient Athens, which may have led to the 'Golden Age' in Athens later. He was one of the first statesmen in the world to see the advantage of foreign investment: His code allowed foreign tradesmen to settle in Athens and gain citizenship provided they brought family with them. He helped introduce standard weights and measures, which improved the competitiveness of Athenian commerce. However, Solon will be remembered for one thing he did above all, for reforming the Athenian 'constitution', which was created a century earlier by Draco (hence, Draconian). Solon changed all of Draco's laws except for those on homicide, and of particular import to our discussion was what he did for debts.

This was a time when most Athenians were in debt. Under Draco's laws, if a person was in debt, it could be held against him as a person and he could be sold to slavery. Solon changed all that. Known as Seisachtheia, or shaking of the burdens, Solon's reforms meant that the debts could no longer be held against the person and the debtor would no longer fall to slavery. On top of this, Solon actually cancelled all debts!

This was extraordinary, because any economic system functions on the basis of the debtor-creditor relationship. Solon rightly recognized that this had become unsustainable: Debtors lent to people who couldn't clearly pay back and were then buying their persons, entangling the economy even further. One must also note that Solon did another extraordinary thing after his reforms were implemented: He left. He surrendered his extraordinary authority and went away. His deal with Athenians were that these laws could not be repealed for 10 years (some said 100 years) and since he was away, Athenians could not persuade him to change this any more.

In a way, Solon dismantled an economic and legal system, which became unsustainable, and paved the way to an Athenian golden age. His actions, in modern terms, would mean allowing everyone to go bankrupt, as if to push a reboot button on the economy. Indeed, that's exactly what our leaders are trying to avoid: They are trying to save banks, so that the savings of the 'hardworking' people could be saved. Indeed, most money in these banks come from people who have never worked a day in life, or gotten the money by stealing, killing or swindling someone, but that's besides the point. Indeed, most banks are too big to fail, meaning that if they were to fail, they would take down the faith in the current political system with them.

It is, therefore, acceptable to save banks but dismantle the society. The British government is finding cash to save banks but can't find the money to pay for education and healthcare of its citizens, the premises they could build the post-war society on. It is the erosion of another kind who no one wants to see anymore: By trying to preserve a system which is clearly not fit for purpose, they are driving all of us to the opposite direction of Solonian reforms, to a dark age, when we may have money and the banks, but not much else.

I did write some time ago that the recession of 2008 was to be an unfinished business, leading to much greater global economic catastrophe in a matter of time (Read here). We seem to be arriving at the end time now. This isn't a celebration, because there is nothing to celebrate. It is a time to observe, with regrets perhaps, that individuals, so intelligent individually, never seem to learn a lesson collectively.

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