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Archive for the ‘Germany’ Category

The German Chancellor and French President have put together a plan to boost growth. Sounds like a good goal, but what specifically are they proposing?

Some of the obvious ideas include:

But those are only obvious ideas if you want a growth plan that actually leads to…(drum roll, please)…more growth.

Merkel and Sarkozy must have some other objective in mind, because they’ve proposed a plan comprised of new taxes, higher taxes, and tax harmonization.

This is beyond satire. Even if I was trying to make fun of the French and Germans (perish the thought), I wouldn’t be able to make up something this absurd.

Here’s some of what the EU Observer reported.

A six-point plan drafted by France and Germany has suggested corporate tax “co-ordination,” an EU financial transactions tax and the re-deployment of EU funds in troubled countries as ways to spur growth and jobs. …Paris and Berlin have teamed up once more and drafted a six-page paper called “Ways out of the crisis – strengthen growth now!” …The financial transactions tax – a pet project of French President Nicolas Sarkozy ahead of his re-election bid in April – features among the six proposals under “efforts to reinforce the framework of financial market.” …plans for “tax co-ordination” and another Franco-German proposal to be put forward by end of February on the “convergence of their corporate tax.” “European institutions and member states should accelerate the process of tax coordination in order to foster growth” …Apart from the Tobin tax, both leaders want to speed up EU legislation on an energy tax and a “common consolidated corporate tax base.”

Even Obama is not this blind to reality. He’s a big fan of higher taxes, of course, but at least the President realizes you don’t pass the laugh test if you tell people that higher taxes will “spur jobs and growth.”

Returning to Merkel and Sarkozy, the dynamic duo of statism also have some bizarre ideas on the spending side of the fiscal ledger. Here are a couple of additional passages from the story.

…proposal would have 25 percent of unspent EU regional funds in countries under a bail-out program or under serious economic difficulties redirected to a special “fund for growth and competitiveness.”  …As for employment-boosting measures, one of Sarkozy’s make-or-break campaign themes, the document asks governments to instruct employment agencies to make an offer to every unemployed person – be it for a job, an apprenticeship or further training.

The notion that bureaucrats and politicians can boost prosperity with some sort of “fund for growth and competitiveness” is hardly worth a rebuttal. I’ll just wish them luck as they create European versions of Solyndra.

The other idea, though, is worth a bit more analysis. If the article is correct, the Merkozy twins are going to wave a magic wand and direct employment agencies to make an offer to everybody.

Gee, isn’t that wonderful. While they’re at it, why don’t they turbo-charge the wand and insist that all the offers be for jobs making twice the national wage. With this kind of magical thinking, it’s just a matter of time before 90 percent of the population is part of the top-10 percent.

You may be thinking the previous sentence doesn’t make sense, but that’s probably because you’re one of those crazy libertarians who doesn’t understand how higher taxes boost economic performance.

In previous posts, I’ve expressed some pessimism about the future of Europe. After considerable reflection, I want to retract those statements and instead say that the outlook is hopeless. If you’re reading this from Europe, get out while you still can.

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P.S. I’ve been reminded that Merkel and Sarkozy are not alone in their crazy theory that higher taxes are good for growth. The geniuses at the Congressional Budget Office have written that higher taxes are good for long-run growth, even to the point of implying that 100 percent tax rates would maximize economic performance.

P.P.S. I’m further reminded that the Congressional Research Service also seems to think that higher taxes increase economic growth. Perhaps German and French spies have taken over Washington?

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I’m not even sure why this is funny. Maybe it’s the context.

Was it put together by somebody in the United Kingdom, who is irritated by the he way Sarkozy and Merkel are turning a bad fiscal crisis into a worse fiscal crisis and trying to blame England? That’s possible, and we know the Brits have a good sense of humor.

Or was it put together by a German, who is feeling sanctimonious about his country’s relatively strong position (at least compared to other European welfare states) and is tired of having to deal with the French.

Or is it funny simply because it’s amusing to mock the French?

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By European standards, Germany is in pretty good shape.

There’s a very large welfare state and the tax burden is quite onerous, both of which hinder growth, but Germany has been more responsible than the United States in recent years. And while this may be damning with faint praise, this modest bit of fiscal discipline is helping the nation survive as many other European welfare states are on the verge of collapsing.

Moreover, Germany (sort of like Denmark) partially offsets the damaging impact of bad fiscal policy by being free market-oriented in other policy areas, such as trade, regulation, and rule of law.

Knowing all this information, how would you describe Germany’s economic policy? Would you say it was a semi-responsible welfare state? Would you say it had left-wing fiscal policy combined with a social market economy?

I’m not sure about the best description, but I know that only a crack-addicted nitwit would put it in the same category as Hong Kong.

Yet, in an otherwise unremarkable article about the fiscal crisis in Europe, the Washington Post referred to ” fiscally conservative Germany.”

Rather than go through a lengthy explanation of why this is absurd, I figure this chart demonstrates why the folks at the Washington Post are clueless (though, in fairness, perhaps Germany is “conservative” compared to the ideology of the reporters and editors in the newsroom).

Keep in mind that this is a country that has parking-meter taxes for prostitutes and a nation with a supposedly conservative Chancellor who is leading the charge for a global tax on financial transactions.

If Germany is “fiscally conservative,” I’m a socialist.

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Last week in New York City, during my Intelligence Squared debate about stimulus, I pointed out that Germany is doing better than the United States and explained that they largely avoided any Bush/Obama Keynesian spending binges.

One of my opponents disagreed and asserted that I was wrong. Germany, this person argued, was dong better because it was more Keynesian thanks to “automatic stabilizers” that resulted in big spending increases.

This claim was made with such certainty that I wondered if I made a mistake.

Well, we were both right about Germany doing better. In the past few years, it has been enjoying yearly growth of about 3.5 percent while growth in the United States has remained below 3 percent.

But who was right about the key issue of whether Germany has been more Keynesian? At first, I was going to be lazy and not bother combing the data. But then I got motivated after reading an excellent post about Germany’s pro-growth reforms, written for National Review by Veronique de Rugy of the Mercatus Center.

So I looked up the data on annual government spending in the United States and Germany and discovered that I was right (gee, what a shock). As the chart shows, the burden of government spending has increased faster in the United States. And that is true whether 2007 or 2008 is used as the base year.

To make sure the comparison was fair, I sliced the numbers every possible way. But the results were the same, regardless of whether state and local government spending was included, whether TARP spending was included, which base year was selected, or whether I used annual spending increases or multi-year spending increases.

In every single case, the burden of government spending grew faster in the United States from 2007 to 2011.

This does not mean Germany is a role model. Government spending in Germany is far too high and it continues to grow. All we can say is that Germany is not going in the wrong direction as fast as the United States.

Oh, I suppose we also can say that I was right and my opponent was wrong. The United States has been more Keynesian than Germany.

Speaking of Germany, I combed my archives and found only one post that said anything nice about German politicians.

My other German posts mocked the country’s scheme to tax prostitutes, mocked the government for losing the blueprints for its new spy headquarters, mocked the government for a money-losing scheme to tax coffee, and even mocked the supposedly conservative Chancellor for wanting to impose new taxes.

So even though Veronique is correct about some positive changes, the Germans have a long way to go.

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I’m still at the Liberty Camp in Slovenia, doing my best to teach young Europeans about the importance of individual liberty, free markets, and small government. (also doing a bit of sightseeing, as you can see from the pictures below)

This morning, one of the other presenters showed a short video taken from the first-rate “Commanding Heights” program. It told the brief story of how one man, Ludwig Erhard, single-handedly put Germany on the road to post-war recovery by doing away with price controls.

This video is a lesson in character – and an example of doing what’s right.

Erhard did not have authority to change the price controls, but, with a certain degree of cleverness that would make Bill Clinton proud, he decided that this didn’t preclude him from simply abolishing them.

In doing this, he showed personal courage. He did something bold. And he went against so-called expert opinion.

And he helped millions of people enjoy a better life by reducing the burden of government.

We need more people with this integrity. In America and everywhere else.

People who will go against the grain to promote freedom.

People who will take risks to advance liberty.

People who will do the right thing, even if it doesn’t advance their career.

Not that I’m asking for selfless gestures. As Erhard’s episode demonstrates, sometimes doing the right thing at least means people say nice things about you.

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In a perverse way (pun intended), I admire German politicians for their creativity. They will figure out ways to tax just about anything.

Their latest scheme is a plan that requires streetwalkers to put money in parking meters in exchange for a slip of paper that entitles them to…um…ply their trade for a specified period of time.

Here are some excerpts from the Daily Mail report.

German Parking and/or Prostitute Meter

Prostitutes working the streets of the former German capital are now having to pay £5.30 per night to a modified parking meter – to gain permission to ply their trade. Sex workers in Bonn face hefty fines for not forking out the new ‘income tax’ which has been brought in to try and regulate the outdoor aspect of the industry. It is to bring them into line with the country’s brothel workers who already pay out a percentage of their profits in tax, which varies depending on the region. …if caught without a valid ticket, offenders would be reprimanded. They would then face fines, and later a ban. The fee is a daily charge, and irrespective of how many punters are entertained. …specific quarters have been designated as sex work zones. City officials have created ‘consummation areas’, which are wooden parking garages where customers driving cars can retreat to with their prostitutes. Dortmund has a similar system where prostitutes buy tickets from petrol stations.

I suppose this is the point where I normally would make some snide comments about greedy politicians, or perhaps offer some analysis about the economic impact of taxation.

But this story is so bizarre that I can’t even get to that stage.

What happens if you’re just a regular motorist and you put money in the meter and press the wrong button?

And I know that most governments will put a boot on one of your tires to disable your car if you don’t pay your parking tickets. Does this mean hookers who don’t buy a street-walking pass will get a chastity belt?

Does the city government also charge for use of the garages in the “consummation areas”? And when did it become the responsibility of German taxpayers to finance something like that?!?

And for the hookers in Dortmund who get their passes at the petrol station, do the mechanics check “under the hood” if they use full service? (okay, pretty lame, but I couldn’t resist)

Most important, will the politicians take this idea to its logical conclusion and put prostitute meters in Parliament? In other words, require politicians to put money in a meter before  they try to buy support from interest groups by providing handouts and special preferences.

That’s one tax increase even I could support.

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These two stories are completely unrelated, but they both struck me as examples of why governments have a well-deserved reputation for squandering money and making life more difficult for ordinary people.

And even though the stories are radically different, they give us a good opportunity to ask whether government is more stupid and incompetent in Europe or the United States.

Our European entry in the contest is from Germany, where the government apparently has lost blueprints for its new spy headquarters. Here are some excerpts from a BBC report, though I can’t help thinking it should be in the Onion.

Germany is investigating reports that the blueprints for the future headquarters of its BND intelligence agency have gone missing. If the report in Focus magazine is confirmed, it could pose a serious security risk – and would be a huge embarrassment for the spy agency. The new 1.6bn euro (£1.4bn; $2.3bn) agency headquarters are currently under construction in Berlin. …They purportedly show extremely sensitive aspects of the building’s construction, such as the alarm system, anti-terror installations, emergency exits, cable routes and sewers.

By the way, I’m also shocked by the $2.3 billion price tag for the building. But cost overruns and waste are so routine that only fiscal policy wonks like me seem to get upset about such things.

The American entry is from (I’m embarrassed to admit) Georgia, where the Keystone Cops in Midway have stopped a major crime wave of…(get ready to be shocked)…unregulated lemonade! Here’s part of the AP report.

Police in Georgia have shut down a lemonade stand run by three girls trying to save up for a trip to a water park, saying they didn’t have a business license or the required permits. Midway Police Chief Kelly Morningstar says police also didn’t know how the lemonade was made, who made it or what was in it. The girls had been operating for one day when Morningstar and another officer cruised by. The girls needed a business license, peddler’s permit and food permit to operate, even on residential property. The permits cost $50 a day or $180 per year.

Other local governments have been guilty of this type of petty harassment, but what’s remarkable about the Midway story is that the Barney-Fife-wannabee police chief shut down the lemonade stand, in part, because the girls “didn’t know how the lemonade was made.”

So I guess this means that the kids not only should have coughed up big bucks for a permit, but they also should have posted the recipe for some regulator to approve?

I weep for my country.

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Yesterday, I took aim at a truly pathetic human being who lives as an “adult baby.” But what got me upset was not his lifestyle, but rather the fact that he was mooching off the taxpayers thanks to the dumb bureaucrats at the Social Security Administration, who granted him “disability’ status, which means he gets to live the rest of his life at the expense of taxpayers.

Is it possible, though, for an entire nation to live as an adult baby? I don’t know the answer, but some people in Portugal want to give it a try. Here is an excerpt from the EU Observer, featuring some jaw-dropping assertions by a Portuguese union boss.

Speaking at a rally in the western German town of Meschede on Tuesday evening, Merkel suggested southern Europeans are not working enough, while Germans are expected to bail them out. “It is also about not being able to retire earlier in countries such as Greece, Spain, Portugal than in Germany, instead everyone should try a little bit to make the same efforts – that is important,” she said. …”Yes Germany will help but Germany will only help when the others try. And that must be clear,” she said. Her comments sparked outrage on the German political scene, with the Social Democratic opposition calling her “populist” for giving a “coarse representation of Greek realities,” while the European Greens labelled her remarks “absurd.” In Portugal, trade unionist were also angered by the suggestion that southern Europeans are having a nice time on the beach while the Germans are working hard for their bailouts. “This is the purest colonialism,” Portuguese trade union chief Manuel Carvalho da Silva said, as quoted by DPA. He blasted Merkel for showing “no solidarity” and supporting a system where “the rich continue to live at the expense of the poorest countries in a disastrous system of exploitation.”

Let’s parse Mr. da Silva’s remarks. He starts by accusing Merkel of colonialism, but he never explains why refusing to write more blank checks means the German Chancellor is a colonialist.

Mr. da Silva then says Merkel is failing to show “solidarity.” But this assumes that German taxpayers have a moral obligation to support fiscally reckless politicians and interest groups in Portugal and other nations.

Last but not least, Mr. da Silva claims Merkel is promoting a system that allows the rich to exploit the poor. This accusation actually is true, but not in the way Mr. da Silva means. This post, using a chart put together by the New York Times, shows that the bailouts are mostly for the purpose of bailing out the big European banks that foolishly bought bonds from irresponsible governments. In other words, poor German taxpayers are subsidizing rich (and foolish) German bankers.

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We have two completely unrelated topics from Germany and France, but both fit in the broader theme of Europe’s gradual, self-inflicted suicide.

Let’s start with the Germans. I’m not a big fan of the country’s Chancellor, Angela Merkel. She is supposedly a conservative, but she certainly hasn’t done much to reduce the burden of government. But I give her credit for making the rational and moral observation that, “I’m glad that killing bin Laden was successful.”

Based on the reaction, however, you would think she had come out in favor of torturing puppies. Here are some excerpts from a story on a German news site.

Katrin Göring-Eckardt, Green party MP, Bundestag vice president and leading member of the Evangelical Church of Germany, told the Berliner Zeitung she was glad bin Laden was no longer leading a terrorist group. “But you can’t be happy about his death,” she said. On Monday, Merkel told reporters that bin Laden’s death at the hands of US forces was “good news.” “I’m glad that killing bin Laden was successful,” she said. The criticism of Merkel’s comments came not only from political opposition, but from her own party, echoing discomfort expressed by some observers at the emotional, celebratory reaction of many Americans and foreign politicians around the world after bin Laden’s killing. Siegfried Kauder, a member of Merkel’s conservative Christian Democratic Union (CDU), slammed her remarks, calling them reminiscent of something a person would say in the “middle ages.”

I’m not an expert on Germany’s political system and I’m certainly not a close observer of the nation’s various political figures, so I have no idea if these critics really believe the things they said. But does that really matter? It’s a bad sign if you have a nation where the political elite actually feel sadness that a monster is dead. And it’s a bad sign if you have a nation where the political elite think they should act like it’s unfortunate that a monster is dead.

Let’s now shift to the French. There’s been a lot of attention paid to bailouts of Greece, Ireland, and Portugal, which certainly is appropriate since all of us should be outraged that we are paying (via the IMF) to reward profligate politicians and special-interest groups.

Unfortunately, there are more nations in fiscal trouble, which probably means even more bailouts. Most people think Spain, Italy, and Belgium are next in line, but France is a dark-horse contender in the race to fiscal crisis. Read some of what Matthew Lynn wrote in his Bloomberg column.

It is increasingly politically unstable, its debt position is getting worse all the time, it is losing competitiveness against Germany, and it shows little willingness to change. Those are all good reasons for the bond markets to make France the next battleground. …France’s debt position is getting worse all the time. In 2010, the nation ran the fifth-biggest budget deficit in the euro area, at 7 percent of GDP. It was beaten only by Greece, Portugal, Ireland and Spain — hardly great company. Its stock of outstanding government debt hit 81 percent of GDP in 2010. That figure will reach 90 percent this year and 95 percent in 2012, according to London-based consulting firm Capital Economics. Italy has more outstanding debt — 119 percent of GDP in 2010 — but it isn’t adding to the pile the same way France is. What the markets really look at is the direction you are traveling in — and in the case of France, it isn’t good. …Sarkozy came to power promising to shake up the economy. He delivered little. …it is hard to believe that the euro crisis will end with the bailout of Portugal. Other countries are going to get caught in the crossfire. When you look around for the next candidate, France has what it takes to be the next blowup.

I still think Spain goes bust first, but Lynn makes a compelling case. Bad things are bound to happen when politicians expand the burden of government, increase tax burdens, and expand dependency. And that’s been the pattern in France, regardless of who’s in charge.

Notwithstanding my snarky title, the purpose of this post is not mock the Germans and the French. I’m certainly not averse to some good-natured ribbing of foreigners, but there’s a serious point to be made. Moral relativism and big government are signs of societal decay, and my real concern is that America is slowly heading down the same path as Western Europe.

Let’s learn from Germany and France and avoid making the same mistakes.

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Ireland is in deep fiscal trouble and the Germans and the French apparently want the politicians in Dublin to increase the nation’s 12.5 percent corporate tax rate as the price for being bailed out. This is almost certainly the cause of considerable smugness and joy in Europe’s high-tax nations, many of which have been very resentful of Ireland for enjoying so much prosperity in recent decades in part because of a low corporate tax burden.

But is there any reason to think Ireland’s competitive corporate tax regime is responsible for the nation’s economic crisis? The answer, not surprisingly, is no. Here’s a chart from one of Ireland’s top economists, looking at taxes and spending for past 27 years. You can see that revenues grew rapidly, especially beginning in the 1990s as the lower tax rates were implemented. The problem is that politicians spent every penny of this revenue windfall.

When the financial crisis hit a couple of years ago, tax revenues suddenly plummeted. Unfortunately, politicians continued to spend like drunken sailors. It’s only in the last year that they finally stepped on the brakes and began to rein in the burden of government spending. But that may be a case of too little, too late.

The second chart provides additional detail. Interestingly, the burden of government spending actually fell as a share of GDP between 1983 and 2000. This is not because government spending was falling, but rather because the private sector was growing even faster than the public sector.

This bit of good news (at least relatively speaking) stopped about 10 years ago. Politicians began to increase government spending at roughly the same rate as the private sector was expanding. While this was misguided, tax revenues were booming (in part because of genuine growth and in part because of the bubble) and it seemed like bigger government was a free lunch.

But big government is never a free lunch. Government spending diverts resources from the productive sector of the economy. This is now painfully apparent since there no longer is a revenue windfall to mask the damage.

There are lots of lessons to learn from Ireland’s fiscal/economic/financial crisis. There was too much government spending. Ireland also had a major housing bubble. And some people say that adopting the euro (the common currency of many European nations) helped create the current mess.

The one thing we can definitely say, though, is that lower tax rates did not cause Ireland’s problems. It’s also safe to say that higher tax rates will delay Ireland’s recovery. French and German politicians may think that’s a good idea, but hopefully Irish lawmakers have a better perspective.

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One of my first blog posts (and the first one to get any attention) highlighted the amusing/embarrassing irony of having Chinese students laugh at Treasury Secretary Geithner when he claimed the United States had a strong-dollar policy.

I suspect that even Tim “Turbotax” Geithner would be smart enough to avoid such a claim today, not after the Fed’s announcement (with the full support of the White House and Treasury) that it would flood the economy with $600 billion of hot money.

As I noted in an earlier post, monetary policy is not nearly as cut and dried as other issues, so I’m reluctant to make sweeping and definitive statements. That being said, I’m fairly sure that the Fed is on the wrong path. Here’s what my colleague Alan Reynolds wrote in the Wall Street Journal about Bernanke’s policy.

Mr. Bernanke…believes (contrary to our past experience with stagflation) that inflation is no danger thanks to economic slack (high unemployment). He reasons that if people can nonetheless be persuaded to expect higher inflation, regardless of the slack, that means interest rates will appear even lower in real terms. If that worked as planned, lower real interest rates would supposedly fix our hangover from the last Fed-financed borrowing binge by encouraging more borrowing. This whole scheme raises nagging questions. Why would domestic investors accept a lower yield on bonds if they expect higher inflation? And why would foreign investors accept a lower yield on U.S. bonds if they expect exchange rate losses on dollar-denominated securities? Why wouldn’t intelligent people shift their investments toward commodities or related stocks (such as mining and related machinery) and either shun, or sell short, long-term Treasurys? And if they did that, how could it possibly help the economy?

The rest of the world seems to share these concerns. The Germans are not big fans of America’s binge of borrowing and easy money. Here’s what Finance Minister Wolfgang Schäuble had to say in a recent interview.

The American growth model, on the other hand, is in a deep crisis. The United States lived on borrowed money for too long, inflating its financial sector unnecessarily and neglecting its small and mid-sized industrial companies. …I seriously doubt that it makes sense to pump unlimited amounts of money into the markets. There is no lack of liquidity in the US economy, which is why I don’t recognize the economic argument behind this measure. …The Fed’s decisions bring more uncertainty to the global economy. …It’s inconsistent for the Americans to accuse the Chinese of manipulating exchange rates and then to artificially depress the dollar exchange rate by printing money.

The comment about borrowed money has a bit of hypocrisy since German government debt is not much lower than it is in the United States, but the Finance Minister surely is correct about monetary policy. And speaking of China, we now have the odd situation of a Chinese rating agency downgrading U.S. government debt.

The United States has lost its double-A credit rating with Dagong Global Credit Rating Co., Ltd., the first domestic rating agency in China, due to its new round of quantitative easing policy. Dagong Global on Tuesday downgraded the local and foreign currency long-term sovereign credit rating of the US by one level to A+ from previous AA with “negative” outlook.

This development shold be taken with a giant grain of salt, as explained by a Wall Street Journal blogger. Nonetheless, the fact that the China-based agency thought this was a smart tactic must say something about how the rest of the world is beginning to perceive America.

Simply stated, Obama is following Jimmy Carter-style economic policy, so nobody shoud be surprised if the result is 1970s-style stagflation.

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By choosing not to use the economic downturn as an excuse for more wasteful spending, Germany may have avoided Obama’s big mistake, but that does not mean German conservatives and Angela Merkel are supporters of economic liberty and individual freedom. Not even close. A good (or should I say “bad”) example of Merkel’s statist mindset is her push for a tax on financial transactions. And not just a German tax. She wants a global tax. And not just for the typical political reason of wanting more of other people’s money. Merkel has a megalomaniacal view that “every product, every actor, every financial market participant should be regulated.” Ludwig Erhard must be spinning in his grave.

“We will continue to work for a tax on the financial markets,” Merkel said in a stormy debate in parliament on her government’s 2011 budget. “The finance minister is doing this in several discussions and we are going to try to persuade as many countries as possible. Unfortunately, the world is not always as we would wish … but we are not going to give up,” she added. At a meeting of European Union finance ministers earlier this month, members of the 27-country bloc clashed over the idea of imposing a tax of financial market transactions in Europe. The proposal, driven by France and Germany…, has run into stiff resistance from several countries, notably Sweden and Britain. At the level of the Group of 20 developed and developing nations, there is still more discord, with Canada and emerging market economies leading the battle against it. A G20 summit takes place in South Korea in November. “We are sticking to the principle that every product, every actor, every financial market participant should be regulated so that we have an overview of what is happening on the financial markets,” Merkel said.

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It’s hard to believe that anybody would classify the Germans as a master race after reading this Spiegel article. Bill Gates and Warren Buffett plan have a nutty (but at least non-coercive) plan for rich people to give away big share of their fortunes. The German billionaires are rejecting this plan. But not because they are sensible and want capital in the hands of those who know how to create wealth. Instead, they think private charity intrudes upon the government’s responsibility.

Germany’s super-rich have rejected an invitation by Bill Gates and Warren Buffett to join their ‘Giving Pledge’ to give away most of their fortune. The pledge has been criticized in Germany, with millionaires saying donations shouldn’t replace duties that would be better carried out by the state. Last week, Microsoft founder Bill Gates attempted to convince billionaires around the world to agree to give away half their money to charity. But in Germany, the “Giving Pledge,” backed by 40 of the world’s wealthiest people, including Gates and Warren Buffet, has met with skepticism, SPIEGEL has learned.

Here’s an actual section of an interview with a rich German. The most astounding comment is when he basically says that private charity is bad because the state should decide how resources are allocated.

SPIEGEL: But doesn’t the money that is donated serve the common good?

Krämer: It is all just a bad transfer of power from the state to billionaires. So it’s not the state that determines what is good for the people, but rather the rich want to decide. That’s a development that I find really bad. What legitimacy do these people have to decide where massive sums of money will flow?

SPIEGEL: It is their money at the end of the day.

Krämer: In this case, 40 superwealthy people want to decide what their money will be used for. That runs counter to the democratically legitimate state. In the end the billionaires are indulging in hobbies that might be in the common good, but are very personal.

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I’ve decided my one legacy to the world is the phrase, “Bad government policy begets more bad government policy.” This term, which I am modestly calling Mitchell’s Law, describes what happens when government intervention (Fannie and Freddie, for example, or Medicare and Medicaid) causes problems in a particular market (a housing bubble or a third-party payer crisis), which leads the politicians to impose more misguided intervention (bailouts or Obamacare).

Here’s a good example from Germany. The politicians created government-run healthcare. Overweight people are putting a larger burden on the system, imposing costs on taxpayers. The logical response is to shift to a market-based system where people are in charge of their own healthcare costs. Not surprisingly, that option isn’t being considered. Instead, politicians are using the situation as an excuse to consider even more taxes.

Marco Wanderwitz, a conservative member of parliament for the German state of Saxony, said it is unfair and unsustainable for the taxpayer to carry the entire cost of treating obesity-related illnesses in the public health system. “I think that it would be sensible if those who deliberately lead unhealthy lives would be held financially accountable for that,” Wanderwitz said, according to Reuters. Germany, famed for its beer, pork and chocolates, is one of the fattest countries in Europe. Twenty-one percent of German adults were obese in 2007, and the German newspaper Bild estimates that the cost of treating obesity-related illnesses is about 17 billion euro, or $21.7 billion, a year. …Health economist Jurgen Wasem called for Germany to tackle the problem of fattening snacks in order to raise money and reduce obesity. “One should, as with tobacco, tax the purchase of unhealthy consumer goods at a higher rate and partly maintain the health system,” Wasem said, according to Germany’s English-language newspaper The Local. “That applies to alcohol, chocolate or risky sporting equipment such as hang-gliders.” Others are suggesting even more extreme measures. The German teachers association recently called for school kids to be weighed each day, The Daily Telegraph said. The fat kids could then be reported to social services, who could send them to health clinics.

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I’ve been very dismissive of supposed European “austerity” initiatives, in part because the term seems to describe politicians who want tax-financed government spending rather than Keynesian-style deficit-financed government spending. But what really matters is reducing the burden of government spending, regardless of how those outlays are financed. But if this Financial Times report is true and Germany reduces total government spending next year by 3.8 percent, that would be a significant achievement. Indeed, the United States has not seen a one-year-to-the-next reduction in the burden of spending since the mid-1960s. I hope this is true and my pessimism is unwarranted, but I’m still a skeptic. I may be wrong, but I wouldn’t be surprised to discover that the 3.8 percent cut is based on phony US-style budget accounting (a spending increase magically becomes a spending cut if the increase is not as big as politicians want) or some sort of budget shell game (like Obama’s budget freeze, which exempted the vast majority of the budget).
Germany’s cabinet is poised this week to approve a 2011 budget as part of a four-year programme of public spending cuts meant to serve as an example to other European governments without jeopardising the country’s increasingly robust economic recovery. Briefing papers for Wednesday’s cabinet meeting, released by Berlin on Sunday, argue that by curbing spending – rather than increasing taxes – the €80bn ($100.3bn, £66bn) savings programme would differ “fundamentally” from previous fiscal squeezes and offer “noticeable, better growth possibilities”. …Germany’s economy is enjoying an industry-led growth spurt, with engineers rehiring workers and returning production almost to pre-crisis levels. The stronger-than-expected growth and falls in unemployment were making it significantly easier for Germany to reduce its public sector deficit. …the package “would differ fundamentally from earlier consolidation efforts”, avoiding “growth-hindering tax increases”. …Overall government spending is seen as falling 3.8 per cent next year, with smaller reductions in subsequent years before federal elections in 2013.

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CNBC is reporting that 51 German millionaires and billionaires have endorsed the idea of that rich people should have to give an extra 10 percent of their income to the government. I’m tempted to dismiss this story since (according to my rudimentary math skills) these clowns represent only 6/1000th of 1 percent of all wealthy Germans, but there’s a more important point to discuss. There’s no law stopping these neurotic people from giving extra money to government, so the real story is that they want the government to impose this bad policy on all successful people. I’ve debated this topic with a couple of ultra-rich American leftists (see here and here) and they never have a good answer when I ask them why they don’t give away their fortunes to the politicians and stop trying to impose their neurotic views on others.

A group of 51 German millionaires and billionaires founded a Club of the Wealthy and wrote to Chancellor Angela Merkel proposing to give up 10 percent of their income in the form of a “Rich Tax” for 10 years to consolidate the budget. With an estimated 800,000 millionaires (in dollars) — about 1 percent of the total population — Germany is eye-to-eye with the USA and has long overtaken the UK as Europe’s number one “millionaire-land”, both in terms of absolute numbers and as a percentage of the population. But traditionally, the Germans don’t dare to feel good about their riches.

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I spoke today in Prague at the second installment of the Free Market Road Show. I gave a standard presentation about fiscal policy, including strong warnings that all industrialized nations run the risk of Greek-style fiscal collapse because of entitlement programs and demographic changes. What’s remarkable, though, is that nobody pretends anymore that this isn’t happening. The question and answer session saw many people ask when the world was coming to an end (from a fiscal perspective) and whether certain nations would be good places to escape when welfare states descend into lawlessness and chaos. Meanwhile, in the Nero-fiddles-while-Rome-burns category, Europe’s statist Chancellor, Angela Merkel, confirmed to the world that she is a blithering idiot and/or a shallow and reprehensible political hack by imposing a ban on “short selling,” which occurs when investors make decisions based on an assumption that an asset (such as a Greek government bond) will fall in value. In the real world, short sellers perform a valuable role by helping to limit speculative bubbles. In the political world, however, short sellers are targeted by demagogues. If Merkel is right and short sellers are guilty of causing assets to fall, then thermometers are guilty of causing fevers. Bloomberg reports on Germany’s national embarrassment:

German Chancellor Angela Merkel laid out proposals to gain control over “destructive” financial markets, after she imposed a unilateral ban on naked short- selling that sent stocks sliding. …“The lack of rules and limits can make behavior in financial markets driven purely by the profit motive destructive and lead to an existential threat to financial stability in Europe and even the world,” Merkel told lawmakers in Berlin today.

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There’s an old joke that if you owe a bank $10,000, you have a problem, but if you owe a bank $10,000,000, the bank has a problem. The Greek government certainly seems to have that attitude. Short-sighted and corrupt politicians in Athens have spent their nation into a fiscal ditch and they now want to mooch from both the IMF and other European nations (especially Germany). The German Prime Minister (if only for political reasons) is talking tough, saying that Greece should do more to reduce subsidies and handouts. Why should Germans work until age 67, after all, so Greeks can enjoy overpaid government jobs and retire at age 61? So what is the response from the Greeks? Amazingly, one of the politicians had the gall to say his nation “cannot accept” further wage cuts. Here’s an excerpt from the Daily Telegraph:

It is far from clear whether Athens will agree to further austerity as strikes hit the country day after day. Andreas Loverdos, Greece’s labour minister, said the EU-IMF team wants further wages cuts. “We cannot accept that.” Greece knows it can opt for default at any time, setting off an EMU-wide crisis and bringing down Europe’s banks. It also knows that key figures in the Bundestag favour debt restructuring. “Those who chased high yield by purchasing Greek debt must share the costs,“ said Volker Wissing, chair of Bundestag’s finance committee. Leo Dautzenberg from the Christian Democrats said banks should prepare for a `haircut’ of up to 50pc. The ECB, Brussels, and the IMF have been fighting feverishly to head off such a move, fearing a financial chain-reaction.

If the Germans have any brains and pride, they will tell the Greeks to go jump in a lake (other phrases come to mind, but this is a family-oriented blog). And if this means that German banks take a loss on their holdings of Greek government debt, there’s a silver lining to that dark cloud since it is time for financial institutions to realize that they should not be lending so much money to corrupt and wasteful governments.

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Price fixing is illegal in the private sector, but unfortunately there are no rules against schemes by politicians to create oligopolies in order to prop up bad government policy. The latest example comes from the bureaucrats at the International Monetary Fund, who are conspiring with national governments to impose higher taxes and regulations on the banking sector. The pampered bureaucrats at the IMF (who get tax-free salaries while advocating higher taxes on the rest of us) say these policies are needed because of bailouts, yet such an approach would institutionalize moral hazard by exacerbating the government-created problem of “too big to fail.” But what is particularly disturbing about the latest IMF scheme is that the international bureaucracy wants to coerce all nations into imposing high taxes and excessive regulation. The bureaucrats realize that if some nations are allowed to have free markets, jobs and investment would flow to those countries and expose the foolishness of the bad policy being advocated elsewhere by the IMF. Here’s a brief excerpt from a report in the Wall Street Journal:

Mr. Strauss-Kahn said there was broad agreement on the need for consensus and coordination in the reform of the global financial sector. “Even if they don’t follow exactly the same rule, they have to follow rules which will not be in conflict,” he said. He said there were still major differences of opinion on how to proceed, saying that countries whose banking systems didn’t need taxpayer bailouts weren’t willing to impose extra taxation on their banks now, to create a cushion against further financial shocks. …Mr. Strauss-Kahn said the overriding goal was to prevent “regulatory arbitrage”—the migration of banks to places where the burden of tax and regulation is lightest. He said countries with tighter regulation of banks might be able to justify not imposing new taxes.

I’ve been annoyingly repetitious on the importance of making governments compete with each other, largely because the evidence showing that jurisdictional rivalry is a very effective force for good policy around the world. I’ve done videos showing the benefits of tax competition, videos making the economic and moral case for tax havens, and videos exposing the myths and demagoguery of those who want to undermine tax competition. I’ve traveled around the world to fight the international bureaucracies, and even been threatened with arrest for helping low-tax nations resist being bullied by high-tax nations. Simply stated, we need jurisdictional competition so that politicians know that taxpayers can escape fiscal oppression. In the absence of external competition, politicians are like fiscal alcoholics who are unable to resist the temptation to over-tax and over-spend.

This is why the IMF’s new scheme should be resisted. It is not the job of international bureaucracies to interfere with the sovereign right of nations to determine their own tax and regulatory policies. If France and Germany want to adopt statist policies, they should have that right. Heck, Obama wants America to make similar mistakes. But Hong Kong, Switzerland, the Cayman Islands, and other market-oriented jurisdictions should not be coerced into adopting the same misguided policies.

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Greece is in trouble for a combination of reasons. Government spending is far too excessive, diverting resources from more efficient uses. The bureaucracy is too large and paid too much, resulting in a misallocation of labor. And tax rates are too high, further hindering the productive sector of the economy. Europe’s political class wants to bail out Greece’s profligate government. The official reason for a bailout, to protect the euro currency, makes no sense. After all, if Illinois or California default, that would not affect the strength (or lack thereof) of the dollar.

To understand what is really happening in Europe, it is always wise to look at what politicians are doing and ignore what they are saying. Political union is the religion of Europe’s political class, and they relentlessly use any excuse to centralize power in Brussels and strip away national sovereignty. Greece’s fiscal crisis is simply the latest excuse to move the goalposts. The Daily Telegraph reports that Germany and France are now conspiring to create an “economic government” for the European Union. Supposedly this entity would only have supervisory powers, but it is a virtual certainty that a European-wide tax will be the next step for the euro-centralizers.

Germany and France have [proposed] controversial plans to create an “economic government of the European Union” to police financial policy across the continent. They have put Herman Van Rompuy, the EU President, in charge of a special task force to examine “all options possible” to prevent another crisis like the one caused by the Greek meltdown. …The options he will consider include the creation of an “economic government” by the by the end of the year. “We commit to promote a strong co-ordination of economic policies in Europe,” said a draft text expected to be agreed by EU leaders last night. “We consider that the European Council should become the economic government of the EU and we propose to increase its role in economic surveillance and the definition of the EU’s growth strategy.” …Mr Van Rompuy, the former Prime Minister of Belgium, is an enthusiastic supporter of “la gouvernement économique” and last month upset many national capitals by trying impose “top down” economic targets. Angela Merkel, the German Chancellor, has called for the Lisbon Treaty to be amended in order to prevent any repetition of the current Greek crisis, which has threatened to tear apart the euro.

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German politicians apparently have been hot on the trail of evil evaders who did not pay tax on coffee ordered over the Internet. To address this terrible crisis, the government spent 800,000 euro and tracked down 4000 dangerous criminals. Shockingly, a few cynics, including the folks at Reuters, are trying to diminish this triumph by pointing out that the government spent 30 times more than it collected:

Germany spent more than 30 times as much collecting taxes on coffee beans ordered online from abroad than it received in the tax revenues, the accounting office said on Tuesday. Some 4,000 Germans who bought coffee over the Internet from other EU countries but failed to pay the coffee tax have been charged between a few cents to 10 euros ($14.81) in taxes and fees, said Dieter Engels, head of Germany’s Federal Accounting Office. Tax collectors ended up with just 25,000 euros, way below the 800,000 euros in the costs of staff charged with collecting the payments, Engels said.

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A handful of guilt-ridden wealthy Germans are asking to pay more tax according to a BBC report. They could just give their money to the state, of course, but they want to impose their self-loathing policies on all successful Germans. The amusing part of the story is that these dilettantes were puzzled that so few people showed up to their protest. Maybe next time they could do some real redistribution and announce that they will be tossing real banknotes in the air:

A group of rich Germans has launched a petition calling for the government to make wealthy people pay higher taxes. The group say they have more money than they need, and the extra revenue could fund economic and social programmes… Simply donating money to deal with the problems is not enough, they want a change in the whole approach. …The man behind the petition, Dieter Lehmkuhl, told Berlin’s Tagesspiegel that there were 2.2 million people in Germany with a fortune of more than 500,000 euros. If they all paid the tax for two years, Germany could raise 100bn euros to fund ecological programmes, education and social projects, said the retired doctor and heir to a brewery. Signatory Peter Vollmer told AFP news agency he was supporting the proposal because he had inherited “a lot of money I do not need”. He said the tax would be “a viable and socially acceptable way out of the flagrant budget crisis”. The group held a demonstration in Berlin on Wednesday to draw attention to their plans, throwing fake banknotes into the air. Mr Vollmer said it was “really strange that so few people came”. 

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