Archive for May, 2010

This past weekend, Boston was hit by a tragic, dare I say, life changing event.  No, it wasn’t a SARS epidemic, or the eruption of a volcano, or even a train derailment.  2 million people had to boil water over the course of 3 days.   eeekk!

I would be surprised if you didn’t read about it since it was considered a national event.  On Saturday evening, a big pipe that supplied water to Boston and many surrounding towns burst at a seam. (News article).  Now, before you get weepy eyed over the agony faced by those that fought for bottled water or that needed to boil water for one minute to protect themselves from drinking lake water, understand that the pipe was fixed (within 2 days) and it turned out that the water from the lake tested fine.

However nightmarish this event was, rest assured that our government pounced on this like a kitten on a ball of yarn.  Governor Patrick surveyed the hole created by the broken pipe (is he an engineer?) with rolled-up sleeves.  And thankfully, it didn’t stop there, he was able to convince our president to declare a state of emergency, calling on the Department of Homeland Security and FEMA to aid in the rescue efforts (from what is still unclear to me).  And not to be out done, the state senate will hold hearings to “get to the bottom of this” and determine why a 7 year old 10 foot in diameter pipe that carried tens of millions of gallons of water daily could possibly fail.  They want to make sure they find those at fault and get their pound of flesh.

A number of questions have popped up in my mind.

• Who thought it a great idea to have such concentration in our water supply?
• Are we past the point where mechanical things break just because?
• Is it really so costly and drastic of an event that required national assistance?
• Why did our president react faster to this than to the Gulf oil spill?
• Shouldn’t the state senate be asking why we are so dependent on one system rather than asking how to make that one system more sophisticated?
• Why were store shelves depleted of bottled water yet were stocked with milk and fruit juices which cost less (on average)?

I’m not a big fan of foul language in public but was jail time really necessary?  What was the judge protecting law abiding citizens from?  A shirt?

As of last night, it appears there is agreement on bailing out Greece.  Between Europe and IMF (which depends on the US for 25% of their funding), Greece will get about $150B worth of loans (paying a 5% interest rate)  in order for them to meet their current debt obligations (private investors demand an 8% interest rate given the risk) and internal needs.  In return for these loans, Greece has bitten the bullet and will dramatically cut salaries and pensions… temporarily.

I think it important to state a few facts about Greece.

• They rank second from the bottom on the Index of Economic Freedom (highly socialized economy).
• They import 3x more than they export (net users).
• Their government has overspent tax revenues by at least 15% each year for the past 5 years (spent more than produced).
• They have a debt level that is at least 125% of what they produce in a year in GDP .
• Public services account for 40% of their published GDP (so about half of their “GDP” is value productive).
• 42% of those between 55-64 are employed versus 52% in Europe and 62% in the US (few work).
• Tax rates on income are some of the highest in Europe (over 40%)
• Their fertility rate is below replacement rate (i.e. aging population that retires early).
• Their government spends over 12% of their GDP on pensions, double the US, second only to Italy at 15%.

So, with that little amount of information, what is the likelihood that Greece can pay off these loans?  Remember, in the agreement as formed last night, Greece only needs to get their spending down to 103% of their tax revenues by 2014.  In other words, they will still spend more than they make.

Now on to the dramatic cuts.  Riots were all the rage over the weekend as pensioners and union employees protested the expected cuts in entitlements and the anticipated rise in taxes.  The question that hit me was, who are they protesting against?  It’s a democracy from what I understand.  They are the ones benefiting from the large promises they made to themselves (early retirement, large pensions, free healthcare, etc) from which they are the sole providers of the funds for those promises.  Their government officials only act as the transfer agents; taking tax dollars from the few that work and place it into the hands of all in the form of entitlements.  Most likely, they are protesting that their guardians, their providers, are no longer able to borrow money to pay for promises that had no reasonable economic foundation supporting them.

I was struck by a quote in this article,

“These are the harshest, most unfair measures ever enacted. That is why our reaction will be decisive and dynamic. You can’t always make the workers pay for the results of failed policies,” Stathis Anestis, spokesman for Greece’s largest umbrella union, GSEE, told The Associated Press.

I find this to be very circular:  People are protesting because they cannot fund the promises they made to themselves.  (I just don’t see how this loan solves anything or how this ends well for anyone).

This is worth reading…