Feeds:
Posts
Comments

Archive for the ‘European Commission’ Category

What an amazing vote. The people of the United Kingdom defied the supposed experts, rejected a fear-based campaign by advocates of the status quo, and declared their independence from the European Union.

Here are some takeaway thoughts on this startling development.

1. The UK has voted to leave a sinking ship. Because of unfavorable demographics and a dirigiste economic model, the European Union has a very grim future.

2. Brexit is a vote against centralization, bureaucratization, and harmonization. It also is a victory for more growth, though the amount of additional long-run growth will depend on whether the UK government seizes the opportunity for lower taxes, less red tape, and a smaller burden of government.

3. President Obama once again fired blanks. Whether it was his failed attempt early in his presidency to get the Olympic Games in Chicago or his feckless attempt in his final year to get Britons to remain in the EU, Obama has a remarkably dismal track record. Maybe I can get him to endorse the Boston Red Sox, thus ensuring the Yankees make it to the World Series?

4. Speaking of feckless foreign leaders, but I can’t resist the temptation to point out that the Canadian Prime Minister’s reaction to Brexit wins a prize for vapidity. It would be amusing to see Trudeau somehow justify this absurd statement, though I suspect he’ll be too busy expanding government and squandering twenty-five years of bipartisan progress in Canada. Potential mea culpa…I can’t find proof that Trudeau actually made this statement. Even with the excuse that I wrote this column at 3:00 AM, I should have known better than to believe something I saw on Twitter (though I still think he’s vapid).

5. Nigel Farage and UKIP have voted themselves out of a job. A common joke in Washington is that government bureaucracies never solve problems for which they were created because that would eliminate their excuse for existing. After all, what would “poverty pimps” do if there weren’t poor people trapped in government dependency? Well, Brexit almost surely means doom for Farage and UKIP, yet they put country above personal interest. Congratulations to them, though I’ll miss Farage’s acerbic speeches.

6. The IMF and OECD disgracefully took part in “Project Fear” by concocting hysterical predictions of economic damage if the U.K. decided to get off the sinking ship of the European Union. To the extent there is some short-term economic instability over the next few days or weeks, those reckless international bureaucracies deserve much of the blame.

7. As part of his failed effort to influence the referendum, President Obama rejected the notion of quickly inking a free-trade agreement with the UK. Now that Brexit has been approved, hopefully the President will have the maturity and judgement to change his mind. Not only should the UK be first in line, but this should be the opportunity to launch the Global Free Trade Association that my former Heritage Foundation colleagues promoted last decade. Unfettered trade among jurisdictions with relatively high levels of economic freedom, such as the US, UK, Australia, Switzerland, New Zealand, Chile, etc, would be a great way of quickly capturing some of the benefits made possible by Brexit.

8. David Cameron should copy California Governor Jerry Brown. Not for anything recent, but for what he did in 1978 when voters approved an anti-tax referendum known as Proposition 13. Brown naturally opposed the referendum, but he completely reversed himself after the referendum was approved. By embracing the initiative, even if only belatedly, he helped his state and himself. That would be the smart approach for Cameron, though there’s a distinct danger that he could do great harm to himself, his party, and his country by trying to negotiate a deal to somehow keep the UK in the EU.

9. Last but not least, I’m very happy to be wrong about the outcome. I originally expected that “Project Fear” would be successful and that Britons would choose the devil they know over the one they don’t know. Well, I’m delighted that Elizabeth Hurley and I helped convince Britons to vote the right way. We obviously make a good team.

Joking aside, the real credit belongs to all UK freedom fighters, even the disaffected Labour Party voters who voted the right way for wrong reasons.

I’m particularly proud of the good work of my friends Allister Heath of the Telegraph, Eamonn Butler of the Adam Smith Institute, Dan Hannan of the European Parliament, and Matthew Elliott of Vote Leave. I imagine Margaret Thatcher is smiling down on them today.

Now it’s on to the second stage of this campaign and convincing California to declare independence from the United States!

Read Full Post »

On June 23, the people of the United Kingdom will have the opportunity to restore sovereignty and protect democracy by voting in a national referendum to leave the European Union.

They should choose “leave” over “remain.”

The European Union’s governmental manifestations (most notably, an über-powerful bureaucracy called the European Commission, a largely powerless but nonetheless expensive European Parliament, and a sovereignty-eroding European Court of Justice) are – on net – a force for statism rather than liberalization.

Combined with Europe’s grim demographic outlook, a decision to remain would guarantee a slow, gradual decline.

A vote to leave, by contrast, would create uncertainty and anxiety in some quarters, but the United Kingdom would then have the ability to make decisions that will produce a more prosperous future.

Leaving the EU would be like refinancing a mortgage when interest rates decline. In the first year or two, it might be more expensive because of one-time expenses. In the long run, though, it’s a wise decision.

From an American perspective, George Will has been especially insightful and eloquent. Here are some excerpts from a recent column in the Washington Post.

Lord Nigel Lawson… is impatient with the proposition that it is progress to transfer to supra-national institutions decisionmaking that belongs in Britain’s Parliament. …The Remain camp correctly says that Britain is richer and more rationally governed than when European unification began. The Leave camp, however, correctly responds that this is largely in spite of the E.U. — it is because of decisions made by British governments, particularly Margaret Thatcher’s, in what is becoming a shrinking sphere of national autonomy. In 1988, Thatcher said: “We have not successfully rolled back the frontiers of the state in Britain, only to see them reimposed at a European level with a European super-state exercising a new dominance from Brussels.”

Here’s a good visual of what’s happening. What began as a good idea (free trade) has become a bad idea (economic union) and may become an even worse idea (common government).

Here’s what Dan Hannan, a British Member of the European Parliament, wrote on the issue. He’s very pro-Europe, but understands that does not mean European-wide governance is a good idea.

I’m emotionally drawn to Europe. I speak French and Spanish and have lived and worked all over the Continent. I’ve made many friends among…committed Euro-federalists. …they are also decent neighbours, loyal companions and generous hosts. I feel twinges of unease about disappointing them, especially the anglophiles. But, in the end, the head must rule the heart.

Dan identifies six reasons why it is sensible to leave.

Here are relevant portions of his arguments, starting with the fact that the EU is becoming a super-state..

The EU has acquired, one by one, the attributes and trappings of nationhood: a president and a foreign minister, citizenship and a passport, treaty-making powers, a criminal justice system, a written constitution, a flag and a national anthem. It is these things that Leavers object to, not the commerce and co-operation that we would continue to enjoy, as every neighbouring country does.

Second, it is only pro-trade for members, not the wider world.

The EU is not a free-trade area; it is a customs union. The difference may seem technical, but it goes to the heart of the decision we face. Free-trade areas remove barriers between members and, economists agree, tend to make participants wealthier. Customs unions, by contrast, erect a common tariff wall around their members, who surrender the right to strike individual trade deals. …Britain is one of only two of 28 member states that sell more to the rest of the world than to the EU. We have always been especially badly penalised by the EU’s Common External Tariff. Unlike Switzerland, which enjoys free trade with the EU at the same time as striking agreements with China and other growing economies… It’s a costly failure. In 2006, the EU was taking 55 per cent of our exports; last year, it was down to 45 per cent. What will it be in 2030 — or 2050?

Third, the advocates of common government are candid about their ultimate goals.

The Five Presidents’ Report sets out a plan for the amalgamation of fiscal and economic policies… The Belgian commissioner Marianne Thyssen has a plan for what she calls ‘social union’ — i.e. harmonisation of welfare systems. …These are not the musings of outlandish federalist think tanks: they are formal policy statements by the people who run Brussels.

Fourth, Europe is stagnant.

…in 1973, the states that now make up the EU accounted for 36 per cent of the world economy. Last year, it was 17 per cent. Obviously, developing economies grow faster than advanced ones, but the EU has also been comprehensively outperformed by the United States, Canada, Australia and New Zealand. …Why tie ourselves to the world’s slowest-growing continent?

Fifth, there are examples of very successful non-EU nations in Europe.

…we can get a better deal than…Switzerland…and Norway…; on the day we left, we’d become the EU’s single biggest export market. …They trade freely with the EU…they are self-governing democracies.

And last but not least, a decision to remain will be interpreted as a green light for more centralization, bureaucratization, and harmonization.

A Remain vote will be…capitulation. Look at it from the point of view of a Euro-federalist. Britain would have demanded trivial reforms, failed to secure even those, and then voted to stay in on unchanged terms. After decades of growling and snarling, the bulldog would have rolled over and whimpered. …With the possibility of Brexit off the table, there will be a renewed push to integration, on everything from migrant quotas to a higher EU budget.

Dan’s bottom line is very simple.

We have created more jobs in the past five years than the other 27 states put together. How much bigger do we have to be, for heaven’s sake, before we can prosper under our own laws?

Roland Smith, writing for the U.K.’s Adam Smith Institute, produced The Liberal Case for Leave. Needless to say, he’s looking at the issue from the classical liberal perspective, not the statist American version.

Anyhow, here’s some of what he wrote.

…the 1970s turned out to be an odd period where many things that seemed like good ideas at the time turned out not to be. …While there may have been an element of truth about EEC membership in the 1970s that seduced many subsequent sceptics…our timing for joining “the club” could not have been worse. …globalisation was beginning to eat into the logic of a political European Union at the very point it was striding towards statehood with a single euro currency. …the European single market is being rapidly eclipsed. …The EU is therefore increasingly becoming a pointless middleman as a vast new global single market takes over.

Here’s a chart from the article showing the European Union’s rapidly falling share of global economic output.

Mr. Smith does not think it’s smart to link his country’s future to a declining bloc of nations.

We are now less dependent than ever on our closest trading partners in Europe and this trend is marching relentlessly onward. For the first 40 years of our membership, the majority — over 60% — of UK exports went to the EU. But in 2012, for the first time, that figure dropped below 50%. It is now at 45% and continues to sink. …The demographics of the European continent, alongside the dysfunctional euro and its insidious effects across Europe have also played a large part in this change… This situation and these trends are not going to change.

Here’s his conclusion.

This Brexit vision is therefore a global, outward-looking and ambitiously positive one. It eschews the inward-looking outlook of…the Remain lobby… So a parochial inward-looking “little Europe” and a demographically declining one, ranged against an expansive, liberal and global outlook. …The crux of the matter is that we in Britain want trade and cooperation; our EU partners want merger and a leashed hinterland.

These are strong arguments, so why does Prime Minister David Cameron want to remain?

And why is he joined by the hard-left leader of the Labour Party (actually, that’s easy to answer given the shared leftist orientation of both Jeremy Corbyn and EU officials), along with most big companies and major unions?

Most of them, if asked, will argue that a vote to leave the EU will undermine the economy. They’ll cite estimates of lower economic output from the International Monetary Fund, the Organization for Economic Cooperation and Development, the British Treasury, and other sources.

To be blunt, these numbers lack credibility. A pro-centralization, pro-EU Prime Minister asked for numbers from a bureaucracy he controls. As critics have pointed out, the goal was to produce scary numbers rather than to produce real analysis.

And the numbers from the international bureaucracies are even more laughable. The IMF is a left-wing organization with a dismal track record of sloppy and disingenuous output. And the OECD also is infamous for a statist perspective and dishonest data manipulation.

Indeed, the palpable mendacity of these numbers has probably boomeranged on supporters of the EU. Polls show that voters don’t believe these hysterical and overwrought numbers.

Instead, they laugh about “Project Fear.”

Yet, as reported by John Fund of National Review, the EU crowd is doubling down in their panic to frighten people.

…the organizers of Project Fear have gone into overdrive. European Council President Donald Tusk said in an interview with the German newspaper Bild that radical anti-European forces will be “drinking champagne” if Brexit passes.  …Tusk said. “As a historian I fear that Brexit could be the beginning of the destruction of not only the EU but also of western political civilization in its entirety.”

End of western civilization? Seriously?

Gee, why not also predict a zombie apocalypse?

These chicken little predictions are hard to take seriously when Britons can look at other nations in Europe that are prospering outside the European Union.

Consider Norway. Advocates of the EU claimed horrible results if the country didn’t join. Needless to say, those horrible results never materialized.

This doesn’t mean there aren’t honest people who sincerely think it would be a mistake to leave the European Union.

Indeed, a survey by the Centre for Macroeconomics found very negative views.

Almost all panel members thought that a vote for Brexit would lead to a significant disruption to financial markets and asset prices for several months, which would put the Bank of England on high alert. On top of the risk of a financial crisis in the near future, an unusually strong majority agree that there would be substantial negative long-term consequences.

Other economists seem to agree.

Four of them produced an article for VoxEU, and here’s some of what they wrote.

The possibility of the UK leaving the EU has generated an unusual degree of consensus among economists. …analysis from the Bank of England, to the OECD, to academia has all shown that Brexit would make us economically worse off. The disagreement is mainly over the degree of impoverishment… The one exception is…Professor Patrick Minford of Cardiff University, who argues that Brexit will raise the UK’s welfare by 4% as a result of increased trade… Minford’s policy recommendation is that following a vote for Brexit, the UK should not bother striking new trade deals but instead unilaterally abolish all its import tariffs… we know of no cases where an industrialised country has ever implemented full unilateral liberalisation – and for good reason. Persuading other countries to reduce their trade barriers is easier if you can also say you’re going to reduce your own as part of the deal. If we’re committed to going naked into the world economy, other countries are unlikely to follow suit voluntarily. …In reality, the UK will still continue to trade extensively with our closest geographical neighbours, it’s just that the higher trade barriers mean that we will do less of it.

Other establishment voices are convinced that the United Kingdom would be crazy to leave the EU.

Robert Samuelson, in his Washington Post column, views it as a form of national suicide because of existing economic ties to continental Europe.

Countries usually don’t knowingly commit economic suicide, but in Britain, millions seem ready to give it a try. …Leaving the E.U. would be an act of national insanity. It would weaken the U.K. economy, one of Europe’s strongest. The E.U. absorbs 44 percent of Britain’s exports; these might suffer because trade barriers, now virtually nonexistent between the U.K. and other E.U. members, would probably rise. Meanwhile, Britain would become less attractive as a production platform for the rest of Europe, so that new foreign direct investment in the U.K. — now $1.5 trillion — would fall. Also threatened would be London’s status as Europe’s major financial center, home (for example) to 78 percent of E.U. foreign exchange trading. With the U.K. out of the E.U., some banking activities might move to Frankfurt or other cities. …Brexit is an absurdity. But it is a potentially destructive absurdity. It creates more uncertainty in a world awash in uncertainty.

Allister Heath of the Daily Telegraph disagrees with these proponents of the status quo.

David Cameron and George Osborne have been claiming, over and again, that those of us who support Brexit have lost the economic argument. …utter nonsense. …The free-market, cosmopolitan, pro-globalisation economic case for leaving is stronger than ever… The hysterical studies claiming that Brexit would ruin us are grotesque caricatures, attempts at portraying a post-Brexit Britain as a nation that suddenly decided to turn its back on free trade and foreigners. …a Brexit would almost certainly mean the UK remaining in the European Economic Area (EEA), like Norway: we would be liberated from much political interference, be allowed to forge our own free-trade deals while retaining the single market’s Four Freedoms. Europe’s shell-shocked corporate interests would demand economic and trade stability of its equally traumatised political classes, and they would get it. …with supply-side reforms at home, the UK would become more, rather than less, attractive to global capital. The Treasury, OECD and IMF’s concocted Armageddon scenarios wouldn’t materialise. Remain has only won the economic argument in the sense that most economists and the large institutions that employ them support their side.

And Allister points out that the supposed consensus view of economists has been wildly wrong in the past.

Time and time again, the majority of economists make spectacularly wrong calls, and it is a small, despised minority that gets it right. In 1999, The Economist wrote to the UK’s leading academic practitioners of the dismal science to find out whether it would be in our national economic interest to join the euro by 2004. Of the 165 who replied, 65 per cent said that it would. Even more depressingly, 73 per cent of those who actually specialised in the economics of the EU and of monetary union thought we should join – the experts among the experts were the most wrong. Britain would have gone bust had we listened… The vast majority of economists did not foresee or predict the financial crisis or the Great Recession or the eurozone crisis. Yet they now have the chutzpah to behave as if they should be treated like philosopher kings… Remember the Twenties? The economics profession overwhelmingly failed to see the great bubble and subsequent crash and depression. The Thirties? It messed up on just about everything. …In the Sixties and subsequently, Paul Samuelson’s best-selling, dominant economics textbook was predicting that the Soviet Union’s GDP per capita would soon catch up with America’s. The Seventies? Most economists didn’t know how stagflation could even be possible. The Eighties? The profession opposed Thatcherism and the policies that saved the UK; infamously, 364 economists attacked Thatcher’s macroeconomic policies in the 1981 Budget and then kept getting it wrong. …The problem this time around is that Remain economists assume that leaving the EU would mean reducing globalisation and halting most immigration. They assume that there are only costs and no benefits from leaving the EU…the EU’s anti-democratic institutions are unsustainable and thus pose a great threat to the liberal international economic order its UK supporters claim to be defending.

The debate among economists is mostly focused on trade.

With that in mind, this television exchange is very enlightening.

In other words, nations all over the world trade very successfully without being in the European Union, so this view that somehow the United Kingdom can’t do likewise is a triumph of theory over reality.

It’s way past time to wrap this up, but there are a few additional items I can’t resist sharing.

A British parliamentarian (akin to a member of Congress in the U.S.) is understandably unhappy that some Americans, most notably President Obama, are interfering in the Brexit election.

Here are parts of Chris Grayling’s column in the Washington Post.

Imagine if you were told that the United States should join an American Union bringing together all the nations of North and South America. It would have its own parliament — maybe in Panama City, a place on the cusp of the two halves of the Americas. That American Parliament would have the power to make the majority of your laws. A Supreme Court of the Americas in Panama would outrank the U.S. Supreme Court and take decisions that would be mandatory in the United States. …That is, more or less, where Britain finds itself today.

Sensible Americans obviously wouldn’t like that state of affairs.

And we would be even more unhappy if that Superstate of the Americas kept grabbing more power, which is exactly what’s happening across the Atlantic.

It decrees that any citizen of any European country can come and live and work in Britain — and that if they do, we must give them free health care and welfare support if they need it. Millions have done so. …it is moving closer and closer to becoming a single government for Europe, and indeed many of its key players — leaders such as Germany’s Angela Merkel and France’s François Hollande — have that as a clear goal. Britain has a small minority of the voting rights, and loses out almost every time.

Allister Heath adds more wisdom to the discussion.

He’s especially mystified by those who think the EU is a force for liberalization.

Bizarrely, given the EU’s appalling record, these folk see Brussels as the last guardian of enlightenment values; the only way to save the project, they believe, is rule by a transnational nomenklatura. …Remainians are petrified that the British public would…vote the wrong way: for protectionism, nationalisation, xenophobia and stupidity. We would…support idiotic, growth-destroying and socially unacceptable policies. Astonishingly, given the Continent’s collectivist history, such folk equate membership of the EU with free trade and Britain’s Leave camp with protectionism. It’s a breathtaking error of judgement… They cannot grasp that there are other, better ways of opening markets than from within the EU, and that in any case it is just about as far from a libertarian project as it is possible to imagine. …pro-EU Left and Right agree that the people are dangerous, that they must be contained and that, slowly but surely, entire areas of public policy should be hived off beyond the reach of the British electorate. The strategy is to impose top-down restraints and to subcontract decision-making to external bodies… European institutions are actually the antithesis of true liberalism.

Let’s end with some passages from another George Will column.

Michael Gove, secretary of justice and leader of the campaign for Brexit — Britain’s withdrawal from the E.U. — anticipates a “galvanizing, liberating, empowering moment of patriotic renewal.” …American conservatives would regard Britain’s withdrawal from the E.U. as the healthy rejection of political grandiosity. …If Britons vote to remain in the E.U., this might be the last important decision made at British ballot boxes because important decisions will increasingly be made in Brussels. The E.U.’s “democracy deficit” is…the point of such a state. …Under Europe’s administrative state, Gove says “interest groups are stronger than ever” and they prefer social stasis to the uncertainties of societies that welcome the creative destruction of those interests that thrive by rent-seeking. …most of binding law in Britain — estimates vary from 55 percent to 65 percent — arises not from the Parliament in Westminster but from the European Commission in Brussels. The E.U. has a flag no one salutes, an anthem no one sings, a president no one can name, a parliament that no one other than its members wants to have more power (which must be subtracted from national legislatures), a capital of coagulated bureaucracies that no one admires or controls, a currency that presupposes what neither does nor should exist (a European central government administering fiscal policy), and rules of fiscal behavior (limits on debt-to-gross domestic product ratios) that few if any members obey and none have been penalized for ignoring. …the 23rd of June can become Britain’s Fourth of July — a Declaration of Independence. If Britain rejects continuing complicity in the E.U. project — constructing a bland leviathan from surrendered national sovereignties — it will have…taken an off-ramp from the road to serfdom.

Well said.

If I lived in the United Kingdom, I would vote to leave the European Union.

Simply stated, the European project is controlled by statists and the one good thing it provides (free trade between members) is easily overwhelmed by the negative things it imposes (protectionism against outsiders, tax harmonization, horrible agriculture subsidies, bad fisheries policy, etc).

Moreover, the continent is demographically dying.

The bottom line is that the European Union is a sinking ship. This cartoon is a bit flamboyant, but it captures my overall sentiments.

If I had lots of money and was confident of the outcome, I would learn the words to this song and fly to London so I could sing in celebration on June 23rd.

Alas, just as I predicted the Scots wouldn’t vote for independence, I fear the scare campaign ultimately will succeed and Britons will vote to remain on the sinking ship of the European Union.

Read Full Post »

The most depressing data about America’s economy is not the top tax rate, the regulatory burden, or the level of wasteful of government spending.

Those numbers certainly are grim, but I think they’re not nearly as depressing as America’s demographic outlook.

As you can see from this sobering image, America’s population pyramid is turning into a population cylinder.

There’s nothing a priori wrong with an aging population and a falling birthrate, of course, but those factors create a poisonous outlook when mixed with poorly designed entitlement programs.

The lesson is that a modest-sized welfare state is sustainable (even if not advisable) when a nation has a population pyramid. But even a small welfare state becomes a problem when a nation has a population cylinder. Simply stated, there aren’t enough people to pull the wagon and there are too many people riding in the wagon.

But if America’s numbers are depressing, the data from Europe should lead to mass suicide.

The Wall Street Journal has a new story on the utterly dismal fiscal and demographic data from the other side of the Atlantic Ocean.

State-funded pensions are at the heart of Europe’s social-welfare model, insulating people from extreme poverty in old age. Most European countries have set aside almost nothing to pay these benefits, simply funding them each year out of tax revenue. Now, European countries face a demographic tsunami, in the form of a growing mismatch between low birthrates and high longevity, for which few are prepared. …Looking at Europeans 65 or older who aren’t working, there are 42 for every 100 workers, and this will rise to 65 per 100 by 2060, the European Union’s data agency says. …Though its situation is unusually dire, Greece isn’t the only European government being forced to acknowledge it has made pension promises it can ill afford. …Across Europe, the birthrate has fallen 40% since the 1960s to around 1.5 children per woman, according to the United Nations. In that time, life expectancies have risen to roughly 80 from 69. …Only a few countries estimate the total debt burden of the pension promises they have made.

The various nations is Europe may not produce the data, but one of the few good aspects of international bureaucracies is that they generate such numbers.

I’ve previously shared projections from the IMF, BIS, and OECD, all of which show the vast majority of developed nations will face serious fiscal crises in the absence of reforms to restrain the burden of government spending.

New we can add some data from the European Commission, which has an Ageing Report that is filled with some horrifying demographic and fiscal information.

First, here are the numbers showing that most parts of the world (and especially Europe) will have many more old people but a lot fewer working-age people.

Looking specifically at the European Union, here’s what will happen to the population pyramid between 2013 and 2060. As you can see, the pyramid no longer exists today and will become an upside-down pyramid in the future.

Now let’s look at data on the ratio between old people and working-age people in various EU nations.

Dark blue shows the recent data, medium blue is the dependency ratio in 2030, and the light blue shows the dependency ration in 2060.

The bottom line is that it won’t be long before any two working-age people in the EU will be expected to support themselves plus one old person. That necessarily implies a very onerous tax burden.

But the numbers actually are even more depressing than what is shown in the above chart.

In the European Commission’s Ageing Report, there’s an estimate of the “economic dependency ratio,” which compares the number of workers with the number of people supported by those workers.

The total economic dependency ratio is a more comprehensive indicator, which is calculated as the ratio between the total inactive population and employment (either 20-64 or 20-74). It gives a measure of the average number of individuals that each employed “supports”.

And here are the jaw-dropping numbers.

These numbers are basically a death knell for an economy. The tax burden necessary for this kind of society would be ruinous to an  economy. A huge share of productive people in these nations would decide not to work or to migrate where they would have a chance to keep a decent share of their earnings.

So now you understand why I wrote a column identifying safe havens that might remain stable while other nations are suffering Greek-style fiscal collapse.

Having shared all this depressing data, allow me to close with some semi-optimistic data.

I recently wrote that Hong Kong’s demographic outlook is far worse than what you find in Europe, but I explained that this won’t cause a crisis because Hong Kong wisely has chosen not to adopt a welfare state. People basically save for their own retirement.

Well, a handful of European nations have taken some steps to restrain spending. Here’s a table from the EC report on countries which have rules designed to adjust outlays as the population gets older.

These reforms are better than nothing, but the far better approach is a shift to a system of private retirement savings.

As you can see from this chart, Denmark, Sweden, and the Netherlands already have a large degree of mandatory private retirement savings, and a handful of other countries have recently adopted private Social Security systems that will help the long-run outlook.

I’ve already written about the sensible “pre-funded” system in The Netherlands, and there are many other nations (ranging from Australia to Chile to the Faroe Islands) that have implemented this type of reform.

Given all the other types of government spending across the Atlantic, Social Security reform surely won’t be a sufficient condition to save Europe, but it surely is a necessary condition.

Here’s my video explaining why such reform is a good idea, both in America and every other place in the world.

Read Full Post »

Advocates of limited government favor a small public sector because more resources in the productive sector of the economy translates into faster growth, more job creation, and higher living standards.

Statists, by contrast, favor big government for two main reasons. First, many of them belong to well-connected interest groups that have their snouts in the federal trough. Second, some of them sincerely think government spending “stimulates” an economy and/or “helps” people.

I want to address the latter group of statists, most of whom are well meaning.

I’ve learned over time that such voters generally don’t pay that much attention to economic arguments.

To the extent they sometimes favor small government, it’s because they think Washington wastes money. Indeed, I suspect a majority of voters would agree with P.J. O’Rourke that “giving money and power to government is like giving whiskey and car keys to teenage boys.”

Yet many of those voters (perhaps even including some of the ones that recognize that DC is riddled with waste, fraud, and abuse) can be persuaded to support bigger government. Having engaged in thousands of conversations with such people over several decades, I think they’re motivated by a desire to be part of a society that “cares.” So, regardless of Washington’s track record of exacerbating problems rather than solving them, these folks sometimes think more government is the right approach. Like second weddings, this is a triumph of hope over experience.

Today, at the risk of jumbling my analogies, let’s try to convince such people that you don’t want a second wedding if it means you’re getting hitched to an institution that is unavoidably wasteful and incompetent.

And we have some fresh eye-popping evidence. Here are some excerpts from an exposé published by the Washington Post.

…the government has spent more than $1 billion trying to replace its antiquated approach to managing immigration with a system of digitized records, online applications and a full suite of nearly 100 electronic forms. A decade in, all that officials have to show for the effort is a single form that’s now available for online applications and a single type of fee that immigrants pay electronically. The 94 other forms can be filed only with paper.

Amazing. After 10 years and $1 billion, the net result is a total cluster-you-know-what.

…officials at the Department of Homeland Security, which includes USCIS, were aware that the project was riddled with hundreds of critical software and other defects. …Only three of the agency’s scores of immigration forms have been digitized — and two of these were taken offline after they debuted because nearly all of the software and hardware from the original system had to be junked. ..A report last year from the DHS inspector general’s office said it sometimes took up to 150 clicks for employees to navigate the system’s various complex features and open documents.

So is the incompetent contractor (IBM) getting punished? Are any of the bureaucrats in charge of the project getting fired?

Of course not. This is government! So why you waste some money, that’s merely a prelude to wasting even more money.

This project, run by U.S. Citizenship and Immigration Services, was originally supposed to cost a half-billion dollars and be finished in 2013. Instead, it’s now projected to reach up to $3.1 billion and be done nearly four years from now.

By the way, the incompetence revealed in this story this is not an argument for immigration or against immigration.

My point is simply that governments have long track records of squandering other people’s money, with this story simply being another straw on the camel’s back.

Or maybe it would be better to describe it as another bit of dead weight financed by over-burdened taxpayers.

I don’t know if this will make anyone feel better, but other governments are similarly incompetent and foolish.

Here’s an example of government blundering from overseas. As reported by the UK-based Guardian, the European Commission just admitted that it has successfully process 0.00015 percent of refugees.

EU members states agreed in September to relocate 160,000 people in “clear need of international protection” through a scheme set up to relocate Syrian, Eritrean, and Iraqi refugees from the most affected EU states – such as Italy and Greece – to other EU member states. So far 116 people have been relocated, and only 1,418 places have been made available by 14 member states, according to data released on Tuesday by the European Commission.

Wow. It’s been a while since I was a student, but I remember that you need 70.0 percent for a C and 60.0 percent to avoid failing.

With that in mind, I wonder what sort of grade you get for 0.00015 percent? Is there such as thing as F-, though I guess Z- would be more appropriate.

Here’s a graphic from the article.

By the way, the EU’s incompetence at processing refugees is one issue. Another issue is whether European nations should be granting refugee status to hundreds of thousands (and eventually millions) of people from cultures that don’t assimilate very well.

And I imagine that refugee status in Europe means access to welfare, so the system presumably creates the same perverse incentives we find on the American refugee program.

But for today, I’m simply focused on the fact that government bureaucracies are spectacularly incompetent.

Yet there are still many people who want to give more power and money to politicians.

Let’s close with a serious point.

Unless you’re an anarcho-capitalist, there are some things you want government to do, and you want those things to be done well.

So how, given the natural incompetence of the public sector, can you get good (or at least acceptable) results?

The only feasible answer is to have small government, as Mark Steyn has explained with his usual dose of sarcasm. A bloated public sector guarantees slipshod performance everywhere. But if the federal government concentrates on just a few tasks, oversight and monitoring will be easier and it will be easier to weed out incompetence.

And this isn’t just theory. The European Central Bank has produced a measure of public sector efficiency and their research shows that smaller governments are much more competent at producing desired results.

P.S. Bizarrely, some folks acknowledge government incompetence but think the right solution is more power for government.

P.P.S. Some of this is common sense. What government do you think is more competent and effective, France with its big government or Switzerland with its medium-sized government? Where do you think government is more effective, Singapore with its small government or the United States with its medium-sized government?

Read Full Post »

I’ve shared lots of analysis (both serious and satirical) about the mess in Greece and I feel obliged to comment on the latest agreement for another bailout.

But how many times can I write that the Greek government spends too much money and has a punitive tax system (and a crazy regulatory regime, a bloated bureaucracy, etc)?

So let’s try a different approach and tell a story about the new bailout by using some images.

Here’s an amusing perspective on what actually happened this weekend.

I explained a few days ago that the bailouts have simultaneously enabled the delay of much-needed spending reforms while also burdening Greece with an impossible pile of debt.

But the Greek bailouts, like the TARP bailout in the United States, were beneficial to powerful insiders.

Here’s a look at how banks in various European nations have been able to reduce their exposure to Greek debt.

Sure, the banks almost surely still lost money, but they also transferred a lot of the losses to taxpayers.

To get a sense of the magnitude of handouts, here’s a chart from a Washington Post story.

And now, assuming the deal gets finalized, that pile of foolish and unsustainable debt will be even bigger.

One of the main components of the new agreement is that Greece supposedly will raise revenue by selling $50 billion of state-owned assets.

Don’t believe that number. But not because there aren’t plenty of assets to sell, but rather because the track record on privatization proceeds suggests that there is a giant gap between what Greece promises and what Greece delivers.

To understand why assets aren’t being sold, just keep in mind that most of the assets are under the control of the government in order to provide unearned benefits to different interest groups.

If you’re an overpaid unionized worker at a government-owned port, for instance, the last thing you want is to have that port sold to a private investor who presumably would want to link pay to productivity.

Here’s the best bit of humor I’ve seen about the negotiations this past weekend. It purports to show a list of demands from Germany to Greece.

While this image is funny, it’s also wrong.

Germany isn’t imposing anything on Greece. The Germans are simply stating that Greek politicians need to make some changes if they want more handouts.

Moreover, it’s quite likely that Germany will wind up being a big loser when the dust settles. Here’s some of what Gideon Rachman wrote for the U.K.-based Financial Times.

If anybody has capitulated, it is Germany. The German government has just agreed, in principle, to another multibillion-euro bailout of Greece — the third so far. In return, it has received promises of economic reform from a Greek government that makes it clear that it profoundly disagrees with everything that it has just agreed to. The Syriza government will clearly do all it can to thwart the deal it has just signed. If that is a German victory, I would hate to see a defeat.

So true.

I fear this deal will simply saddle Greece with a bigger pile of debt and set the stage for a more costly default in the future.

The title of this column is about pictures. But let’s close with some good and bad analysis about the Greek mess.

Writing for Real Clear Markets, Louis Woodhill has some of the best insight, starting with the fact that the bailout does two things.

First, this new bailout is largely just a mechanism to prevent default on past bailouts. Sort of like making a new loan to your deadbeat brother-in-law to cover what he owes you on previous loans.

…the €53.5 billion in new loans…would just be recycled to Greece’s creditors (the IMF, the EU, and the ECB) to pay the interest and principal on existing debts.

Second, it prevents the full meltdown of Greek banks.

The key point is that a bailout agreement would restore European Central Bank (ECB) “Emergency Liquidity Assistance” (ELA) to the Greek banking system. This would allow Greeks that still have deposits in Greek banks (€136.5 billion as of the end of May) to get their money out of those banks.

That’s good news if you’re a Greek depositor, but that’s about it.

In other words, those two “achievements” don’t solve the real problem of Greece trying to consume more than it produces.

Indeed, Woodhill correctly identifies a big reason to be very pessimist about the outcome of this latest agreement. Simply stated, Greek politicians (aided and abetted by the Troika) are pursuing the wrong kind of austerity.

…what is killing Greece is a lack of economic growth, and the meat of Tsipras’ bailout proposal consists of growth-killing tax hikes. The media and the economics profession have been framing the alternatives for Greece in terms of a choice between “austerity” and “stimulus.” Unfortunately for Greece, austerity has come to mean tax increases, and stimulus has come to mean using “other people’s money” (mainly that of German taxpayers) to support Greek welfare state outlays. So, if “other people” aren’t willing to fund more Greek government spending, then the only option the “experts” can imagine is to raise taxes on an economy that is already being crushed by excessive taxation.

Let’s close with the most ridiculous bit of analysis about the Greek situation. It’s from Joe Stiglitz,

Joseph Stiglitz accused Germany on Sunday of displaying a “lack of solidarity” with debt-laden Greece that has badly undermined the vision of Europe. …”Asking even more from Greece would be unconscionable. If the ECB allows Greek banks to open up and they renegotiate whatever agreement, then wounds can heal. But if they succeed in using this as a trick to get Greece out, I think the damage is going to be very very deep.”

Needless to say, I’m not sure why it’s “solidarity” for one nation to mooch in perpetuity from another nation. I suspect Stiglitz is mostly motivated by an ideological desire to redistribute from the richer Germans to the poorer Greeks,

But I’m more interested in why he isn’t showing “solidarity” to me. I’m sure both his income and his wealth are greater than mine. So if equality of outcomes is desirable, why doesn’t he put his money where his mouth is by sending me a big check?

Needless to say, I won’t be holding my breath waiting for the money. Like most leftists, Stiglitz likes to atone for his feelings of guilt by redistributing other people’s money.

And I also won’t be holding my breath waiting for a good outcome in Greece. As I wrote five-plus years ago, Greece needs the tough-love approach of no bailouts, which would mean a default but also an immediate requirement for a balanced budget.

Last but not least, I’m going to confess a possible mistake. I always thought that Margaret Thatcher was right when she warned that the problem with socialism is that you eventually run out of other people’s money. But this latest bailout of Greece shows that maybe politicians from other nations are foolish enough to provide an endless supply of other people’s money.

Read Full Post »

The European Commission’s data-gathering bureaucracy, Eurostat, has just published a new report on government finances for the region.

And with Greece’s ongoing fiscal turmoil getting headlines, this Eurostat publication is worthwhile because it debunks the notion, peddled by folks like Paul Krugman, that Europe has been harmed by “savage” and “harsh” spending cuts.

Here’s some of what’s in the report.

In 2014, total general government expenditure amounted to €6 701 bn in the European Union (EU). This represented almost half (48.1%) of EU GDP in 2014… Among EU Member States, general government expenditure varied in 2014 from less than 35% of GDP in Lithuania and Romania to more than 57% in Finland, France and Denmark.

Not only is government spending consuming almost half of economic output, redistribution outlays are the biggest line item in the budgets of European nations.

…the function ‘social protection’ was by far the most important, accounting for 40.2% of total general government expenditure. The next most important areas in terms of general government expenditure were ‘health’ (14.8%)… Its weight varied across EU Member States from 28.6% of total general government expenditure in Cyprus to 44.4% in Luxembourg. Eight EU Member States devoted more than 40% of their expenditure to social protection.

At this point, some readers may be thinking that the report shows European nations have very big governments with very large welfare states, but that doesn’t prove one way or the other whether there’s been austerity.

After all, austerity supposedly measures the degree to which there have been big spending cuts, not whether government consumes a large or small share of economic output.

So let’s now look at some of the underlying annual spending data from Eurostat.

Here’s their chart showing annual levels of government spending, both for the entire European Union (EU-28) and for the nations using the euro currency (EA-19). As you can see, there haven’t been any “harsh” or “savage” cuts.

Heck, there haven’t even been “timid” and “meek” cuts. The burden of government spending keeps climbing.

None of this should come as a surprise.

I’ve shared analysis making this point from experts on European fiscal policy such as Steve Hanke, Brian Wesbury, Constantin Gurdgiev, Fredrik Erixon, and Leonid Bershidsky.

So why is there a mythology about supposed spending cuts in Europe?

There are three answers.

  • First, there are lots of ignorant of mendacious people who don’t understand the numbers or don’t care about the truth. You can take a wild guess about the identity of some of these people.
  • Second, while overall government spending has continuously risen in Europe, a few nations (generally the ones that were most profligate last decade) have been forced to make some non-trivial spending cuts.
  • Third, some people cherry pick data on the burden of government spending relative to economic output and assert that austerity exists if government grows slower than GDP.

The people in the first category should be dismissed as cranks and ideologues.

Regarding the second category, if you look at Eurostat’s annual fiscal data, you’ll find that most EU nations since 2008 have had at least one year in which government spending declined. Indeed, the only exceptions are Belgium, France, Luxembourg, Austria, Poland, Slovakia, Finland, and Sweden.

But we’ve also had a few years of spending reductions in the United States since 2008, yet it would be silly to argue we’ve had “savage” and “harsh” cuts. The real question is whether any governments have been forced to make non-trivial reductions in the burden of spending. And if that’s defined as spending less today than they did in 2008, the only nations on that list are Greece, Latvia, and Ireland. But they’re also high on the list of countries that were most profligate in the years before 2008, so is it “austerity” if you give up drinking for a week or two after spending a week or two in an alcoholic haze? Perhaps the answer is yes, but the real problem was having a spending binge in the first place.

The third category is also worth exploring because the best way to determine if a country has responsible policy is to see whether government spending is falling as a share of economic output (i.e., are they following Mitchell’s Golden Rule). But you can’t cherry pick the data. For instance, look at this chart from Eurostat. If 2009 is used as the base year, it appears that EU nations have been frugal. But 2009 also was the year with the biggest bailouts and faux stimulus packages. So while government spending has receded a bit from the 2009 peak, the overall burden of spending today is significantly higher than it was before the 2008 crisis. Not exactly a very rigorous definition of austerity.

The bottom line is that there hasn’t been serious austerity in Europe, at least if austerity is defined as non-trivial spending cuts.

To be sure, there have been big fiscal changes in Europe. The bad news is that those changes have been big increases in income tax rates and big increases in value-added tax rates.

So if folks are looking for a good explanation of why Europe is suffering from anemic growth, that might be a place to start.

P.S. Unlike other European countries, the Baltic nations focused on genuine spending cuts rather than tax hike and their economies are doing comparatively well.

P.P.S. Even though Switzerland isn’t a member of the EU, Eurostat does include annual spending data for that nation. And it’s worth noting that spending has only grown by 2.07 percent per year since the implementation of the debt brake (which is really a spending cap). So that’s actually the best role model in Europe, as explained here by a representative from the Swiss Embassy.

Read Full Post »

Europe is suffering from economic stagnation caused in part by excessive fiscal burdens.

So what are European policy makers doing to address this problem?

If you think the answer might have something to do with a shift to responsible fiscal policy, you obviously have no familiarity with Europe’s political elite. But if you have paid attention to their behavior, you won’t be surprised to learn that they’re lashing out at jurisdictions with better policy.

Here are a few blurbs from a story in the Economic Times.

The European Union published its first list of international tax havens on Wednesday… “We are today publishing the top 30 non-cooperative jurisdictions consisting of those countries or territories that feature on at least 10 member states’ blacklists,” EU Economic Affairs Commissioner Pierre Moscovici told a news conference. 

This is a misguided exercise for several reasons, but here are the ones that merit some discussion.

1. I can’t resist starting with a philosophical point. Low-tax jurisdictions and so-called tax havens should be emulated rather than persecuted. Their modest fiscal burdens are strongly correlated with high levels of prosperity. It’s high-tax nations that should be blacklisted and shamed for their destructive policies.

2. This new EU blacklist is particularly nonsensical because there’s no rational (even from a leftist perspective) methodology. Jurisdictions get added to the blacklist if 10 or more EU nations don’t like their tax laws. Some nations, as cited in official EU documents, even use “the level of taxation for blacklisting purposes.”

3. As has always been the case with anti-tax competition campaigns, the entire exercise reeks of hypocrisy. Big European nations such as Luxembourg and Switzerland were left off the blacklist, and the United States also was omitted (though the EU figured it was okay to pick on the U.S. Virgin Islands for inexplicable reasons).

By the way, I’m not the only person to notice the hypocrisy. Here are some excerpts from a report in the U.K.-based Guardian.

A blacklist of the world’s 30 worst-offending tax havens, published on Wednesday by the European commission, includes the tiny Polynesian island of Niue, where 1,400 people live in semi-subsistence — but does not include Luxembourg, the EU’s wealthy tax avoidance hub. …the new register does not include countries such as the Netherlands, Ireland.

And Radio New Zealand made a similar point it its report.

Anthony van Fossen, an adjunct research fellow at Australia’s Griffith University, says the list seems to be picking on smaller, easy-to-target tax havens and ignoring major ones like Singapore, Switzerland and Luxembourg. “The list is very strange in that some major havens are ignored, particularly the havens in the European Union itself, and many minor havens, including some in the Pacific Islands are highlighted.”

The more one investigates this new EU project, the more irrational it appears.

Some of the larger and more sensible European nations, including Sweden, Germany, Denmark, and the United Kingdom, didn’t even participate. Or, if they did, they decided that every jurisdiction in the world has “tax good governance.”

But other nations put together incomprehensible lists, featuring some well-known low-tax jurisdictions, but also places that have never before been considered “tax havens.” Is Botswana really a hiding spot for French taxpayers? Do Finnish taxpayers actually protect their money in Tajikistan? Is Bolivia actually a haven for the Portuguese? Do the Belgians put their funds in St. Barthelemy, which is part of France? And do Greeks put their money in Bosnia?!?

As you can see from this map, the Greeks also listed nations such as Saudi Arabia and Paraguay. No wonder the nation is such a mess. It’s governed by brain-dead government officials.

I’ve saved the best evidence for the end. If you really want to grasp the level of irrationality in the EU blacklist, it’s even been criticized by the tax-loving (but not tax-paying) bureaucrats at the OECD. Here are some details from a report out of Cayman.

‘As the OECD and the Global Forum we would like to confirm that the only agreeable assessment of countries as regards their cooperation is made by the Global Forum and that a number of countries identified in the EU exercise are either fully or largely compliant and have committed to AEOI, sometimes even as early adopters’, the email states. …‘We have already expressed our concerns (to the EU Commission) and stand ready to further clarify to the media the position of the affected jurisdictions with regard to their compliance with the Global Forum standards’, Mr Saint-Amans and Ms Bhatia wrote.

Needless to say, being compliant with the OECD is nothing to celebrate. It means a jurisdiction has been bullied into surrendering its fiscal sovereignty and agreeing to serve as a deputy tax collector for high-tax governments.

But having taken that unfortunate step, it makes no sense for these low-tax jurisdictions to now be persecuted by the EU.

P.S. Let’s add to our collection of libertarian humor (see here and here for prior examples).

This image targets the Libertarian Party, but I’ve certainly dealt many times with folks that assert that all libertarians should “grow up” and accept big government.

For what it’s worth, if growing up means acquiescing to disgusting government overreach, I prefer to remain a child.

Read Full Post »

Older Posts »

Follow

Get every new post delivered to your Inbox.

Join 3,188 other followers

%d bloggers like this: