A few days ago there was a good suggestion: let’s talk about economic and financial ignorance in Hungary. Of course, there are well known Hungarian economists. In fact, I remember as a first year grad student talking to an economics professor of mine who somehow expected me to excel in economics simply because "Hungarians are very good economists." Undoubtedly preserving the reputation of Hungarian economists, I didn’t become one. I took a few courses, but mostly Soviet and East European economics which in those days had little to do with the real stuff.
I became suspicious about Hungarian ignorance of the most basic economic principles when a young relative came to visit me in the United States. That was in 1994-95. He was a college student: bright, energetic, with good language skills. He applied for everything he could, and among other things he received a scholarship for a work exchange program to the United States. He took a leave of absence and spent a year here. Came Christmas and my young cousin arrived. Gyula Horn had just sacked László Békesi, his minister of finance, because the prime minister didn’t like what Békesi had to tell him: if the government doesn’t do something the country will go bankrupt. I was outraged, and I tried to explain to Gyuri (we called him George the Third because he was the third George in the family) the financial facts of life. It was obvious that he didn’t understand a thing. He complained bitterly about the high interest rate (I don’t want to lie but I remember something like 25%). What kind of a country is it where the banks charge that much money on a loan, he asked. I brought up the obvious. But, Gyuri, what about the rate of inflation? Oh, inflation? It seemed to be a revelation to him that interest rates and inflation had anything to do with one another.
Not long ago I talked to a cousin of mine who manages my meager Hungarian assets. She reported that she had put X amount into long-term CDs. Which bank are you using, I asked. She mentioned a bank I had never heard of, but in the name was the word "nemzeti/national." Oh, I inquired, why this one? Because a national bank will not fail! Here I’m not talking about somebody with an eighth grade education but a former school principal.
The same cousin’s latest is the following. Here is the BKV (Budapest Transit System) which is in constant trouble. A CEO comes, another goes, and nothing ever changes. No lending facilities are available to them, they run up huge yearly deficits, and the city (Budapest) that owns the company can no longer help because they don’t have any money. So BKV appeals to the central government, and the government says: sorry, we gave you 30 billion not so long ago and there is no more. Admittedly, there’s no easy fix. But I mentioned to my cousin that perhaps the best solution would be to privatize the transit system. The reply: "Well, I don’t know, look what happened to MÁV Biztosító." To explain, in case you haven’t heard of MÁV Biztosító, it is an insurance company that initially insured MÁV employees but quickly moved into the infinitely more profitable world of fraud, selling car and other insurance with no intention of ever paying any claims. It’s easy for Hungarians to conflate privatization and fraud.
Another thing that people don’t seem to understand is that it is indeed proper and perhaps even more just to tax property rather than to rely so heavily on income tax. Even responsible politicians (and I think Károly Herény, MDF, is responsible and reliable) can say really stupid things about the introduction of property tax. He, and many others, announce that "the real estate owned was purchased from already taxed income. This is double taxation." Yes, but then sales tax is also double taxation. After all, I am purchasing goods (including foodstuff and clothing) from monies I already paid taxes on. And this sales tax is not low: even on bread it is 20%. But while you eat the bread and it disappears into your stomach, the property you purchased, the house you built, is presumably an investment that will appreciate in value over time. (Even in the United States, with the horrific housing data, those people who bought before the housing bubble are okay.) And so isn’t this a possible source of governmental revenue?
Middle-class pensioners whose income seems rather meager may actually own several pieces of real estate. Many middle-class people built or purchased weekend houses in the 70s and 80s, some people inherited another apartment after their parents died which they now rent, they may have purchased an apartment for their grown-up sons or daughters, and yet they pay no or very little tax on these properties. For someone who lives in the United States this is very strange. In this country, the main form of taxation, actually the only kind until the beginning of the nineteenth century, was tax on property. And to this day, this tax is the basis of the municipalities’ budget. In Hungary the municipalities receive the bulk of their income from Budapest. I think it would be better for the towns to have an independent source of income that could be adjusted to local conditions. And more importantly, it would lighten the burden on those who right now carry the whole burden of the budget through income tax. However, when I mentioned my ideas concerning property tax, this same cousin announced that she hopes she will die before its introduction.
And finally, the politicians themselves are working furiously to lead the people down the garden path if it serves their purpose. The minister of finance had to announce an upward adjustment in the projected rate of inflation for the next few months. Obviously, the reason for this is not local conditions but the international commodities markets. The cost of energy and food. Both originating far away from Hungary. Yet, Péter Szijjártó, who majored in economics, blamed the Hungarian government’s policies for the higher than projected rate of inflation. This kind of misleading statement serving only political purposes certainly doesn’t help the cause of economic literacy.