We are currently witnessing the implosion of Greek society: basic goods and services are becoming scare, essential governmental functions are grossly neglected, and law and order is breaking down. This situation is deeply ironic given that Greece is the birthplace of democracy, and should cause us to wonder how such a thing can occur. This question is especially urgent because Greece is not only a first world, liberal democracy, but almost certainly not a special or isolated case. Rather, most probably, it is the first in a chain of falling dominoes all built on the same social model.
I believe that the answer to this question is simple and clear, but nevertheless not well understood. Greece is failing to meet the basic needs of its population precisely because democracy enables most citizens to live, at least for the moment, well beyond their means. In short, democracy permits the citizenry to indulge in the fantasy that they can escape a simple fact, i.e. that in the long run (over many generations) a society can only consume what it produces.
This basic truth, sometimes referred to as Say’s law (after the late 18th/early 19th century French economist Jean-Baptiste Say) recognizes as a matter of elementary logic that if the members of society wish to eat, someone must grow the food; if they desire housing, someone must build homes and apartments; if they wish to have medical care, someone must construct medical schools and individuals must invest the time required to become physicians, etc. Of course, a society may increase its ability to consume by means of trade; that is, it can exchange what it produces efficiently for goods or services that it finds more difficult to supply.
Nevertheless, the essential principle remains intact because a society must first produce things in order to trade them. And, critically, when politicians enact laws that discourage the supply of goods, they are knowingly or unwittingly also limiting their society’s consumption, i.e. its standard of living.
While Say’s law applies to society at large, it does not apply to the particular individuals that comprise it. In a democratic polity individuals are free to use the apparatus of the state to redistribute wealth so that they are able to consume what other people produce. Even more conveniently, one generation can consume far more than it produces by long-term borrowing, thus running up the national debt, which others are left to repay. In Greece, several generations pursued this strategy, each one increasing the debt burden until the house of cards collapsed. Now, there is no way to pay it off without experiencing enormous and sustained misery.
Thus, in the long-run, unless a country is substantially more productive and economically efficient than its competitors, it is not possible, without catastrophic consequences, for people to retire on full pensions at the age of 55, to get “free” medical care, to be given by government fiat six weeks of annual paid vacation, to receive a college education at a nominal price, etc. These things are not feasible because such a country does not produce the level of wealth required to finance such consumption. It’s that simple.
Democracy facilitates such overreaching because politicians will typically garner votes by telling voters exactly what they wish to hear. They ignore the laws of economics and promise a free lunch, something for nothing, a fantasy world where money grows on trees. A world where incentives don’t matter, where it is possible to levy heavy taxes and place onerous regulations on producers without affecting the quantity of goods supplied. A world where people will work just as hard if they only get to keep 40% of their income as they will if they can keep 80%.
Ultimately, reality rears its ugly head, and a horrible price must be paid for departing too radically from the rule of law, as Hayek conceived it: //naturalrightslibertarian.com/2012/03/democracy-versus-the-rule-of-law/. When this happens democracy itself may disintegrate as a desperate citizenry turns to authoritarian figures to dig them out of the mess they have created. Churchill is famous for his adage that democracy’s only virtue is that it is superior to all the alternatives. This is faint praise indeed, and is fully consistent with democracies eventually degenerating into one of those other terrible forms of government.