The End of A Dream

Sophia Giannaka, a Greek MP from the ruling Pasok party, has figured out what is happening as the fiscal reform that the EU is insisting on takes effect.

The socialist dream of Greece in the 1990s has been totally destroyed.

Yes. But what people are missing is that the post-WW II socialist dream, really a Keynesian fantasy, in which massive government social spending would create enough economic growth to support the spending, has failed everywhere. The social spending has not driven economic growth, and has been supported by borrowing rather than the tax revenue which the economic growth would have provided. And of course the borrowing has accumulated to the extent that the debt itself is now an inhibitor to growth. Politicians are running to keep the debt flowing, tapping new sources of borrowing where they can and printing money where they can’t. But the problem is that the paradigm is doomed (and always was, it just took this long to build up the debt pile to the point where it became an overwhelming problem).

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