Bohanon: The Greek Crisis and Two Views of Justice

July 6, 2015

by Cecil Bohanon, Ph.D.

Unless you have been living under a rock, you know about the Greek crisis. The government there ran up a lot of debt by issuing government bonds. For the last five years, the Greeks have obtained debt relief from their European partners in exchange for spending cuts and tax increases.

Yet, even with these mutual concessions, Greece did not have the cash to pay off a loan from the International Monetary Fund (IMF) that came due June 30. Neither side would budge on the terms, and now Greek voters have indicated they support their government’s hard-line stance of no more Greek budget cuts or tax increases.

The way forward is uncertain at the time of this writing. My initial thoughts begin with a reminder that Greece is the home of ancient philosophy, a central question of which is the meaning and nature of justice. Two alternative views of justice permeate thinking about the Greek financial crisis.

The first is what we might call contractual justice. Adam Smith in “Theory of Moral Sentiments” illustrated it well: “If I owe a man 10 pounds, justice requires that I should precisely pay him 10 pounds.”

Smith’s view is echoed in Jane Austen’s “Persuasions.” In that novel, the feckless and vain baronet Sir Walter Eliot has borrowed to live beyond his means. When the debts become overwhelming, a family friend, Lady Russell, compiles a plan so that “in seven years he will be clear.” Lady Russell notes that “after all, the person who has contracted debts must pay them.”

In this view, justice requires one to fulfill one’s obligations as outlined in the original agreement. Paying one’s debts is, in Lady Russell’s world, central to “the character of an honest man.” To avoid paying a debt is morally shameful.

This is in marked contrast to another view that we might call redistributive justice. For example, the United Kingdom’s Global Justice Now, a political-action group active in this discussion, describes itself as “a democratic social justice organisation working as part of a global movement to challenge the powerful and create a more just and equal world.” It is currently “taking action against Greek debt and an end to the enforcing of austerity policies that are causing injustice and poverty.”

We suspect it is this concept of justice that the Greek prime minister, Alexis Tsipras, had in mind when, on the day before the default on the IMF loan, he tweeted: “We have justice on our side.”

In this view, justice requires that in any economic arrangement, the interests of the poorest folks impacted by the transaction take first priority. This view sees justice as concerned with income and wealth distribution. To force a poor man to pay his debt is morally shameful. And because Greece is poor, it is shameful for rich Germans to insist they get paid.

As appealing as the redistributive notion of justice sounds to some — who wants to see poor people suffer — the long-run consequences are disastrous. If the European Union (EU) accommodates Greece’s financial demands, what is to prevent any EU member from following Greece’s example: overspending and then expecting, indeed demanding, that the rest of the EU cover its losses?

No economic arrangement can survive if it degenerates into a system in which everyone tries to live off everyone else. Such a system simply ensures eventual poverty and suffering for all. It is in the long-run interests of the EU, then, to pursue justice as viewed by Adam Smith and Jane Austen and not Alexis Tsipras.

Cecil Bohanon, Ph.D., is a professor of economics at Ball State University.

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