The people running a country are sitting-targets for the sort of people who, themselves not in charge of anything of very much importance, are fond of criticising, that is until something crops up and they too find themselves in the driving-seat, whereupon they discover it’s not as easy as it looked from the outside. Every so often politicians hold an election so that the sort of people into criticism can decide whom they’d like to be in charge of running the country. In the UK, the system is popularly known as first-past-the-post and often the way to understand how electoral reality works is to remember that the party that gets a lower percentage of the votes than all the other parties put together wins. In other words, if you want to get elected then make sure the majority of people do not vote for you.
I think it fair to say we tend to take the running of a country for granted. For most “ordinary people” (as the media describes the general public), money is not the most important item on our agenda. Our enthusiasm for money-subjects is not that high on a list of interesting things to do. It’s not that we take money for granted; on the contrary, we need money to live on, but money has its place and for most people that place is less likely to dominate the headlines regularly than does sport, disasters, royalty, celebrities, and whatever wheeze politicians are getting up to. Consequently, based on a survey of three people chosen at random, I think it fair to say that most people don’t know how a country is financed. They know that the tax they pay to the government is used to pay for public services, and they may have heard of gilt-edged stock and/or national savings, but that’s about it. What they rarely know is that the government also borrows money to help keep up appearances partly for the country and partly to give the impression the politicians know what they are doing.
Every so often, there’s a call from the concerned for school-children to be better educated and informed about money-matters. A perennial concern is APR, a way of expressing the rate of interest which frankly is lost on me. I suspect it’s lost on others too. Paradoxically, whereas it’s understandable that children are encouraged to hand over pocket money to their parent(s) and guardian(s) for safe-keeping, I’ve never really understood why adults do the same with other adults. The idea that some adults can be entrusted to look after other people’s money is be better for all, rather than each adult looking after their own money which, to my way of thinking, would make more sense because the only person to entrust is oneself.
The argument for letting others manage your money is partly to make it harder for you to spend it whenever you like, and partly to involve economy of scale. In the context of savings and investment, economy of scale works on the principle that it is invariably cheaper to hand over your money to someone whose job is to manage other’s people money and charge for the privilege than it is to learn how to manage it yourself. It’s a ploy that has worked successfully for centuries and might continue to work well in future, were it not for the calamity that Greece is currently experiencing, through being unable (or unwilling) to meet payment of a monthly instalment to its creditors.
Why politicians should be any better at managing taxpayers’ money and the public purse when political ideology can be at odds with financial prudence is one of those questions best left unanswered. The tax you pay is the amount of money you wish to contribute to the public finances. I don’t know much about Greece, never having visited, but the impression I have is that its public sector is larger than its private sector and costs a packet in tax revenue to maintain, that the wealthier Greeks do not pay enough tax and poorer Greeks do not earn enough for their tax-contributions to make up the difference. When the books cannot be balanced, because there is never enough in the kitty to pay for the public sector, a country has to borrow money, or cut back on its public services, or increase taxes, or a combination of those. Living off credit is all very well when the economy is performing positively and consistently, there being lenders with an eye for the main chance, but things come unstuck when warnings of an impending downturn are unheeded and the economy is performing negatively.
Generally, whenever we take something for granted, and leave it to someone else to deal with, it’s not until something goes wrong that we demand an explanation. It’s at that stage that how best to facilitate an understanding of the process, especially one that is complicated, can become challenging. Whenever someone goes wrong, and the media give it all they’ve got, a host of experts and ilk is introduced to the general public to explain the ins-and-outs. By the end of the news-story, we are all experts in yet another thing for us to remember.
In the mid-1970s when I pioneered the idea of specialising in rent review negotiation, the old school of surveyor-thought wasn’t enamoured with scrutinising every word and phrase in a lease. Never mind what the lease states, it’s the spirit of the parties’ intention that counts. That got short shrift. Not a lot of point in having a lease and not sticking to it. Nowadays, at micro level, bank and borrower, loan-to-value covenant, any deviation from the rule book and the bank gets protective of its own. At macro-level, lending money to a country is in the same hierarchical league as personal investment. When you invest your own money, (no borrowing), you are borrowing from yourself. You are not losing interest as such, unless you keep your cash on deposit with a bank or saving institution, but you are losing liquidity in exchange for an asset, which may not be as liquid. When you borrow money to invest, the same principle applies but in stressful state: your ability to repay both interest and capital will depend upon your resources and the confidence you have in your choice of investment to perform. If you don’t have sufficient resources to tide through any void periods then investing in anything that carries the risk of a void is likely to cause problems for you.
In Greece, events are unfolding too fast for someone like me whose grasp of the situation would probably fall under the heading of nonsense to predict. But for students of negotiating psychology, how the Greek government has handled the crisis to date is I think brilliant. Identify differences and test the insurmountable. Emotional letting off steam having cut no ice, call a referendum for days after the deadline. Threatening to resign if the vote goes against introduces more uncertainty. Keep moving the goal-posts: a creditor has to have someone in authority to negotiate with. The strategy mirrors rent-review negotiation where tenants remain silent or resistant, forcing the landlord to either concede or implement the dispute procedure and incur extra costs, there being no certainty that any increase would be payable. It is too soon to know the tangible outcome of the No vote in the Greece referendum, except to note that almost 40% voted to accept the creditors’ terms. So what? I deduce that those of us that negotiate rents can assume that events in the wider world have moved us up a notch.