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Greece's Libertarian Communists

Sticks & stones; just look how radical Syriza's aims could prove...
IF I WERE to start throwing around solutions for the situation in Greece, writes Nathan Lewis of New World Economics in this story first published at Forbes, they would include:
  • A debt restructuring: Greece's government can't pay the present debt load of over 175% of GDP, so it won't, and shouldn't;
  • A major tax reform: Greece's 45% payroll tax rate, plus its 23% VAT rate, plus a personal income tax system with a top rate of 46% (and the 32% rate hitting at only 26,000 Euros of income), makes business activity basically impossible...unless you evade the taxes. So, that's what people do, if they want to somehow obtain food and shelter. Others rely on government handouts – welfare recipients, government employees, and crony businesses – concluding (correctly) that regular economic activity is pointless in this environment. If all this wasn't disastrous enough, capital gains are taxed as regular income. The new government is also planning a "Large Property Tax", or basically a wealth tax. Plus, I'm sure there are hundreds of junk taxes on all sorts of nonsense, which always happens in these situations;
  • A major overhaul of government services, aiming to provide the same level of service with much lower cost to the government. This would likely include a major reduction of government employee headcount, probably a restructuring of employment agreements, and eliminating myriad crony deals with government suppliers;
  • Either keeping the Euro, or introducing other "stable money" alternatives such as an "open currency policy" where people can use any currency they wish.
While I am sure some will accuse me of airy-fairy libertarian fantasizing, I actually think the present Syriza government – yes, the "communists" – are pretty close to this strategy already.
Let's see what I mean...
The Syriza party's main policy platform was basically to break out of the "austerity" framework imposed by outsiders, and proceed with a debt restructuring.
Tax reform has not been a serious focus for the new government. However, their "anti-austerity" stance leads naturally to lower tax rates, because "austerity" basically means higher taxes – such as the increase in the VAT to 23% from 19% in 2009, the increase in the corporate tax rate to 26% from 20% in 2012, and the increase in the top income tax rate to 49% from 40% in 2009 (it was later lowered). If this is bad for the economy, and bad for government finances – which has been abundantly proven – that should make the "anti-austerity" party a tax-reform party.
The idea of "structural reforms" – including providing existing services at much less cost - is a part of the Syrizia government's plan. Here's Alex Tsipras talking with Germany's Der Spiegel:
"In a crumbling society and a country with a humanitarian crisis, you can't sink wages any further. We can, however, push forward with structural reforms. We want to finally create institutions to efficiently apply taxes. We want to modernize the judiciary so that you no longer have to wait a year for a verdict. In the future, it should be possible to establish a company quickly and without extensive bureaucracy. We will also develop a land and property registry, something that has been promised since 1930...We will restrict the unrestrained activities of the oligarchs. They control the media and still receive huge loans from the banks, in contrast to normal companies. We would also like to monitor the work of state suppliers, which have established vast cartels. No reasonable person can be opposed to such a plan, and we are determined to tackle it."
That section could have come out of a speech by Ron Paul.
Unlike the legions of mostly Anglophone economists who think Greece needs its own currency for the purposes of prompt devaluation, Greeks themselves have no interest in junk currencies. Between 1980 and the adoption of the Euro in 2000, the Greek drachma's value sank to one-eighth of its starting value versus the US Dollar. Prosperity was not achieved with this strategy – again – so Greeks were quite happy with letting the Germans (they thought) manage their currency. 
In January, finance minister Yanis Varoufakis said that "Greece will neither want to leave the Euro nor threaten to do so." He might change his mind if the Euro's value sinks more, but clearly these people do not fall in the camp of left-leaning cheap-money devaluationists.
So, we find that the only major point in which the present government deviates from my airy-fairy Libertarian ideal is on tax reform – and, I would say that their "anti-austerity" stance might eventually lead them to embrace a low-tax solution, much like their neighboring countries.
A more detailed discussion of tax reform will have to wait, but I note that Russia has been down this path before, so perhaps the new Greek government should have a talk with their Russian friends. The year 2000 was a big one for Russia. That was the year Vladimir Putin was first elected president, with a vision for radical growth and prosperity that would return then-decrepit Russia to its historic position as a major world power. Putin aimed to achieve this in part with his 13% flat tax plan.
It was also the year that Russia's government restructured its debts with foreign lenders, reducing the net present value of that debt by about 50%.
It was the year that Russia kicked out the IMF and all of its "austerity" garbage.
The result? Russia's economy, measured in US Dollars, increased by eight times (!) between 2000 and 2007, and in less than a decade, Russia indeed regained its status as a major world power. Along the way, the Russian government's tax revenues also increased by about eight times, which helps to pay for a lot of things.
This was noticed, especially by Russia's European neighbors. An explosion of flat-tax imitators followed, including Greece's northern neighbors Albania (10%, 2007), Bulgaria (10%, 2008), and Macedonia (15%, 2007). I recorded the experience of these countries with their flat-tax strategy, which amounted to dramatic economic expansion and higher tax revenues.
I think that tax reform, not only of the income tax but also the crushing VAT/payroll tax combo and all other taxes, is the key that could turn Greece into the example to follow for larger Eurozone countries in a similar situation. It could be achieved while also upholding all of the left-leaning government's values and concerns regarding Greece's less-well-off.
Plus, unlike most governments including that of the United States, I think the Syriza government is actually bold enough to do it.

Formerly a chief economist providing advice to institutional investors, Nathan Lewis now runs a private investing partnership in New York state. Published in the Financial Times, Asian Wall Street Journal, Huffington Post, Daily Yomiuri, The Daily Reckoning, Pravda, Forbes magazine, and by Dow Jones Newswires, he is also the author – with Addison Wiggin – of Gold: The Once and Future Money (John Wiley & Sons, 2007), as well as the essays and thoughts at New World Economics.

See the full archive of Nathan Lewis articles.

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