Greece's 'invisible hand' is tied as the gods look away

Economy March 05, 2015 01:00

By Dr Athakrit Thepmongkol
the S

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IN THE LATE 1770s, Adam Smith introduced a term "invisible hand" in The Wealth of Nations, which later led to him becoming known as the "father of economics".

He emphasised the magic of the market mechanism in allocating resources and distributing income.

In times of crisis, the market adjusts itself to accommodate shocks and automatically puts an economy into a recovery process. It is as if there is a powerful god helping us all the time. Therefore, Adam Smith suggested that we do nothing and simply have faith in the work of God.

Speaking of gods, no gods seem to me to be more powerful than those of the Greeks. However, the gods appear to have forsaken Greece these days by letting them sink into a chronic debt crisis.

Since 2008, Greece has experienced negative growth in gross domestic product, though the number just turned positive in the last few quarters. Unemployment has been above 10 per cent since 2010, and eventually hit a peak at 27 per cent in 2013. Moreover, its debt-to-GDP ratio rose from 100 to 170 per cent within the past eight years.

How has the land of mythology fallen into such a deep mess? What have all the gods and their invisible hands been doing?

At first glance, the beginning of the misery was continuous budget deficits. Previous Greek governments were blamed for their populist policies as they spent an enormous amount of money over the past decade on non-productive activities such as defence, the public sector, and pensions and other social-welfare benefits.

On top of this, Greece has suffered from tax evasion and corruption. In particular, it was evident that Greece attempted to hide its real debt position and on many occasions misreported its official economic figures, which greatly affected its credibility.

Hence we might quickly judge that Greece deserves its ongoing hardship as it completely originates in the country’s own lack of fiscal and moral discipline.

But maybe that is too na