About This Blog

Ludwig von Mises (1881-1973) was the greatest economist of my time. His greatest works can be accessed here at no charge.

Mises believed that property, freedom and peace are and should be the hallmarks of a satisfying and prosperous society. I agree. Mises proved beyond a shadow of a doubt that the prospect for general and individual prosperity is maximized, indeed, is only possible, if the principle of private property reigns supreme. What's yours is yours. What's mine is mine. When the line between yours and mine is smudged, the door to conflict opens. Without freedom (individual liberty of action) the principle of private property is neutered and the free market, which is the child of property and freedom and the mother of prosperity and satisfaction, cannot exist. Peace is the goal of a prosperous and satisfying society of free individuals, not peace which is purchased by submission to the enemies of property and freedom, but peace which results from the unyielding defense of these principles against all who challenge them.

In this blog I measure American society against the metrics of property, freedom and peace.

Friday, September 28, 2012

Is Europe The Canary Dying In The Mine Shaft?

How can anyone read the latest headlines describing what is going on in Europe and not be alarmed?

GREECE -- On Wednesday Greek workers began a general strike "backed by the country's biggest private sector force, the General Confederation of Greek workers (GSEE), the union of civil servants (ADEDY), and militant unionists attached to the KKE communist party."

According to reports, Greece accounts for "about 2 percent of the eurozone's total economy." The country is in it's fifth year of recession and it's unemployment rate is "above 24%."

Greek policemen fleeing protesters' "gasoline bomb"
Greece's nearly four-month old, conservative party coalition government is surviving "on billions of euros in two rescue loan packages from other eurozone countries and the International Monetary Fund." To appease its creditors the government has "slashed salaries and pensions and hiked taxes." To secure another round of bailout money the government is proposing more spending cuts and "improved tax collection." This "austerity" is what has the unionists upset:
While the demonstration began peacefully, a couple of hundred protesters broke away to smash paving stones and marble facades to use as missiles against riot police, leading to clashes that petered out after about an hour.

Eight policemen were injured, including one hit by a gasoline bomb, and 21 people were arrested, police said. At least two demonstrators were also injured.

Government spokesman Simos Kedikoglou said the limited violence and what he called a smaller turnout than opposition parties had hoped for showed that "Greek society understands what the government is doing is the only possible solution."

SPAIN -- On Thursday the Spanish government announced "a crisis budget for 2013." Spain accounts for about 9% of the total eurozone economy. Spain's economic downturn has persisted for at least three years and its unemployment rate is about 25%.

Protesters in Catalonia demanding secession
Spain's "center-right" government, in power for less than a year, projects spending will be down 7.3% in 2013 "not including social security and interest payments." Central government revenue will rise 4% in 2013 because of a 15% increase in Spain's VAT "tax take."

These "austerity" measures are all mere proposals, of course, and the country is still awaiting required budget cut proposals from Spain's 17 "autonomous regions." One wealthy region, Catalonia, is already experiencing "anti-austerity protests" and is threatening "secession."

The Spanish government's budget projections hinge on a rosy prediction of its near-term growth rate and on cuts in government pensions which "are likely to fuel further street protests, which have become increasingly violent as tensions rise and police use force to disperse crowds."

Possible investors in Spain "fear Madrid cannot control its finances." Currently, the government "is talking to EU authorities about the terms of a possible aid package" in order to "ease Spain's unsustainable funding costs."      

FRANCE -- Today the French government announced the country's "toughest single belt-tightening in 30 years" including a new 75% tax on the "super-rich."

France accounts for about 16% of the total eurozone economy. France has experienced at least a year of economic stagnation and has a record unemployment rate of 10.2%.

French health workers in 2011 protesting austerity measures
The recently elected, socialist French government announced that two-thirds of its "austerity" belt tightening would come from "tax increases on households and companies" and one-third from a "freeze on spending."  The new "temporary" tax on the super-rich is expected to bring in a relative pittance. The bulk of the tax revenue increase will come from higher tax rates "on dividends and other investments" and "cuts to existing tax breaks."

Reportedly, the new budget "dismayed business and pro-reform lobbyists." Given the tax-heavy budget, they feared France would fall short of its growth rate target for next year which stands at a meager 0.8%! The new taxes also prompted fears of "an exodus of top talent." A few weeks ago France's richest man declared "he had applied for Belgian nationality - but stressed he would continue to pay taxes in France."

CONCLUSION -- Readers may draw their own conclusions about where all this economic turmoil is heading, and what implications it holds for our own country. What I find most interesting are the efforts by these welfare state government to fix their problems by extracting more and more resources from their non-public economies. So many individuals in these countries are so deeply invested in government jobs, pensions and welfare payments that any slight cut in spending triggers protests, some of them violent.

Consequently, while politicians label their new budget solutions courageous and austere, they are top heavy in new taxes aimed at defusing public anger and continuing a "comfortable" welfare state status quo. But how can any sane economist believe that increased taxes on investment will spur growth?

What's needed is a meat-axe approach to budget cuts and a corresponding lowering of taxes on business and capital investment.

These countries will never be able to tax their way out from under the mountain of debt they've created for themselves. Neither will they be able to get out from under this debt by implementing "comfortable" cuts in spending. The only way out is to dissolve the welfare state completely. Which means taking control away from central government planners, bankers and politicians and returning liberty of action and property to individuals in a free and private market.

Of course, the odds of such a thing happening are zero. So, as my mother used to say, sometimes you have to learn your lessons the hard way.

EPILOG -- As an aside, I also take the opinions of private brokers and investors quoted in the referenced articles above with a huge lump of salt.


Consider the mentality of equity brokers and investors in our own American markets. Did anyone else see this headline Tuesday: "Dow drops 100 after Fed official's warning?" 

According to Yahoo! Finance:
A quiet day on Wall Street turned into the worst sell-off in three months after a Federal Reserve official said he doubted the bank's effort to boost economic growth would work.
Are you kidding me? Are Wall Street brokers really that stupid, economically illiterate and impressionable? Did they sell off because they honestly thought the Fed's QE3 would "boost economic growth?" Or did they sell off because they knew QE3 was a con job and because the Fed official had just spilled the beans to their clients?

Who puts their investment money in the hands of morons like these?

I guess the answer is everyone who is invested in the stock market.

Good luck to those folks.


John Galt said...

The "wealthy region of Catalonia" is not really wealthy. They just asked the central government in Madrid to bail them out for 5.1 billion Euros in loans. The Catalonians are a familiar breed: a beggar with a stick - they ask for independence and stab you in the back with one hand, and take your wallet for $5 billion with the other hand.

Of course, this independence thing is not to be taken seriously. It flares out occasionally when the times get hard, and flares away when the free goodies start flowing again.

Kim at Conservatives on Fire said...

The difference between the US and Greece and Spain is primarily that we can print our own money and they can not. We are more like Japan. How many decades have they lost now? The PIIGS and the US Democrats say the problem is not enough revenue. Yhey are partly right. The problem is they think they ccan increase revenue by raising taxes when their unemployment is sky high and their economies are shrinking. It is insane!

I don't know what Greece produces beside olives and shipping tycoons. But, they would be better off to leave the Euro Zone and go back to their own currency and begin plans to become the Singapore of the Mediterranian. They should establish zero corporate taxes and zreo capital gains tax and get out of the way and let free enterprise go to work for them. They won't, of course. They would rather play thee role of victims.

Great post, Sherman!

Sherman Broder said...

Hmm. I thought I replied to your comment yesterday. For some reason it didn't take. Anyway, I wanted to say I stand corrected. Thanks. It's also a shame so many are apt to play political games when the financial crisis is deadly serious. People think they are immune to the laws of economics.

Sherman Broder said...

Thanks. Your comment calls to mind your piece on building a capitalist paradise in Honduras. So much potential out there for true prosperity if people only realized.