The Big Question is: By How Much?

Rodney Johnson | Thursday, May 02, 2013 >>

Stavros Iatridis, one of our guest speakers at our network conference in Phoenix last Friday and Saturday, spoke about a famous Greek island called Zakynthos.

Apparently Zakynthos is a very beautiful place, with white sand beaches, crystal clear, turquoise water like nowhere else, breathtaking rock formations, near-sheer cliffs and forest-covered hills.

But that’s not why the island is famous. After all, many Greek islands are beautiful. This island is famous because it has such a high number of blind people. With more than 650 blind people out of a population of just 35,000, this small island has a blindness rate ten times that of Europe.

Obviously, something is up on the island of Zakynthos.

At first blush, you might think this weird situation has something to do with the island’s gene pool, which is small enough to have caused a hereditary disease to run wild through the generations.

Not a bad guess. But it’s wrong.

You might think there’s some pollutant or other shared factor – such as a food source – that has caused blindness to afflict so many people. This too would be a reasonable explanation, but just like hereditary traits, it is also wrong.

Unfortunately, the answer to the riddle of Zakynthos is much more mundane, and is immediately obvious to anyone who visits…

Upon arrival on the island, a traveler might be greeted by a taxi driver, who would then drive the traveler to a hotel. Along the way the traveler might notice farmers tending their fields and perhaps even local hunters. Once in town, the traveler would most likely browse the local shops and eventually eat in a local restaurant, meeting shopkeepers and restaurant owners in the process.

On the island of Zakynthos, it is possible that each one of these people the traveler sees – the cab driver, the farmer, the hunter, the restaurateur, and the shopkeeper – are all blind. Or at least, blind enough to register as such with the Greek government, and therefore collect disability payments.

Of course, most of the “blind” inhabitants of this Greek isle are not blind at all. They have simply found a way to commit fraud. They did it to enhance their income, and therefore their standard of living, at the expense of the government.

This approach to life is quite common in Greece, where agents of the taxing authority have a sliding scale of bribes taxpayers can pay to reduce their tax liability. Paying a bribe to lower a debt to the government is a different method of fraud, but it leads to the same result – some individuals increase their own financial position at the expense of the national coffers.

This approach to life is another, international, example of Me-O-Centric economics (focusing on one’s self). The problem of course is that the fraud doesn’t take away from some third party government person. It takes away from the rest of the population.

Government coffers don’t exist in a traditional, physical sense. Whatever is owned or owed by the government is an extension of the constituents. So when the inhabitants of Zakynthos falsely claim blindness they’re stealing from their neighbors, both near and far. When the tax collectors accept bribes to lower tax bills, they’re enriching themselves and the ones who owe the taxes at the expense of the rest of the population.

Fraud and tax evasion are not new under the sun, but the level of such abuse in Greece is noteworthy. Many people will see such things as part of the reason Greece is in dire shape. Maybe… but maybe the extent of this abuse is a symptom of a bigger problem.

Greece has not been a dynamic, growing economy for decades, except for those sectors funded by the explosion of credit in the early 2000s (which is not the kind of growth necessary to sustain an economy!). As the traditional channels available for improving one’s position were closed off, people looked for other ways to improve their lot.

Fraud and tax evasion at many levels is now common. There is a clear focus on one’s self at the expense of others.

Interestingly, Japan has not seen (or at least has not reported) the same level of fraudulent behavior over the last two decades, even though that economy has definitely suffered from dwindling opportunities. The Japanese population appears to be more focused on shared sacrifice, and certainly has a sense of individual responsibility for one’s choices.

This all brings up a question: what will happen in the U.S.?

Our Great Recession has now lasted more than five years. We’ve seen the housing mess blow up and convulse several times, with hundreds of thousands of home owners simply not paying their mortgages, even when they are able.

We’ve seen a steady rise in disability payments. There are now almost 50 million Americans on food stamps.

Are we moving to a point of “Me-O-Centrism,” with every man out for himself as we plod through the economic winter season with fewer opportunities? Or do we demand common sense progress from our elected officials so that we can ease some of our regulatory burdens (like the tax code) and have a sense of shared purpose while we plant the seeds for growth in the next economic season?

The only way we’ll know the answer is in hindsight.

But one thing seems clear from both the Greek and the Japanese examples – we will experience higher taxes and eventually reduced benefits. The situation facing the U.S., as the boomers deleverage and eventually retire, is clear. We’ve over-promised and have no hope of delivering on items such as Social Security and Medicare.

We are not in a position to decide IF we cut payments, or IF we raise taxes. At this point it seems the only question is “By how much?”

Whether we do this with shared purpose, trying to right our financial ship, or if we try to keep the current (and broken) system in place for as long as possible, remains to be seen.

In the meantime, continue to build up streams of income where ever you can. Don’t get sucked in by the media coverage of our present condition that claims “all is well.” Be skeptical of what you hear from the government. And above all, keep reading Survive & Prosper.

Rodney

 

 

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Categories: Economy

About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.