Prices and Crisis I

George Papandreou of Greece, whom we mulled over yesterday, is facing an uprising over his decision to hold a referendum in January. He wants to ask the people if it is OK to receive less from the government so the country does not default. So here is what the individual decision looks like:

Papandreou: Hey, guys, we need you to do some things so we don’t all go under. You know, get paid for what you actually contribute. I know, I know. Some of those cushy public-sector jobs may go away, but everyone has to feel some pain.

Citizens: No austerity!

Papandreou: Well, OK. Sorry, EU.

Citizens: Strike!

EU: Mmmmmm…this is not really a choice.

Papandreou: Huh?

EU: You see, we are bailing you out. The usual response is “Thank you,” not “Strike!”

Citizens: Free stuff!

Papandreou: Could you guys hold it down? I’m negotiating.

EU: Actually, you’re not. You are about to be cut off.

Papandreou: You can’t do that.

EU: Just watch.

Citizens: More free stuff!

Papandreou: I don’t remember reading this in the Manifesto.

As the economist Joseph Schumpeter once predicted, capitalism will survive until the majority of people receive more from government than they put in. Greece is there, with the rest of the world at its heels. Schumpeter also predicted that the discontentment with capitalism would arise from intellectuals–those who are unemployed and often unemployable in useful endeavors.

All those who are unemployed or unsatisfactorily employed or unemployable drift into the vocations in which standards are least definite.…They swell the host of intellectuals…whose numbers hence increase disproportionately. They enter it in a thoroughly discontented frame of mind. Discontent breeds resentment….righteous indignation about the wrongs of capitalism. CSD, 153.

The irony, of course, is that capitalism enables the intellectual* to indulge in this kind of discontent. Were it not for the excess wealth it creates, their number would diminish rapidly.

Greeks have fallen victim to the same phenomenon, but with a twist. Just as the intellectual never has to pay the price of his/her discontent, the recipients of government largess never have to pay the price of their indulgence. Greece as a whole is both financially and morally bankrupt because the connection between what one receives and what one contributes is severed.

Prices, when allowed to reflect free choices among free individuals, always contain information about what it took to bring that good or service into existence. A person who gets a government-guaranteed month-long vacation does not see the cost to his/her employer or the higher prices passed on to consumers. The person who is guaranteed a doctor visit for free does not account for the years of study required to make a doctor. With pricing information distorted by government, a cure appears to be no more valuable, and thus worth no more effort, than a nickel piece of candy.

Now Greeks have exhausted their own resources by indulging in this sweet fantasy and are essentially claiming a right to the work of those who have not. Or at least those who have not yet wrecked their economies completely. Leave aside the moral turpitude of such a claim–it is unlikely in the extreme that the rest of the EU will put up with this much longer.

And so the birthplace of democracy will be the site for a reckoning. A moral democracy does not include the right of a majority to enslave a minority. What will happen when Greeks are forced to acknowledge the price of the things they insist are theirs? What will they do when the people who make things refuse to provide them for the price the Greeks demand? Howling does not make clothes or grow food, and the Greeks are about to pay the price for thinking so.


*Obviously, not all intellectuals are useless malcontents. However, a stroll through the halls of higher learning in the social sciences, including business, brings this point home. Academic researchers rarely have to perform in any meaningful way. They are free to bark at each other endlessly over questions that will never and probably can never be tested objectively in a market.

About Terry Noel

I am an Associate Professor of Management and Quantitative Methods at Illinois State University. My specialty is entrepreneurship.
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2 Responses to Prices and Crisis I

  1. Diane Benjamin says:

    Hope you still have a job after the last paragraph!


    • Terry Noel says:

      No worries–they don’t read libertarian stuff…

      Terry W. Noel Associate Professor of Management and Quantitative Methods Illinois State University Author of Empty Nest Egg: Why You Must Start Your Own Business NOW Blog:


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