Sunday, June 20, 2010

What Ed and Greece have in common…

A retired friend of mine, I'll call him Ed, realized he and his wife were spending beyond their means. At the rate they were going they would have to croak at precisely 9:54 PM on July 14, 2023 at age 77 when their money would run out.

As Ed related things to me, they set up a system where both personal and joint expenditures came out of a single joint account funded by their respective fixed incomes. Not only the essential household expenses like mortgage and utilities were drawn from this account, but the “nice to haves” like eating out, beauty parlor, travel, and hobby items were paid by this account. 

There was no real sense of accountability for how much was drawn out of that account because it was an impersonal common pot, not just one persons’ precious life savings.  Consequently both he and his wife felt liberated to draw more from that common pot than their budget allowed. Ed did the bookkeeping so he soon learned about the problem. Over the course of several months he brought his wife's over-budget habits to her attention. But each time she ignored him, giving the distinct impression that she was “entitled.”  And, not guilt-free himself, he spent more than he should have because he considered it “more fair” that way.

The same thing tends to occur at the national level.  I’ll use Greece as an example.  Several years ago the Greek government began to recognize their county's need for belt tightening. They have a socialist system that creates a big impersonal pot of other people's money. Over the years the people made all sorts of requests for services the government agreed to provide and pay for out of that collective pot. The people’s expectations of entitlements grew beyond the ability of the pot of money to pay for them, even with excessive borrowing.  These expectations could not be sustained without a sovereign default – national bankruptcy. The government understood that their level of spending could not be sustained. They informed the people of this problem. The people ignored the warnings and continued on their oblivious way to continue to expect and demand their entitlements.

Back to Ed's situation.  Finances began to deteriorate.  His own resources were being drained covering the repetitive over expenditure in the common pot.  He felt things were out of control and something had to change.  So he devised a plan whereby only the fixed, essential joint expenses such as mortgage, utilities, taxes, and insurance items would be paid for out of the joint account.  Ed proposed that he and his wife, individually, would be responsible for all other expenses for the nice to have items that caused their resources to be prematurely depleted.  No longer would the collective pot of money be used to cover the alleged “entitlements.”  And they would each be allowed to contribute less to that common pot.

Well, as Ed tells it, this is really where the eerily similar parallels between the reaction of the Greek population and that of his wife to this “personal responsibility” proposal occurred.  When the Greek government proposed that “entitlements” be shifted from the common pot of the Greek treasury to the individual Greek citizens, they really didn’t care for that suggestion much. In fact, there were days and days of rioting in the streets at the suggestion that the government was not going to pay for their entitlements.  They felt the government was unjustly abandoning them.  They felt a gross distrust of their leaders as if they were entirely to blame.  If they could stage a coup to replace their stingy government with one that gave them everything they expected, they would do it.  And they still might.

The reaction of Ed’s wife was similar.  She was really pissed at Ed.  She felt betrayed.  She distrusted Ed.  She went through the 5 stages of grief.  She swore off sex.  If she was Greek she would have rioted in the streets.  “How dare you make me responsible for my own personal expenses” Ed related her accusation.  This reaction was despite the fact that she would be putting less money into the common pot, would keep more of her own money, and would have greater control of her own funds. 

What she will be missing is the illusion of unlimited funds in the common pot.  Wow!  That is the same illusion maintained by populations in most socialist societies.

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