A garden-variety recession might be called an economic crisis, but it is actually routine, and in fact beneficial for the economy, in the long run. There is part of the beauty of capitalism. However, it can develop into a real economic crisis, if pushed by either a financial crisis or a political crisis.
The global financial crisis of 2008/9 started with an implosion of two hedge funds, obliterating Lehman Brothers, and igniting a first-class financial crisis. An economic crisis promptly followed. While we had a dysfunction government, we did not have a real political crisis, except for the failure to raise our debt ceiling, costing us our AAA credit rating. (While some pundits think the severity of the financial crisis and economic crisis made our government even more dysfunction, I believe that is yet to be proven.)
The current Greek tragedy started as a political crisis, perhaps some sense of entitlement for the great contributions Greece has made to the “civilized” world. Regardless, the political leaders of Greece lavished entitlements on the Greek voters, rewarding them with the lowest retirement age in Europe, if not the world. As the devil of mathematics approached and wanted to be paid, Greece had the opportunity to escape by joining the euro, which bought them more time, allowing them to dig the hole even deeper. Unfortunately, Greek political leaders jumped at the opportunity to delay the inevitable. It was akin to selling drugs to an addict. Finally, the devil still has to be paid, and here we are.
Since the Greek tragedy began five years ago, initial payments to the devil have reduced GDP by 26 percent, which is a first-class economic crisis. Now, we are tipping into a financial crisis, which is usually the worst type of crisis.
Writing for Inside Business four years ago, I said the best thing we can do for our friends and loved ones in Greece is to send them a one-way plane ticket. That is still true!