Greece and the Euro

Some or many of you may have heard about the problems the European Union and Greece are facing. Here is my attempt to briefly summarize it to non-economic students:

Greece is facing an economic crisis because it defaulted on its debt run up by large deficit spending in recent years. The financial crisis in the United States exacerbated the situation and now Greece is unable to pay its 300+ billion Euro debt. The International Monetary Fund and the European Union have agreed on a bailout package that would pay Greece 110 billion Euros over three years if they achieve and maintain fiscal austerity. In other words, if Greece stops spending more than it brings in, the EU and the IMF will help them pay their debt.

Much of the help is coming from the German treasury who has one of the strongest economies in the EU. German bankers also hold a large portion of Greece's debt, so the help from the EU and the IMF is essentially a bailout of the German banks and all the banks holding Greece's debt just as the U.S. "TARP" was a bailout of US banks.

So what are the results of this bailout? For one, the bailout is meant to prevent another crisis or worse, a chain of crises that would start in the other EU nations of Ireland, Portugal, Italy, and Spain who are also in debt trouble. This chain of crises could likely result in the dissolving of the European Union because of a lack of confidence in the Euro and "destroyed" European economies. However, this result seems unlikely because of the commitment to the monetary union and the passage of the bailout plan.

Another problem is the painful process of fiscal austerity. This is often one of the conditions to receive monetary help from the IMF but is one that will result is years of contraction and high unemployment for the people of Greece. The middle and lower classes of Greece will be hit the hardest because they will experience the greatest levels of unemployment, they will see increases in taxes, and less government spending on programs (healthcare, unemployment insurance, etc.) designed to help them.

Greece's options are limited because it gave up its monetary independence by joining the European Union. All of the nations within the EU who adopted the Euro as its currency gave up their ability to do what the US's Federal Reserve did in 2008 to prevent an even greater crisis (provide funding to banks and lower key interest rates to prevent further fallout in the financial sector).

The people of Greece have some tough years ahead of them and the Euro may face a drop in value which could hurt US exports to Europe and thus the overall US economy, but the bailout likely saved a disbanding of the EU experiment.

It is important in tough economic times to remember where our true happiness lies and to rely on each other for material support when it is needed. Don't let failing economies, heated political debates, or bailouts of the "bad guys" get you down. It is better to respond with love for neighbor including political enemies. The only "fixes" to these problems are virtuous people who act for each other and not simply for oneself. This is a big chore, but one that can be done with hope, prayer, and love. If we take up the task as individuals, our politicians will follow suit and good policies will be made as a result.

For further reading about Greece and the Euro:
Greece's economic woes
Euro-Bankers to Greece: The Wealthy Won’t Pay their Taxes, So Labor Must Do So
Repeat After Me: The USA Does NOT Have a ‘Greece Problem’

Happiness

Ben Bernanke, the current Chairman of the Federal Reserve, gave an excellent commencement speech at the University of South Carolina over a week ago. His main topic was happiness.

Bernanke's Speech

A study done by Richard Easterlin that Bernanke referenced in his speech found that income does have an impact on happiness, but that countries don't get any happier after going beyond the level of meeting basic needs. Americans were no happier than Costa Ricans despite the large differences in incomes, but "rich" Americans were happier than "poor" Americans.

He also found that Americans today are no happier than they were 40 years ago and incomes have certainly risen since then. Easterlin believed that total wealth was not the factor at work here, but rather relative wealth. Happiness appears to be based largely on comparing oneself to one's neighbors. This would explain the difference in happiness between poor and rich people within a country as well as the lack of difference in happiness between people in rich nations compared to people in poor nations.

It also speaks to the adaptability of people to their situations. Humans have an incredible drive to be happy and will force themselves to be happy in order to get through each day. Indeed, we often diagnose those who do not adjust to their situation as "depressed." It certainly is much more difficult to be happy when your neighbors are enjoying pleasures, comforts, and conveniences that you cannot afford.

I propose, then, that we should not look to our neighbors and base our happiness off of enjoying pleasures that they do not. The material possessions and comforts that we enjoy are for most of us in a precarious situation. There is no guarantee that they will be there tomorrow. Instead we should consider if the comforts we enjoy are enough for us though they may be less than what our neighbor enjoys and be grateful that we do not endure the hardships that many in our world endure.

If we base our happiness on the love that we give and receive to and from God and our neighbors then our material possessions will not own us and control our level of happiness. Instead we will find happiness in hardships even though it may take longer and require a degree of pain or foregone immediate pleasure to reach that longer lasting happiness.

Lottery of Life

Archbishop Naumann reminded us recent graduates at Benedictine College's Baccalaureate mass this past Friday that we have won the lottery of life. We have been given the great opportunity to attend a wonderful institution and graduate with a college degree. To get there, many of us had to be given much more than that...a great family, education, never having to worry about food, clothing, shelter, etc. We have won the lottery of life because it could be otherwise. We very well could have been born in a poverty stricken family with very little opportunities and even less security.

Much of our socioeconomic status is merely a consequence of circumstance. A certain set of circumstances resulting from decisions made by your ancestors, politicians, etc. have put you in the situation in which you find yourself. Yes, your decisions and actions can change your circumstances and that is a great part of our free society, but for many this is very difficult if not impossible. Some believe that they have earned all that they have received due to their hard work and own ingenuity, but in all cases none of it would be possible without a favorable set of circumstances.

So whether we've "earned" all of our material comforts or inherited them through favorable circumstance, we have won the lottery of life and I, too, would like to ask the question: How will you spend it? Remember, it could be otherwise.

Economics is...

the study of choices. This is an oversimplified definition, but is essentially the heart of the study of economics. Every decision we make is directed towards an end or goal. We analyze the costs and benefits of our options with the given information we have and choose the option that we think will best attain our end. Because we are of a social nature, our decisions impact our neighbors both near and far and so are not to be taken lightly.

The great economic problem and the goal of economics is meeting our material needs through the "allocation of a limited number of resources." Many great philosophers and economists have offered solutions to this problem, but I believe it to be rooted in our vocation to "love one another"--John 13:34--as well as to "have dominion over the [goods of the earth]"--Genesis 1:28. For, ultimately, our problem is one of great spiritual need. No degree of material fulfillment and satisfaction will ever attain for us true or complete fulfillment. Our want is insatiable and only an infinite and eternal Good is capable of fulfilling our insatiability.

I believe that the solution to our problem, then, lies in our quest for authentic human development, i.e. our quest for something greater: full and everlasting communion with our God in heaven.

I hope to shed light on basic, contemporary, and controversial economic issues for those who desire a greater understanding of the study of choices and seek a solution to the economic problem but haven't had an economics class or did and had trouble understanding it. I also hope to provide a Christian perspective to my fellow economists who desire peace and justice for humanity. I welcome any and all comments and suggestions that will help me in my quest.

May God be in your hearts and minds.