Don’s Diary

Who knows what the final outcome will be of the current financial crisis in Europe ?  The future of a stable Eurozone is at risk.  Those of us who have worked, saved and invested will continue to watch with more than a casual interest as this instability impacts on our savings and investments.  It is too late to smugly recalling the well known advice in Shakespeare’s Hamlet:

            “Neither a borrower nor a lender be,

            For loan oft loses both itself and friend, ....”

It is more pertinent if we want to avoid the problem here to bring to mind the comment from Maggie Thacher: “The problem with socialism is that you eventually run out of other people's money”.

 

Fault finding is not helpful except to adopt measures to avoid the situation here in Australia.  To this end we need to recognise that lenders, tempted by earning interest, have a moral and commercial responsibility not to extend loans to those that have little or no prospect of fulfilling their repayments.  Borrowers should appreciate that while it can be prudent to borrow to develop and improve income earning capacity, it is extremely risky to borrow to pay the grocery bills.  They should bear in mind the advice that there is no such thing as a free lunch (Milton Friedman (1912-2006). 

 

The antics now are how to fix the Greek problem.  We have the usual suspects in the media and the current Greek government taking the view that the lenders should accept a solution based on the principal of the ability to pay rather than the borrowers meeting their loan obligations.  Some commentators go so far as to say that attempts to remove Greece from the Eurozone are to “punish” the country.  What about the hard working Germans and others who funded loans to an economy not known for its industry and austerity in recent times?  This is occurring in Greece, the mother of democracy, a political concept to protect its citizens currently failing to do so. The situation is producing many and widespread losers.

 

National debt and the reduction of sovereign risk is the province of national governments.  In Europe and in Australia there are democracies.  However our expectations of democracy to solve problems of national debt should not be too high.  Winston Churchill (1874-1965) warned us of the fragility of democracies during WW2 when he said: “It has been said that democracy is the worst form of government except all the others that have been tried.” 

 

In Australia we have voting systems that result in governments being elected that do not have the power to govern.  Perhaps a preference vote should only have half the value of a primary vote and preferential should be non-compulsory: is it democratic to have to vote for candidates that you do not know? 

 

Our preferential voting system, argued to be democratic, results in minimal negotiations between interest groups before an election.  This often results in a majority being elected with a policy platform that may not be deliverable.  It also results in too much reliance on goodwill and good faith among elected interest groups that  all too often allow self interest over national interest to prevail.  We sometimes elect dills to our Senate especially from States where there are low voting quotas.  In some States, and one would argue the less productive States, a vote has much more power than in other States: hardly democratic!  Many mistakenly think that democracy is an entity rather than concept and a process.  As a result I believe that Australia is very vulnerable to the Greek “disease”.  How can we expect to have prudent financial in this situation when there is popularist greed to live beyond our means?

 

How to we survive?  People need to be weaned off the welfare system encouraging them, as we would say, to become useful members of society.  As we in Freemasonry are taught, we must encourage industry and reward merit.  People must be allowed to retain ownership of the rewards of their labours and the rewards for the risks that they take in their investments.  They need to learn how to establish and conduct businesses by reducing the risk of being an employer and a borrower.  In the meantime, let us drop a tear of sympathy for those citizens who have been born into an unproductive society and have been duped by their politicians to believe that there is such a thing as a free lunch and an economy can thrive on debt.  

 

 

Yours fraternally ,

Don Paterson