Time for another LinkSwarm!
Archive for the ‘Welfare State’ Category
LinkSwarm for May 6, 2013
Monday, May 6th, 2013Spain IS Beyond Doomed, But It’s Not Practicing Real Austerity
Tuesday, April 30th, 2013Take a look at these charts. Unemployment in Spain is up over 25%, and most have been unemployed more than 2 years. Matthew O’Brien is correct when he says that Spain’s inflexible labor laws contribute greatly to the unemployment, but errs when he says that “austerity hasn’t been the path to prosperity. It’s been the path to perma-slump.”
Austerity hasn’t failed in Spain. It hasn’t been tried.
Spain last ran a budget surplus in 2008, and since then it has engaged in deficit spending. In 2012, Spain’s budget deficit was 9.4% of GDP, and this year it will be 10.6% of GDP.
Remember, real austerity isn’t trying to tax-and-spend your way to prosperity. Real austerity is cutting budgets until outlays match receipts. Estonia bit the bullet and balanced its budget, and its economy is now growing at a steady clip. Meanwhile, governments all across Europe continue to try the same deficit spending Keynesian pump-priming, and keep having the same recession. In most of Europe, “austerity” has meant digging their own graves more slowly rather that stopping digging.
And European elites refuse to stop digging because their power and perks all stem from swaddling voters in an unsustainable cradle-to-grave welfare system.
If all this sounds familiar, that’s because it is. Europe makes the same mistakes, gets the same results, and keeps doubling down on stupid, content to keep the farce running as long as they possibly can. Instead actually of solving the interrelated problems of debt, unsustainable entitlements, and the Euro, the Euroelite seem content to preside over the world’s slowest, most boring train wreck. Yes, it’s a pity the train is sliding inexorably toward the chasm, but there’s such fine vintages to be had in the saloon car, and it offers such a magnificent view of the coming crash…
Greece: More Bailouts, More Fake Austerity
Wednesday, April 17th, 2013While attention was focused on the Boston bombing, Gosnell, and gay marriage, Greece just got another bailout. This is in exchange for further “austerity.”
What sort of “austerity” is Greece practicing? The sort that involves deficit spending at 10% of GDP, which is up from 9%. It was supposed to be cut to 7.5%.
So Greece wants more money because it can’t even keep to its previous promises on its fake austerity goals.
Let me explain it once again: Real austerity is cutting spending until it matches incoming receipts. Not reducing the rate of deficit spending. Not raising taxes so politicians can continue to spend.
No country in the EU (at least outside the Baltics) has practiced real austerity. That Forbes piece on the Baltic nations includes a lot of good advice that EU nations are largely ignoring:
Don’t run up big debts. It is a lot easier to manage when things go bad if you aren’t overextended to start. Observed Rosenberg: “Estonia’s experience shows that prudent policies during the boom may not avoid a bust, but they can put the country into a better position to deal with shocks.”
Don’t engage in an orgy of “stimulus” spending. That will run up big debts without generating long-term growth. When budgets eventually are cut, as they will have to be, the economic loss and political pain will be even greater.
Make tough decisions early. People typically are ready to act after the crisis hits. In the case of Latvia, argued Asmussen, by acting swiftly “most of the required painful budgetary decisions could be passed before the so-called ‘adjustment fatigue’ kicked in.”
Maintain fiscal responsibility. Otherwise any progress will be transitory. Growth is the natural result of reform. Delaying reform exacerbates the problem while prematurely terminating reform short-circuits the recovery.
Emphasize budget cuts. Expansive and irresponsible public outlays usually contribute to economic crisis. Moreover, the state as well as citizens should sacrifice after a crash. The answer is to cut expansive and irresponsible public outlays. In fact, economists Alberto Alesina and Silvia Ardagna found that “spending cuts are much more effective than tax increases in stabilizing the debt and avoiding economic downturns. In fact, we uncover several episodes in which spending cuts adopted to reduce deficits have been associated with economic expansions rather than recessions.”
Finally, don’t rest on one’s laurels. There always is more to do. Even nations which have implemented serious reform programs, like the Baltic States, could make further improvements.
As far as I can tell, none of the core EU states (and certainly none of the PIIGS) has tried this approach since the 2008 recession hit. They keep trying Neo-Keynesian pump-priming and deficit spending to keep both the Euro and their unsustainable welfare state float, and they keep experiencing endless recession. Their fake austerity comes in slightly reducing the amount of their deficit spending enough to pretend they’re in compliance to keep the bailouts coming. Ireland hasn’t practiced real austerity. Neither has Portugal, Spain, or Italy (though Italy has come closest).
The shell game of bailouts and fake austerity will continue as long as the Eurocrats can keep getting away with it.
Texas vs. California Update for April 16, 2013
Tuesday, April 16th, 2013Time for another Texas vs. California update:
Alarm bells have been ringing loudly in the heads of municipal bond investors…If you’re the chief of municipal bond investing for a big bank, whether on Wall Street or in San Francisco, Los Angeles or Chicago, this gets your attention. You might hesitate to lend hundreds of millions of dollars to other cities and counties if you fear they might go the Stockton route. Even if you proceed, you might insist on higher interest rates to compensate for what now appears to be added risk. That can translate to higher local taxes.
And Even More on Margaret Thatcher
Wednesday, April 10th, 2013And still more on the late, great Margaret Thatcher:
This is incredible quaintness bordering on total delusion, the notion that Thatcher invented or popularised the previously unpopular notion of selfishness is laughable. As if before Margaret Thatcher the population of Britain was a kibbutz, or British people were known for their intense altruism, tossing money out of windows in the hope that literally anyone else would have it… She was a democratically elected politician after all, she won three elections and lost none, she didn’t dictate the mood of the public, rightly or wrongly – she reflected it.
LinkSwarm for April 4, 2013
Friday, April 5th, 2013Been a while since the last Friday LinkSwarm, so here it is!
Government spending on bailouts, subsidies, grants, salaries and entitlements commands a much larger share of these economies than it did just a few years ago. European austerity has been focused on the private sector — namely, taxpayers with high incomes.
That is the second thing the PIIGGS have in common. The highest income tax rate was recently increased in every one of the troubled PIIGGS except Italy (where it was already too high at 43%). The top tax rate was hiked from 40 to 46.5% in Portugal, from 41 to 48% in Ireland, from 40 to 45% in Greece, from 40 to 50% in Great Britain, and from 48 to 52% in Spain.
Texas vs. California Update for April 3, 2013
Thursday, April 4th, 2013Time for another Texas vs. California roundup:
Mid-Day Cyprus Bailout Update for March 26, 2013
Tuesday, March 26th, 2013News keeps on churning…
Lessons from the Cyprus Bailout
Tuesday, March 26th, 2013So the Cyprus crises is “solved,” for values of “solved” that means “everyone but bankers and Eurocrats get screwed.”
The European cradle-to-grave welfare state is unsustainable. It’s only a matter of how many trillions will be destroyed before the world is willing to face that fact.
Quick Cyprus Update for March 21, 2013
Thursday, March 21st, 2013Cyprus crisis is a miniature version of the Greek crisis, and the Greek crisis is a miniature version of Europe’s crisis. The scale and details differ, but the underlying problem is mind-numbingly familiar: People spending too much of other people’s money with too little accountability. Cyprus bank bailouts are unsustainable in the same way that Greek government bailouts are unsustainable in the same way that the European cradle-to-grave welfare state is unsustainable.
How could it have been avoided? The same way any of the multitudes of financial crises that have rocked Europe in last several years could have been avoided: Don’t spend money you don’t have. That solution is both blindingly obvious and completely unacceptable to the Eurocratic elite (as well as our own liberal ruling class). After all, the bloated welfare state is where they get theirs. Nothing can be allowed to come between the permanent ruling class and their perks. Nothing.
Some current Cyprus news:
Once Greece hit the skids in 2010, it was inevitable that Cyprus would follow. Already by 2011 the government was effectively prevented from selling bonds by a junk credit rating. It resorted to a €2.5 billion ($3.2 billion) loan from the Russian government, due in 2016. The killer, though, was the pact reached in October 2011 to reduce the value of Greek government bonds by 70 percent. That produced a loss to the Cyprus banks of more than €4 billion—the same in proportion to the economy’s size as a $4 trillion loss in the U.S. President Demetris Christofias, seemingly not realizing the severity of the blow, agreed to the haircut without seeking offsetting aid for Cypriot banks. He eventually sought a bailout, but, befitting a left-wing politician who earned a doctorate in history in the Soviet Union, dragged his heels on cutting government spending while inveighing against the “troika” of the European Union, the European Central Bank, and the International Monetary Fund. Losses mounted.
