One would think that Europeans might finally be realizing that an ever-growing welfare state and an ever-rising tax burden are a form of economic suicide.
The most obvious bit of evidence is to look at what’s happening in Greece. Simply stated, public policy for too long has punished workers and producers while rewarding looters and moochers. The result is economic collapse, bailouts, and the destruction of cultural capital.
But Greece is just the tip of the iceberg. Many other European nations are heading in the same direction and it shows up in the economic data. Living standards are already considerably lower than they are in the United States. Yet instead of the “convergence” that’s assumed in conventional economic theory, the Europeans are falling further behind instead of catching up.
There are some officials sounding the alarm.
In a column for the Brussels Times, Philippe Legrain, the former economic adviser to the President of the European Commission, has a glum assessment of the European Union.
In 2007, the EU accounted for 31 per cent of the world economy, measured at market prices. This year, it will account for only 22 per cent, according to the International Monetary Fund (IMF). Eight years ago, the EU’s economy was a fifth bigger than the US’s; this year it is set to be smaller than America’s. …Continued economic decline seems inevitable.
But it seems that the folks who recognize that there is a problem are greatly out-numbered by those who want to make the problem worse.
For instance, one would think that any sentient adult would understand that the overall burden of government spending in Europe is a problem, particularly outlays for redistribution programs that undermine incentives for productive behavior.
Yet, as reported by the EU Observer, some statists at the European Commission want to mandate the amounts of redistribution in member nations.
The European Commission is to push for minimum standards on social protection across member states… Employment commissioner Marianne Thyssen Tuesday (9 June) said she wants to see minimum unemployment benefits, a minimum income, access to child care, and access to basic health care in all 28 countries. …The commission will look into whether “enough people are covered in member states when they have an unemployment problem; how long are they protected. What is the level of the unemployment benefit in comparison with the former wage they earned,” said Thyssen. …”The aim is to have an upper convergence…”
This is a horrible idea. It’s basically designed to impose a rule that forces nations to be more like France and Greece.
Instead of competition, innovation, and diversity, Europe would move even further in the direction of one-size-fits-all centralization.
Though I give her credit for admitting that the purpose of harmonization is to force more spending, what she calls “upper convergence.” So we can add Ms. Thyssen to our list of honest statists.
And speaking of centralization, some politicians want to go beyond mandates and harmonization and also have EU-wide taxes and spending.
Here are some of the details from a report in the U.K.-based Guardian.
German and French politicians are calling for a…eurozone treasury equipped with a eurozone finance chief, single budget, tax-raising powers, pooled debt liabilities, a common monetary fund, and separate organisation and representation within the European parliament. …They call for the setting up of “an embryo euro area budget”, “a fiscal capacity over and above national budgets”, and harmonised corporate taxes across the bloc. The eurozone would be able to borrow on the markets against its budget, which would be financed from a kind of Tobin tax on financial transactions and also from part of the revenue from the new business tax regime.
By the way, this initiative to impose another layer of taxes and spending in Europe isn’t being advocated by irrelevant back-bench politicians. It’s being pushed by Germany’s Vice Chancellor and France’s Economy Minister!
Thankfully, not everyone in Europe is economically insane. Syed Kamall, a member of the European Parliament form the U.K.’s Conservative Party, is unimpressed with this vision of greater centralization, harmonization, and bureaucratization.
Here’s some of what he wrote in a column for the EU Observer.
The socialist dream that these two politicians propose would soon turn into a nightmare not just for the Eurozone, but for the entire EU. …Their socialist vision of harmonised taxation and more social policies sounds utopian on paper but it fails to accept a basic fact: that Europe is not the world, and Europe cannot close itself off from the world. …After several decades of centralisation in the EU, we have seen the results: …a failure to keep up with growing economic competitiveness in many parts of the world. …Specific proposals such as harmonised corporate taxes are nothing new from the socialists, but they would reduce European competitiveness. …With greater harmonisation Europe’s tax rate would only be as low as the highest-taxing member. …
Syed’s point about Europe not being the world is especially relevant because the damage of one-size-fits-all centralization manifests itself much faster when jobs and capital can simply migrate to other jurisdictions.
And while the Europeans are trying to undermine the competitiveness of other nations with various tax harmonization schemes, that’s not going to arrest Europe’s decline.
Simply stated, Europe is imposing bad policy internally at a much faster rate than it can impose bad policy externally.
P.S. Let’s close with some humor sent to me by the Princess of the Levant.
It features the libertarian character from Parks and Recreation.
And I even found the YouTube clip of this scene.
Which is definitely worth watching because of how Swanson explains the tax system.
I particularly like the part about the capital gains tax. It’s a good way of illustrating double taxation.
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Reblogged this on a political idealist. and commented:
The problem is not the type of government in power, but the politicians who are running it. And unfortunately, there are too many bad politicians in power who are slowly but surely ruining Europe’s economy.
Governments will double down, triple down, and even 100-trillion down. There is no point where a statist will quit short of eating the last bean. One might as well try to convince a bankrobber to show he is a good guy by leaving a bit in the bank.
In Zimbabwe, government officials stole from the people by printing worthless currency, and stole until they couldn’t steal any more. But, certainly our public officials would never lie, cheat, or steal. And if they would, then they would certainly leave something, right?
http://www.adamsmith.org/blog/money-banking/theres-a-lot-of-ruin-in-a-nation/
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[edited, summarized]
There’s a lot of ruin in a nation
(Picture: A Z$250 Million Zimbabwe dollar bill)
The largest Zimbabwe currency note was issued in 2008 denominated Z$100 trillion. This would pay for about four bus rides at the time. Today, it is worth US$.40 (40 cents).
(A trillion is a million million, 1 with 12 zeroes. A quadrillion is 1000 trillion, 1 with 15 zeroes.)
Zimbabweans have until September 2015 to turn in their old banknotes, now sold as souvenirs to tourists. Bank accounts with balances up to 175 quadrillion Zimbabwean dollars will be paid US$5. Additional Z$ will be exchanged at US$1 per Z$35 quadrillion.
Our favourite story is from the final days of the disastrous Zimbabwe hyper-inflation. Printing currency is usually very profitable. A bit of paper, some ink, and you have a banknote that is worth whatever the government says. But, the government finally stopped printing more Z-dollars because (wait for it) no one would accept Z-dollar bills in any amounts or denomination as payment for the ink needed to print the Z$ banknotes.
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The problem, of course, is that socialists don’t see socialism as the problem. They continue to insist that it is the solution. So as the house burns down, they keep shouting, “Quick, throw more gasoline on the fire to put it out!” And they moan that the problem is that they just don’t have enough gasoline.
After years of low productivity your crops dwindle and as you start feeling hungry, you find it increasingly difficult to muster the resolve to plow seed and cultivate. You reflexively storm the barn and eat next year’s seed. Hunger blinds you and you become more concerned that if you are not amongst the first to storm the barn, there will be little left for you to eat. You have completed your journey into Modern Hellenization.
So ingrained has now become in the Greek psyche the fact that nothing internationally competitive can ever flourish on Hellenic soil, that the only desperate reflexive move is to ask for ever more “help” from the government.
Insidious and imperceptible at its beginning, this vicious cycle has been long in the making in Greece. Predictably, it has now entered its more visible and turbulent phase.
But the same cycle is well underway in the rest of Europe. Italian growth has virtually stalled this past decade, Spain and Portugal have already gone through a mini Greek cycle without a sustainable return to competitiveness, and France is not far behind. Germany and the Northern European nations cannot muster a growth trendline of even 2%, half the world average.
The US seems to also have visibly entered the same vicious cycle. Otherwise how does one explain that a nation finally experiencing the compounding effects of statism in 2008, elected someone like Mr. Obama? American structural trendline growth, a new lower Euro-like 2%, is now perpetually trailing world growth by 2% and compounding. American prosperity rankings are well on their way towards being absorbed into the middle income countries.
The solution? More HopNChange! Follow Europe…
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There is one thing the left completely fails to understand.
That the transition area from the virtuous growth cycle of optimism (the old America) to the vicious decline cycle of desperation (Europe) depends on very narrow motivation margins. A few more small taxes, a little more welfare and you can easily pass from virtuous cycle to vicious decline spiral.
Very, very, very few people stop working the day after their taxes go up 10% or the day after their welfare checks go up 10%. However, on the world stage, an additional 10% tax at the top and an additional 10% welfare at the bottom may just flatten your effort-reward curve enough to convert your virtuous exceptionalism cycle into decline. An extra 10% tax and/or an extra 10% welfare may be just enough to knock your country’s aggregate motivation level out of the world leaders group. Your country’s aggregate motivation level is no longer amongst the top economies of the world. Rapid decline (on a historical time scale) ensues.
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But I do have a problem with the more simplistic segregation of people into producers and moochers, though I understand the expediency of verbal hyperbole when one is trying to advance into his/her main argument.
Europeans do not neatly segregate into a shrinking set of battered producers and an ever increasing class of moochers and looters, as they do in Ayn Rand’s novels. After many years of statism (i.e. coercive collectivism), society becomes a mixed bag. The Galts, having failed at true production, remain greedy and primarily concerned with their own welfare and that of their own families — just like the liberals whose true colors show when a relative gets in trouble. So the Galts start morphing into Taggarts at various speeds. And guess what? Galts are quite smart, they’re typically quite good at being Taggarts too.
More importantly the morphed Galts, having good intuition, teach their children the utility and dismal success probabilities of choosing the idealist Galt path in life. So they start teaching their offspring the Taggart skills, lest, they warn, “you will waste your youth for only marginal gains”. Galts are trained into Taggarts before even becoming adults: Clever statists who know how to live off the public’s desire for coercive collectivism and the little productivity left in a statism deadlocked society. Growth stalls, and the malaise of decline turns everyone into a survivalist jerk.
But perhaps even more importantly, this more simplistic segregation, does not help Americans understand the insidious gradual transformation of the Galts into Taggarts and helps perpetuate the myth and complacency that America is somehow a different place, immune to the malaise that has at one time or another engulfed the entire rest of the world.
This oversight, this naive lemming path towards Europeanization, will be very costly and will be bad news for a nation that has been accustomed to being atop the world prosperity rankings for almost a century.
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