Cyprus, Euro, and the Welfare State. A re-telling of Ant and the Grasshopper

A few weeks ago, while on my walk by the river, I had company that I had not planned on, when I slowed down to my neighbor's speed for most of the walk.  And we chatted.  While discussing our respective hobbies--I have none--he talked about this music interests.  "There must be a way for society to help out struggling musicians" he said.

I was not sure how seriously I needed to follow-up on that.  This was, after all, at a walk by the river.  But, I couldn't let that slide either.  I went for it.

"That is the kind of issues we are now struggling with.  Different kinds of work have varying levels of incomes associated with them.  So, if one chooses to follow a certain path that doesn't have the returns one expects, then should we really require those who opted for a different path to subsidize the former?  Or, should society worry only about those who, for physical or mental reasons, are unable to fend for themselves?"

I effectively killed that topic.  We continued on with other less controversial topics.

Before the birth of the modern welfare state, we might not even have had any need to engage in such discussions.  It was an unfair world where opportunities were highly unequal, based on the social class into which one was born--something beyond anybody's control.  Liberal democracies, especially in the post-WWII era, have been experimenting with policies that attempt to equalize those opportunities.  Some try to equalize the outcomes, which is what my neighbor seemed to want our society to do in the case of musicians.

The welfare state, with its heavy focus on equalizing outcomes, is a big factor in the ongoing Eurozone crisis. High levels of taxation on those with higher earnings helped pay for those who, like my neighbor's musician friend, either were in occupations that didn't pay much, or, even worse, opted to retire at 55 and spend the rest of their lives on pension from the state.

It really doesn't require that metaphorical PhD in rocket science to figure out that such a system is unsustainable.

Cyprus happens to be a collateral damage in this unsustainable setup, even though it was in a much better state than even its immediate neighbor, Greece.  In fact, it is that very neighbor that has messed up Cyprus:

Greece happened. Cypriot banks were heavily exposed to the Greek debt crisis, by virtue of having large bonds holdings of Greek debt, both public and private. The value of that debt took a nosedive, destroying the balance sheets of Cypriot banks. 

Here in the US, thanks to the myth of anybody making it, we are more interested in the equality of opportunities than in the equality of outcomes.  But, of course, we can't really make it an even playing field.  There is a limit to which government can intervene and make opportunities less unequal.  Truly equal it can/will never be.  Born into President Bush's family will result in opportunities that will be in plenty compared to being born to John and Jane Doe in Anytown, USA.

Where do we then draw the line on equalizing opportunities, or outcomes, or both?

Aesop dealt with something similar in the tale of the Ant and the Grasshopper.  The grasshopper has a good time feeding on the abundant food in the summer, singing and dancing away, while the ant toils away to save for the rainy days that were bound to follow the long summer days.  One can easily imagine what happens to the grasshopper when the rains and cold weather settle in over the winter.

Somerset Maugham authored a wonderful twist to this story, which is what perhaps the Greeks and everybody else hoped would happen to them also.

But, even Maugham couldn't have written the irony that is unfolding in the Euro area: the ants are being penalized and asked to pay for the grasshoppers who sang and danced away.

The longer I live, the more I realize that life is a fascinating series of retelling, and new interpretations, of old stories.  Fascinating only as long as I am not the grasshopper shivering and starving on a rainy, cold, winter night, of which we have in plenty here in Oregon.

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