The easy and correct answer is that both are major problems.
But some people think the problem is that EU nations don’t tax and spend enough.
To make matters worse, this kind of thinking infects the bureaucrats at the European Commission, which has released a new report that reads like a Bernie Sanders campaign screed.
It starts by pretending that that Okun’s tradeoff doesn’t exist.
…taxation can contribute to both social justice and sustainable growth, as well as financing the benefits which underpin the social citizenship contract… Contrary to the rhetoric about the inevitability of a trade-off between social justice and economic growth and a fiscal crisis of the State, the problems of financing the welfare state are far from being inevitable. …everyone should be willing to pay their share of the costs involved, whether individuals or companies.
It then explicitly endorses “pay as you go” as a model for fiscal policy, even though that approach is utterly impractical for a region with aging populations and falling birthrates.
The first specific suggestion is that a PAYG approach is the best way to link the rights and duties of generations over time, in line with the social citizenship contract at the heart of the welfare state.
The report has 21 recommendations. Here are the ones that endorse and embrace new and expanded entitlements.
As you might expect, all that new spending is accompanied by a seemingly endless list of new and expanded taxes.
There are two main options for reforming the taxation of personal income. The first is to expand the tax base by limiting or reducing the many tax breaks that are currently present, from tax credits and tax allowances to tax exemptions and preferential treatment of different sources of income, such as income from capital… The second option for reform is to make the taxation of income more progressive. …Increasing corporate taxation. …As with preferential personal income tax regimes, the EU has an important role to play in levelling the playing field, so eliminating the negative externalities of tax competition and ending the ‘race to the bottom’, as well as making multinationals pay their fair share of tax. …there are a number of arguments for higher taxes on wealth. …Increasing taxes on wealth could help to achieve greater fairness, both in the tax system and in the distribution of resources… A tax on net wealth could complement taxes on income from capital… Indirect taxes…can make it easier to achieve social objectives, as in the case of ‘sin’ taxes… Measures such as the EU carbon tax border adjustment mechanism…can prevent unfair competition… Another option is to tax excess profits… A ‘web tax’ aimed at the excess profits of digital service companies, based on their turnover, could be a transitional step… A levy on financial transactions can also be justified, on grounds of fairness… A further option for Member States is to introduce a new tax, …a surcharge levied at source on all incomes… In summary, there are many options for achieving an adequate, fair, and sustainable means of financing of social protection at both EU and Member State levels.
That’s a frightening list.
And if it looks like it might get implemented, one can only imagine how productive people in Europe would start making plans to escape.
But the bureaucrats recommend Soviet-style exit taxes so they can continue grabbing more money.
Another option would be to tax expatriates for a given number of years after they leave the EU.
Let’s close by looking at one final excerpt.
Nations in the European Union supposedly are bound the “Maastricht Critieria” from something called the Stability and Growth Pact.
These fiscal rules focus on limiting deficits and debt and thus are not nearly as good as the spending cap in Switzerland’s “debt brake.”
But even these weak rules apparently are too stringent according to the report.
…there is widespread agreement on the value of social investment for sustaining the inclusive welfare state in the EU… But…the long-term benefits of social investment constantly come up against short-term pressure for fiscal consolidation. …A new system is needed for monitoring public finances in the EU that would allow policy-makers to identify productive social investment…a golden rule should be applied, allowing borrowing for social investment… A starting point should be to exempt social investment from the new Stability and Growth Pact rules.
The bottom line is that Europe already suffers from excessive fiscal burdens.
Yet the European Commission wants to drive even faster in the wrong direction.
I feel sorry for European taxpayers. Their tax dollars were used to prepare a report that outlines various ways of confiscating an even greater share of their money. That’s adding insult to injury.
For the first 50-plus years of my life, free trade was in the ascendancy.
Policy makers had learned a big lesson from the Great Depression about how protectionism was economic poison, and various trade agreements after World War IIhelped reduce trade taxes and other barriers to cross-border commerce.
It also helped that there was a “Washington Consensus” in the late 1900s that supported pro-market reforms in the developing world.
Unfortunately, trade liberalization has ground to a halt. In part, this is the fault of the United States, thanks to the protectionism of both Trump and Biden.
But let’s also make sure the European Union gets a a share of the blame as well. For instance, the one good thing about the EU (free trade among members) also happens to be one of the many bad things about the EU (protectionism against the rest of the world).
But being a protectionist bloc is a trivial problem compared to what is on the horizon. As reported yesterday by the Wall Street Journal, the EU has unveiled a scheme to use climate as an excuse to increase global trade barriers.
The European Union reached an agreement to impose a tax on imports based on the greenhouse gases emitted to make them, inserting climate-change regulation for the first time into the rules of global trade. …The EU is expected to adopt it in the coming weeks as part of a sweeping package of legislation… The plan…has rattled supply chains around the globe and angered the EU’s trading partners, particularly in the developing world… It has also unsettled manufacturers in the U.S. who are concerned the measure would create a new web of red tape to export to Europe. …Europe’s carbon border tax aims to protect European manufacturers from competitors in countries that haven’t regulated carbon-dioxide emissions. …The legislation would require importers to register with authorities and seek authorization to import goods covered by the tax.
Today, the editorial page of the WSJ weighed in on the proposal.
Christmas came early to Europe’s tax accountants this week, although companies might think the occasion feels more like April Fool’s Day. …Europe is…pushing ahead with a carbon border adjustment mechanism, or CBAM, to tax imports on their carbon intensity. Europeans say this border tax is necessary to “level the playing field” for manufacturers that must pay for carbon emissions credits under the Emissions Trading System (ETS). The ETS already makes it less economical for some industries to operate in Europe, leading green activists to note a rise in imports from countries that don’t impose the complex tax. Imagine that. The CBAM would apply to imports from countries that don’t tax carbon emissions. …The biggest losers will be beleaguered European consumers. …carbon tariffs show how climate policy has become an anti-growth project. A better U.S. Administration would fight this, but the Biden White House and Treasury are fellow travelers.
I explained last year why this was a bad idea, noting that it was bad economics and also that it would advance cronyism and be a windfall for lobbyists (especially once the EU tries to calculate the about of untaxed carbon in every product).
But I also wondered if the Biden White House would be on the right side. After all, the US (thankfully) does not have a carbon tax, so you would think that American officials would be fighting against this EU proposal.
Unfortunately, I was being naive. As noted in the WSJ’s editorial, Biden and his team are fellow travelers. Indeed, the nightmare scenario (perhaps even worse the the nightmare scenario of the Trump years) is that Biden will unilaterally impose a version of climate protectionism on the US economy.
P.S. Is anyone surprised that the French were early advocates of this approach?
P.P.S. I’m a fan of the World Trade Organization, but I doubt that the WTO has the will or the ability to save the global economy from climate protectionism.
In an article for Law & Liberty, Douglas Carswell questions the very existence of the European Union.
Instead of asking if Europe can hold together, we should be asking if Europe should be held together at all. Why is it felt necessary to unify Europe’s disparate peoples in the first place? What is it that compels European leaders to support pan-European systems of governance at all? It is not as if European integration has been a success. …If the Euro was supposed to give Europe a competitive edge, how come the Eurozone lags behind the rest of the world by almost every measure of output and innovation? …The urge to integrate came about, it is often suggested, to prevent Germany from becoming overbearing… Seriously? Does anyone really believe that if it was not for an army of bureaucrats in Brussels these past thirty years, Germany might have invaded France again? …Maastricht, and indeed the various subsequent EU treaties, need to be seen for what they are: a power grab by Europe’s political elites. …Thirty years after Maastricht, the European Union is no more capable of making the kind of reforms it needs to save itself than it was back then. Rather like the Habsburg Empire, to which it is in many ways the successor, the European Union will stumble on, lurching from crisis to crisis, bits of it breaking away from time to time, as a once-great civilization becomes a cultural and economic backwater.
In a way that appeals to me, Liam Warner explains in National Review that the European Union represents the wrong type of globalism.
The 1957 Treaty of Rome established the European Economic Community, for example, was a customs union by which member countries agreed to trade freely with one another and maintain common external tariffs. With the 1993 Treaty of Maastricht, which established the EU, and its subsequent amendments, European integration began to look less like a cooperation of equals and more like a submission to a supranational authority. …internationalism in its modern form has often been a means of…imposing on the world a stultifying monotony… The deep flaws of the present system having been exposed, European leaders must give up their dream…and revisit their ancestors’ healthier forms of globalism.
A few European leaders realize that there’s too much centralization. Kai Weiss highlighted the views of the Dutch Prime Minster in a column for CapX.
In his Strasbourg speech on the future of Europe, Mark Rutte struck a markedly different tone and delivered an entirely different message to Macron and others. The Prime Minister of the Netherlands has recently come to the fore as one of Europe’s more sceptical voices. Speaking in front of the European Parliament, he once again made it clear that for him, more and more EU is simply not the answer to today’s problems. “For some, ‘ever closer union’ is still a goal in itself. Not for me,” Rutte said… Instead of finding ever new competences and tasks, Rutte argued that Brussels should hold onto the “original promise of Europe”, the “promise of sovereign member states working together to help each other achieve greater prosperity…” For Rutte, this means focusing on the core benefit of the EU: free trade. …the emergence of the Netherlands, as well as Nordic and Baltic states, as vocal critics of Macron’s federalist plans should be the source of much hope for Europe’s future.
I applaud that there are a few leaders and a few governments trying to block further centralization.
But I have three reasons for being a pessimist about the European Union.
First, I don’t think there’s any hope for achieving any decentralization. Indeed, the more sensible people in Europe will face endless battles to stop bad ideas.
Second, Europe’s demographics are terrible. And that will specifically mean lots of pressure for redistribution by imposing EU-wide taxes and spending.
Third, public policy is moving in the wrong direction at the national level. This compounds the damage of bad policies imposed by EU bureaucrats in Brussels.
Here’s a chart, based on the latest edition of Economic Freedom of the World, showing how economic liberty is declining in the nations that dominate the European Union.
P.S. For amusement value, here’s a cartoon showing the future of the European Union.
This is a topic I’ve written about many times, noting that even left-leaning international bureaucracies like the IMF and OECD have reached the same conclusion.
For today’s discussion, I want to focus on a wonky but important observation. I mentioned in the presentation that the European Union’s “Maastricht Criteria” – which focus on controlling red ink – have not worked.
Those interested can click here for further background on these rules, but the key thing to understand is that eurozone nations agreed back in 1992 to limit deficits to 3 percent of economic output and to limit debt to 60 percent of GDP.
Has this approach worked?
Here’s the data, from a 2019 European Parliament report, on government debt for eurozone nations. Incidentally, the euro currency officially began in 2002, though nations were supposed to comply with the Maastricht Criteria starting back in 1993.
As you can see, debt has increased in most European nations. In may cases, debt is more than twice as high as the supposed maximum specified in the Maastricht Criteria.
And these are the “good” numbers. I deliberately chose data from a few years ago to make clear that the failure to comply with the Maastricht Criteria has nothing to do with the coronavirus pandemic.
What went wrong? Why did anti-red ink rules produce more red ink?
A big part of the answer is that politicians use anti-deficit and anti-debt rules as an excuse to raise taxes (which is what happened during Europe’s prior debt crisis).
But, starting in the 1980s, that convergence stopped. And not because Europe reached American levels of prosperity. Even the nations of Western Europe never came close to U.S. levels of per-capita economic output.
Moreover, European countries then began to lose ground for the rest of the 20th century.
And that process is continuing. Here’s a recent tweet from Robin Brooks, the Chief Economist of the Institute of International Finance, which shows that the United States was growing faster than Europe before the pandemic and is now growing faster than Europe after the pandemic.
Sven Larson addressed this same issue in a new article on this topic for European Conservative.
Over the 20 years from 2000 to 2019, the U.S. economy outgrew the 27-member European Union by a solid 19%, adjusted for inflation. These numbers…are quite impressive, especially considering that during President Obama’s eight years in office, annual growth in gross domestic product, GDP, never reached 3%. …From 2010 to 2019, U.S. unemployment averaged 6.3%, dropping below 3.7% in the last year before the pandemic. By contrast, the EU economy never dropped below 6.7% unemployment (in 2019) with an average of 9.5% for the entire decade. …These differences between America and Europe are significant, and should be the subject of debate in Europe: what is it that the Americans are doing that Europeans could do better? Over time, even small differences in economic growth compound into large differences in the standard of living.
Here’s his chart showing the divergence.
So why is Europe falling behind the United States when it should be growing faster because of lower living standards?
Sven has a very good explanation.
There are many candidates for explaining this difference, but there is one that stands out compared to all the others: the size of government. Between 2010 and 2019, government spending in the European Union was equal to 48.3% of GDP, on average, compared to 37.1% in the U.S. economy. …The most hard-hitting impact does not come through taxes, as conventional wisdom suggests, but through spending. …government operates under a form of central economic planning. Its outlays are not based on the mechanisms and prices of free markets: instead, its spending is governed by ideological preferences… While government spending inflicts the most damage on the economy, taxes are not insignificant. Here, again, the U.S. comes out more competitive than its European counterpart, and it is not a new problem. …For the past 20 years, European governments in general have taxed their economies 10-12 percentage points higher, as a share of GDP, than is the case in America.
With regards to factors other than fiscal policy, European nations have just as much economic liberty (or, if you’re a glass-half-empty type, just as little economic liberty) as the United States. Heck, many of them rank above the United States when just considering factors such as trade, red tape, monetary policy, and rule of law.
Yet the United States nonetheless earns a better overall score.
Why? Because the United States does much better on fiscal policy (or, to be more accurate, doesn’t do as poorly).
P.S. Both Europe and the United States are moving in the wrong direction with regard to fiscal policy. Almost as if there’s a contest to see who can be the most profligate. Let’s call it the Keynesian Olympics. Whoever wins a gold medal is the first to suffer a fiscal crisis.
Over the next four years (and beyond), it’s quite likely that the biggest threat to global trade will be the European Union.
More specifically, politicians and bureaucrats in Brussels want to toss a hand grenade into cross-border commerce by imposing trade taxes on nations that don’t impose carbon taxes.
The Wall Street Journal has a must-read editorial about this threat to world commerce.
Western politicians have failed to persuade their own voters to commit economic suicide by banning fossil fuels, and forget about China, Russia or India. The climate lobby’s fallback, which is starting to emerge, is to punish the foreigners and their own consumers with climate tariffs. Bureaucrats at the European Commission are due to unveil the proposed Carbon Border Adjustment Mechanism (CBAM) later this month… Brussels wants to impose tariffs to bring the cost of carbon-dioxide emissions tied to an imported good into line with what a European producer would pay to produce the same good. …a carbon tariff would impose an enormous burden on companies seeking to sell to the EU—even the low-emitting firms—and as a result probably will trigger a trade war. …Under the leaked plan, foreign firms would have to undertake detailed carbon audits to report emissions to EU regulators, and then would have to work out what proportion of the emissions attributable to goods shipped to the EU already were covered by carbon taxes elsewhere. …The choice between costly compliance or a punitive default tariff risks deterring smaller foreign companies from trying to navigate this system.
Needless to say, the so-called carbon audits will create big openings for cronyism and favoritism.
Lobbyists will be fat and happy while businesses and consumers will get hit with higher costs.
The editorial’s conclusion wisely warns that it would be a big mistake for Europeans to trigger a trade war.
Western elites haven’t convinced their voters to pay the price of their climate obsessions. Like Donald Trump, they now want to blame foreigners. In the process they’ll force their consumers to pay more for imports and domestic goods, and they’ll harm their own exporters if countries retaliate. The last thing the world economy needs as it recovers from a pandemic is a climate-change trade war.
Writing for Forbes, Tilak Doshi speculates whether the United States will copy the Europeans.
…the European Parliament overwhelmingly endorsed the creation of a “carbon border adjustment mechanism” (CBAM) that would shield EU companies against cheaper imports from countries with “weaker” climate policies. …Now that the Biden administration has elevated climate change to its highest priority across the whole of government, it would seem that the EU and the US working together with like-minded governments in Canada and the UK would be in a position to set up a “trans-Atlantic climate club” and thereby impose a global cost on carbon emissions. …Australian Trade Minister Dan Tehan labelled carbon tariffs “a new form of protectionism.” …For most developing countries, “worries of an increasing carbon footprint generated by economic growth are second to worries that growth many not happen at all.” …What sets off this new protectionism from its predecessors is the sheer scope of its application.
I’m actually hopeful on this issue.
Biden and his team doubtlessly are sympathetic to the E.U.’s initiative, but I don’t think Congress will approve a carbon tax on the American people.
And if the U.S. doesn’t have a carbon tax, there wouldn’t be any reason to impose discriminatory taxes on other nations that also don’t have that levy.
That being said, the Biden Administration would have some leeway to cause problems. For instance, would they push for the World Trade Organization to accept the E.U.’s attack on free trade?
When dealing with politicians, I always hope for the best, but assume the worst.
Two years ago, I shared a study from three scholars that investigated whether membership in the European Union (EU) is associated with better economic performance.
Before reading that study, I assumed that EU membership was bad news for rich countries with decent economic policy (hence my support for Brexit), but I figured it was a good idea for poor countries with not-so-good policy.
I may have been wrong about the latter. The authors found that “EU membership has no impact on economic growth” and that “EU entry seems to have reduced economic growth.”
Ouch.
But I’m always interested in seeing new research on this topic.
So I was delighted to read a new report published by the European Liberal Forum.* Written by Constantinos Saravakos, Emmanuel Schizas, Mara Vidali, Angela De Martiis, and Giorgio Vernoni, it also seeks to ascertain if there is a link between EU membership and economic liberty.
…this publication seeks to examine whether a trajectory towards EU membership is a driver for more economic freedom. The key research question is if European Union economic policies promote economic freedom. The answer in this question is essential…because an economic environment based on market economy has a positive relationship with several prosperity outcomes. …Taking into account the huge EU enlargement that took place since 2004, when 13 countries have accessed the Union, and the on process enlargement with several formal or informal candidates, the analysis focuses on whether the structural reforms required for a country to become a member of EU contribute to economic freedom, covering the period from 2000 to 2017. …our research considers the relationship between a country’s Economic Freedom of the World index score (and sub-index scores) and its progress along the EU accession process.
Contrary to the study I wrote about two years ago, they find that countries have benefited from membership.
…as a country approaches EU membership status, then economic freedom, as proxied by the proximity to the EFW frontier, increases by at least 0.2, and this effect is associated with the process of accession…the main channel by which EU accession might contribute positively to a candidate or member state’s economic freedom is by boosting the freedom to trade… The present study provides empirical evidence of a link between the EU accession process and the aim of promoting economic freedom.
Here’s a chart from the report, which certainly suggests that something good is happening in the European Union.
Economic freedom, on average, has increased for the 28 nations of the EU since 2000 (based on a 1-10 scale).**
But when I looked at that chart, I wondered what we were really seeing.
Most notably, I was curious what we would find if we looked at the the nations of Western Europe, the ones that used to be known as the EU-15 before the bloc was enlarged (13 new countries have joined this century, mostly from Eastern Europe).**
So I went to the same source, Economic Freedom of the World, to measure what’s happened in those countries. Lo and behold, the average level of economic liberty has declined (which didn’t surprise me since I found something similar when I crunched some data back in 2016).
This doesn’t mean we should necessarily conclude that EU membership is bad for prosperity, but I’m not optimistic.
When I talk to pro-EU friends, here are some questions I ask:
Would Eastern European nations have liberalized their economies without becoming part of the EU?
Since Western European nations wield most of the power inside the EU, is it worrisome that they are becoming more statist in their orientation?
What are the implications for EU nations of demographic change (aging populations and falling birthrates)?
Will the EU’s nascent transfer union lead to more economic liberalization or less economic liberalization?
The bottom line is that I don’t think there are encouraging answers to these questions. Which is why we can expect that Europe will continue to fall behind the United States (which makes it rather odd that President Biden wants to make the USA more like the EU).
The big news of the year was the pandemic, of course, but my best-and-worst list focuses on public policy.
In other words, this column will highlight the positive or negative actions of politicians (or voters) rather than the vindictiveness of Mother Nature.
So let’s look at major developments in 2020, and we’ll start with the good news.
Illinois voters preserve the flat tax – The only good feature of Illinois fiscal policy is that the state’s constitution mandates a flat tax. The big spenders in Springfield despise that policy, but they can’t get rid of it without permission from voters. So, led by the state’s hypocritical governor, they put an initiative on the ballot to allow discriminatory tax rates. Fortunately, the people of Illinois rejected the class-warfare measure by a comfortable 53.3 percent-46.7 percent margin.
An acceptable Brexit deal – The people of the United Kingdom wisely voted to leave the European Union back in 2016, but a genuine escape from Brussels did not seem likely until Boris Johnson’s landslide victory in 2019. Even then, it wasn’t clear that the European Union’s spiteful officials would agree to unfettered trade in a post-Brexit environment. Fortunately, there is now an agreement that – while far from perfect – does allow the U.K. to escape the sinking ship of the E.U.
Washington’s bungled response to the pandemic – As indicated above, the existence of the coronavirus doesn’t count as bad policy, but the federal government’s incompetent response certainly belongs on this list. We learned, over and over and over and over again, that bloated bureaucracies do not deliver good results. Heck, we’re still learning that lesson.
China clamps down on Hong Kong – As a long-time admirer of Hong Kong’s market-driven economic vitality, I’m saddened that China is increasing its control. So far, Beijing is focusing on ways of restricting Hong Kong’s political autonomy, but I fear it is just a matter of time before economic freedom is negatively impacted. For what it’s worth, I’m also distressed that economic policy seems to be moving in the wrong direction in Mainland China as well.
Chilean voters put the nation’s prosperity at risk – One of the world’s biggest success stories during my lifetime has been Chile’s shift from authoritarian statism to capitalist prosperity. Poverty has dramatically declined and Chile is now the richest nation in Latin America. Sadly, voters approved an initiative that could result in a new constitution based on the welfare state vision of “positive rights.”
I’ll close with a bonus section, so to speak.
2020 election – If you care about trade and spending, then Biden’s victory may turn out to be good news. If you care about taxes and red tape, then Biden’s victory may turn out to be bad news.
But I thought the biggest election takeaway is that the left did not do well in congressional races or state races.
And I suppose I should add that it’s good news that Democratic voters ultimately opted not to nominate some of the awful politicians who ran for president, most notably Bernie Sanders and Elizabeth Warren.
And I’m tempted to add that they also wisely rejected Kamala Harris, but that backfired since she’s now going to be a heartbeat away from the presidency.
P.S. I’ve already cited my 2013 and 2019 editions. If you’re curious, here are my best and worst for 2018, 2017, 2016, 2015, and 2014.
A couple of days ago, I criticized officials at the United Nations for advocating higher taxes and bigger government.
Fortunately, that bureaucracy is so sclerotic and inefficient that its efforts to promote statism are not very effective
But it still galls me that international bureaucrats who receive lavish, tax-free salaries spend their days trying to promote higher taxes on everyone else.
Perhaps the logical takeaway is that international bureaucracies are inherently problematic, pushing misguided policy on their bad days and wasting money on their good days.
Here are some additional examples, starting with with the “Eurocrats” in Brussels. The U.K.-based Telegraph reports that they’ve been naughty hypocrites.
An MEP tried to escape through a window after police raided a 25-strong sex party in Brussels’ city centre for breaking Belgium’s coronavirus rules. …Police raided the flat after neigbours complained about the noise. …Belgian media reported two EU diplomats at the sex party… Police fined the 25 people, who were mostly naked men, at the orgy £225 each before releasing them. They broke rules limiting gatherings to groups of four. …A European Parliament source said: “There is nothing wrong to participate in a sex party of any kind. However, …parliamentary immunity does not exempt you from obeying the law.” Brussels hosts the major EU institutions, including one of the European parliament’s two seats.
Next, let’s take a look at the World Health Organization.
So maybe it’s a bit of karma that the bureaucracy is now suffering its own outbreak. Here are some excerpts from a story in the Las Angeles Times.
The World Health Organization has recorded 65 coronavirus cases among staff members based at its headquarters, despite the agency’s public assertions that there has been no transmission at the Geneva site, an internal email obtained by the Associated Press shows. …32 were found in staff who had been working at the headquarters building, suggesting that the health agency’s strict hygiene, screening and other prevention measures were not sufficient to spare it from the pandemic. …On Nov. 2, the WHO’s technical lead for the COVID-19 response, Maria Van Kerkhove, told reporters that there had been no transmission or clusters at headquarters.
Let’s wrap up by looking at the North Atlantic Treaty Organization (NATO).
You may have assumed this bureaucracy no longer exists since the Soviet Union (thankfully) no longer exists.
But not only is NATO still there, the Washington Free-Beaconreported that it built itself an opulent Taj Mahal-style headquarters.
…the new NATO headquarters…building cost an astounding $1.23 billion, according to a budget released by the North Atlantic Treaty Organization. Architecture, design, and quality management cost the alliance $129 million alone. Audio visual installations ran $29 million, while construction ran $514 million, the document states. …The alliance bragged that the structure is also a “green building for the future.” “The environment and sustainability have played a major role in the design process. The new building’s energy consumption has been optimized through the use of geothermal and solar energy and advanced lighting systems. …the buildings short wings will have green roofs,” the document states.
Lots of moral preening about being a “green building,” but nothing about whether this monument to extravagance will make NATO more effective as a fighting force.
Then again, as Mark Steyn observed many years ago, NATO nowadays is about as useful as “keeping forts in South Dakota to defend settlers against hostile Indians.”
In a perverse way, I almost have to admire NATO.
It takes special bureaucratic skills to survive the collapse of the Soviet Union and the end of the Warsaw Pact. And it takes super-special bureaucratic skills to then get a $1.23 billion headquarters when the organization’s reason for existing disappeared nearly three decades ago.
Indeed, the E.U. has just taken a big step in the wrong direction. Notwithstanding very clear language in the Treaty on the Functioning of the European Union, politicians from member countries just approved a big bailout for some of the bloc’s most poorly governed nations.
The Washington Post, in a report by Michael Birnbaum, Quentin Ariès, and Loveday Morris, has the details of the redistribution plan.
European leaders on Tuesday morning agreed to a vast spending plan to rescue the economies of coronavirus-hit countries…The negotiations had been bogged down by the objections of a handful of rich, northern countries on the scope of the fund and the strings attached to it. But…they hammered out a compromise. …The final agreement earmarks $859 billion in loans and grants to largely be spent over the next four years. …The main disagreement between the leaders of a handful of self-dubbed “frugal” countries — the Netherlands, Sweden, Austria, Denmark and Finland — and their peers was about how much money to ship to hard-hit countries such as Italy and Spain and how much oversight donor countries ought to have over how the funds are spent. …The others didn’t, offering a vision that would be a small step closer to a federal European Union…some analysts dubbed it Europe’s “Hamiltonian moment” — a burst of centralization that would forever hand more power to Brussels. “It’s an upgrading of supranational institutions’ role and power. It’s really upgrading them in a very significant way,” said Rosa Balfour, the director of the Brussels office of the Carnegie Endowment for International Peace, a think tank. …Italy, Spain and Poland would be the biggest beneficiaries of the plan.
I can’t resist the observation that both the first sentence and the headline are examples of either explicit or implicit media bias. Fair and knowledgeable reporters would have added words such as “supposed” or “alleged” rather than naively accepting the spin from Brussels that a bailout would “rescue the economies” of recipient nations.
But let’s set that aside and focus on the policy problem, which is that the agreement expands the size and scope of government in countries that already are suffering from statist policies.
Even worse, the new pact means more power for Brussels, thus opening the door for much greater levels of European-wide redistribution.
Some call this Europe’s Hamiltonian moment, in reference to the deal to have the federal government in the United States assume the debts that states incurred during the Revolutionary War, but that’s nonsense. The new agreement is akin to the proposals to have Uncle Sam provide bailouts of poorly governed states such as California, New Jersey, and Illinois.
The Dutch took the lead in fighting the E.U.’s new scheme, but ultimately capitulated.
Dutch leaders and their allies said countries such as Italy and Spain are to blame for pre-pandemic economic difficulties that left them struggling to pay their way out of the current crisis. They said they do not want to send money to those countries if they have no guarantees of economic reform in return. The Netherlands wants “truly enforcing reforms in exchange for loans,” Dutch Prime Minister Mark Rutte said Monday. “And if loans still have to become subsidies, then these reforms must really be enforceable” by allowing E.U. leaders to have oversight, he said.
The Dutch made very sound arguments. The E.U. scheme will reward nations with bad policy.
Here’s a look at the average level of economic liberty for the countries that resisted the bailout compared to the average for the three nations that will get the biggest shares of bailout money.
For what it’s worth, it’s a mistake to provide bailouts, especially if there are no strings attached to force recipients to fix bad policies.
But an ever-bigger problem, as noted in the excerpt above, is that the agreement could set the stage for a “burst of centralization that would forever hand more power to Brussels.”
P.S. British voters were very wise to approve “Brexit” so they won’t have to pay for this foolish scheme.
I wrote earlier this month about coronavirus becoming an excuse for more bad public policy.
American politicians certainly have been pushing all sorts of proposals for biggergovernment, showing that they have embraced the notion that you don’t want to let a “crisis go to waste.”
But nothing that’s happening in the United States is as monumentally misguided as the effort to create a new method of centralized redistribution in the European Union.
Kai Weiss of the Vienna-based Austrian Economic Center explains what is happening in a column for CapX.
…‘never let a good crisis go to waste’ seems to have become the mantra of both the European Commission a number of national leaders. The coronavirus has become a justification for…‘more Europe’ (which tends to actually mean more EU, to the detriment of Europe). The clearest sign of this renewed Euro-fervour is the plan cooked up by Angela Merkel and Emmanuel Macron earlier this week… Seasoned Brussels observers will be shocked to learn that their proposals have very little to do with the pandemic, and everything to do with deepening the centralisation of EU power and top-down policymaking. While Germany has traditionally…opposed the idea of eurobonds or similar debt collectivisation instruments, it is now advocating for precisely those policies. A €500 billion Recovery Fund… the initial plan is for the European Commission to raise the money on the financial markets. It would subsequently be paid back by the member states and through increased “own resources” – i.e., new taxes levied directly by Brussels… The good news is that none of these policy proposals are yet set in stone. There are some big legal questions, particularly on the Recovery Fund, and national parliaments would need to agree to this expansion of Brussels’ writ. Already countries like the Netherlands, Austria, Denmark, and Sweden have voiced criticism… But for all these obstacles, the direction of travel looks alarmingly clear. The consensus among the EU’s power brokers, as with pretty much any major world event, is that the answer is ‘more Europe’. ..For Macron Merkel and their allies, this is far too good a crisis to pass up.
A story in the New York Times has additional details, including a discussion of potential obstacles.
Ms. Merkel this week agreed to break with two longstanding taboos in German policy. Along with the French president, Emmanuel Macron, Ms. Merkel proposed a 500 billion euro fund… It would allow the transfer of funds from richer countries… And it would do so with money borrowed collectively by the European Union as a whole. …Whatever emerges from the European Commission will be followed by tough negotiations… Chancellor Sebastian Kurz of Austria has raised objections to the idea of grants rather than loans, saying that he has been in contact with the leaders of Sweden, the Netherlands and Denmark. “Our position remains unchanged,’’ he said. …opposition may also come from member states in Central and Eastern Europe. …Those countries are going to be reluctant…to see so much European aid — for which they will in the end have to help pay — skewed to southern countries that are richer than they are. …in northern countries, moves for collective debt to bail out poorer southern countries may feed far-right, anti-European populists like the Alternative for Germany or the Sweden Democrats. They are angry at the idea of subsidizing southerners who, they believe, work less hard and retire much earlier.
What’s depressing about this report is that it appears the battle will revolve around whether the €500 billion will be distributed as grants or loans.
The real fight should be whether there should be any expansion of intra-E.U. redistribution.
For what it’s worth, Germany used to oppose such ideas, especially if funded by borrowing. But Angela Merkel has decided to throw German taxpayers under the bus.
Let’s close with some analysis from Matthew Lynn of the Spectator.
Die-hard European Union federalists have plotted for it for years. …The Greeks and Italians have pleaded for it. And French presidents have made no end of grand speeches, full of references to solidarity and common visions, proposing it. The Germans have finally relented and agreed, at least in part, to share debt within the EU and the euro-zone, and bail-out the weaker members of the club. …The money will be borrowed, based on income from the EU’s future budgets, but it will in effect be guaranteed by the member states, based on the EU’s ‘capital key’. …the rescue plan is completely unfair on all the EU countries outside the euro-zone. …why should they pay for it? Poland…will still be expected to pay in five per cent (or 25bn euros (£22bn)) to bail-out of far richer Italy (Polish GDP per capital is $15,000 (£12,000) compared with $34,000 (£27,000) for Italy).
Pro-centralization politicians are claiming this fund is needed to deal with the consequences of the coronavirus, but that’s largely a smokescreen. It will take many months for this proposal to get up and running – assuming, of course, that Merkel and Macron succeed in bullying nations such as Austria and the Netherlands into submission.
By that time, even the worst-hit countries already will have absorbed temporary health-related costs.
The bottom line is that this initiative is really about the long-held desire by the left to turn the E.U. into a transfer union.
The immediate losers will be taxpayers in Germany, as well as those in Austria, Sweden, the Netherlands, Finland, and a few other nations.
But all of Europe will suffer in the long run because of an increase in the continent’s overall fiscal burden.
And keep in mind that this is just the camel’s nose under the tent. It’s just a matter of time before this supposedly limited step becomes a template for further expansions in the size and scope of government.
Yet another reason why E.U. membership is increasingly an anchor for nations that want more prosperity.
P.S. As suggested by Mr. Lynn’s column, countries in Eastern Europe should fight this scheme. After all, these countries are relatively poor (a legacy of communist enslavement) and presumably don’t want to subsidize their better-off cousins in places like Spain and Italy. But that argument also implies that they should have resisted the Greek bailout about ten years ago, yet they didn’t. Sadly, Eastern European governments acquiesce to bad ideas because their politicians are bribed with “structural adjustment funds” from the European Union.
P.P.S. The luckiest Europeans are the British. They wisely opted for Brexit so they presumably won’t be on the hook for this costly new type of E.U.-wide redistribution (indeed, my main argument for Brexit, which now appears very prescient, was that the E.U. would morph into a transfer union).
Libertarians and other supporters of limited government historically have mixed feelings about the European Union (and its various governmental manifestations).
On the plus side, there are no trade barriers between nations that belong to the EU, and membership also makes it difficult for countries to impose regulatory burdens that hinder trade. The EU also has helped to improve the rule of law in some nations, particularly for newer members from the former Soviet Bloc.
On the minus side, the EU imposes trade barriers against the rest of the world. There is also continuous pressure for tax harmonization policies and regulatory harmonization policies that increase the burden of government – compounded by efforts to export those bad polices to non-member nations.
Given these good and bad features, it’s understandable that proponents of economic liberty don’t have a consensus position on the European Union.
But views may become more universally hostile since some European politicians now want to use the coronavirus crisis as an excuse to expand redistribution and enable bailouts by changing existing EU rules.
Currently, there is very limited scope for bad European-wide fiscal policy because Article 125 of the Treaty on the Functioning of the European Union ostensibly prohibits cross-country redistribution or bailouts.
For what it’s worth, there is another provision for nations that use the euro currency. Article 136 of the Treaty allows for a “stability mechanism” to “safeguard the stability of the euro,” but also states that “the mechanism will be made subject to strict conditionality.”
Now let’s apply this background knowledge to the current situation.
As I wrote last month, the coronavirus-triggered economic mess is wreaking havoc with the finances of EU nations, especially for “Club Med” nations.
For example, Desmond Lachman of the American Enterprise Institute writes for the Hill about the potential consequences for Italy.
The Eurozone’s moment of truth has arrived with the coronavirus pandemic. …a supply side-shock of unprecedented size to Europe in general and to a highly indebted Italy in particular. Indeed, Italy, the Eurozone’s third-largest member country, is now at the epicenter of the pandemic and is being subject to an economic shock of biblical proportions. …That is all too likely to cause the country’s public debt to skyrocket to over 160 percent of GDP by year-end. It is also likely to put enormous strain on the country’s rickety banking system…it would seem to be only a matter of time before markets…became increasingly reluctant to buy Italian government bonds for fear of an eventual default. They would also…chose to move their deposits out of the Italian banks to safer havens abroad. …we should brace ourselves for an Italian exit from the euro that would almost certainly roil the world’s financial markets.
The coronavirus and the concomitant economic shutdown are merely a final (and very big) straw on the camel’s back.
So is Italy going to default? And maybe crash out of the euro? Or, alternatively, actually impose some long-overdue spending restraint?
Well, why make any tough decision if there’s a potential new source of money – i.e., cash from taxpayers in Germany, Finland, Austria, the Netherlands, Sweden, and other EU nations in Northern Europe.
Needless to say, that’s a very controversial concept. British newspapers have been writing about this issue.
Here are some passages from a report in the left-leaning Guardian.
The European Union has weathered the storms of eurozone bailouts, the migration crisis and Brexit, but some fear coronavirus could be even more destructive. …Jacques Delors, the former European commission president who helped build the modern EU, broke his silence last weekend to warn that lack of solidarity posed “a mortal danger to the European Union”. …The pandemic has reopened the wounds of the eurozone crisis, resurrecting stereotypes about “profligate” southern Europeans and “hard-hearted” northerners. …The Dutch finance minister, Wopke Hoekstra,…infuriat[ed] his neighbours by asking why other governments didn’t have fiscal buffers to deal with the financial shock of the coronavirus. His comments were described as “repugnant”, “small-minded” and “a threat to the EU’s future” by Portugal’s prime minister, António Costa.
Here are excerpts from a piece in the right-leaning Telegraph.
Italian politicians took out a full-page advertisement in one of Germany’s most prestigious newspapers…, urging parsimonious northern Europe to do more to help the south… They urged Berlin to drop its opposition to a proposed EU scheme to issue so-called “coronabonds” to raise funds to fight the crisis. And they accused the Netherlands, which has led opposition to the scheme, of operating as a tax haven and diverting revenue from other member states. …Several EU members – led by France, Italy, Spain and Belgium – have called for EU-wide “coronabonds” to help poorer member states borrow as they struggle with the economic impact of the crisis. But a rival faction of northern members, led by the Netherlands, Finland, Austria and Germany, has opposed what it sees as an attempt to saddle the countries with the debts of their more feckless neighbours.
An article in the Express highlighted divisions between Portugal and the Netherlands.
Portugal’s Prime Minister Antonio Costa has stunned fellow EU leaders after raising the idea…that the Netherlands could be kicked out of the European Union… The Netherlands held up the talks after blocking demands from Italy, Spain and France for so-called ‘corona-bonds’ where the EU would issue joint shared debt to help finance a recovery. …The Portuguese leader said: “If under these conditions it’s not possible for Europe to ensure a common response to this challenge, this is a sign of great concern for those who believe in Europe.” Mr Costa went on to question whether “there is anyone who wants to be left out” of the EU or eurozone. He added: “Naturally, I’m referring to the Netherlands. “There is at least one country in the euro zone that resists understanding that sharing a common currency implies sharing a common effort.”
The rest of this column is going to explain why it’s a very bad idea to have intra-EU redistribution and bailouts.
But I first want to debunk the claim from the Portuguese Prime Minister that a common currency requires a common fiscal policy.
Indeed, he’s not the only one to make this mistake. In a column for the U.K.-based Times, Iain Martin also asserts that a common currency somehow necessitates cross-country redistribution.
European finance ministers and leaders have spent the week arguing over desperate pleas from countries such as Italy…who want the European Central Bank and the EU to underpin common debt that will cover the epic bills being faced by national governments. …The fiscally conservative northern nations see no reason why they should take on the “pooled” debt of weaker southern European economies. …The core problem is what it has always been: the elementary design flaw of the euro. Currency blocs that work depend on that notion of common endeavour and “pooling” debt and risk, and ideally must function as one political organisation. …the euro needed an institutional structure that would operate roughly as the United States does. …This escalating economic emergency is a tragedy…a currency and monetary and fiscal construction that is not capable of swiftly transferring resources to the weak.
Both Costa and Martin are wrong.
Panama does very well using the dollar as its currency, yet there’s obviously no common fiscal policy with the United States. Other nations also have “dollarized” without any adverse impact.
Or consider the fiscal history of the United States. For much of American history, the federal government was trivially small. Most spending happened at the state and local level.
Needless to say, having a common currency in this decentralized system wasn’t a hindrance to U.S. economic development.
With this topic out of the way, let’s now deal with whether the coronavirus crisis should be used as an excuse to open the floodgates for intra-EU redistribution and bailouts.
Politicians from nations on the receiving end obviously approve.
But some Americans also like the idea.
Max Bergmann, a former Obama appointee at the State Department, likes the idea. He argues in the Washington Post for more centralization and more redistribution in the EU.
…this is in fact a fight over the future of Europe. The common European bond proposal hits at the core of what Europe’s union is for. It is an act of unity… A common E.U. bond would take the debt that individual European states accrue to fight this crisis and make it a collective European responsibility. …Moving ahead with it would entail a sweeping increase in the power of the federal union. …The move by…nine countries for a common E.U. bond was in fact a revolt against Europe’s status quo. It was at its core therefore a revolt against Merkel and the past decade of austerity in Europe. …Merkel is also the architect of a decade of devastating austerity that has caused economic devastation and deprivation… The crisis revealed that Europe’s new currency (the euro) had a design flaw. While the E.U. had a common monetary policy with its own central bank, it lacked a common fiscal policy. …Merkel could have pushed for that. …Merkel lectured southern European countries about profligacy. She turned what was a manageable crisis into a systemic shock to Europe’s economies. …As the coronavirus crisis hit, …Merkel has stuck to her guns.
The New York Times, unsurprisingly, has editorialized for centralization and redistribution.
…the European Union is…an alliance of sovereign countries, not a central government, and Brussels has control only over external trade and competition. For the rest, its executive branch, the European Commission, can only seek cooperation, not order it. The states that share the euro do not have true fiscal union, under which wealthier parts of the bloc would prop up the poorer. …Europe could do better. Much better. …Italians or Spaniards confronted with death and economic catastrophe…aren’t in a bind due to profligate spending; they’re in the throes of a plague… The question to ask is what’s the point of any union if it cannot find unity when it is needed most…true leadership requires knowing that we’re all in this together and can only conquer it together.
Is this correct? Would it be a good idea to have “a sweeping increase in the power of the federal union”? Would that be “true leadership”?
Gideon Rachman warns in the Financial Times that such policies will cause political fallout.
…northern Europeans will…feel exploited by the south. …The longer-term fears of the northern Europeans are also legitimate. …The northerners are alert to any sign that they are being sucked into permanent, large transfers of cash to heavily indebted EU partners. They are justifiably concerned that the current anguish is being used to push forward ideas that they have already rejected, many times over. …if political leaders renege on longstanding promises…, they should not be particularly surprised if voters then turn to populist, anti-European parties. …Anti-EU parties have already made strong gains across northern Europe in recent years.
That’s very sensible political analysis.
But the bigger problem, at least from my perspective, is that a common fiscal policy would be very bad economics.
It means more redistribution, with all the unfortunate incentives that creates for both those paying and those receiving (as illustrated by this cartoon).
And it means more overall government spending. The “Club Med” countries obviously would spend any money they got (whether from so-called coronabonds, a common-EU budget, or any other mechanism), and there’s no reason to think the nations in Northern Europe would reduce spending as their taxpayers started to underwrite the budgets of other nations.
This is a problem since government already is far too large in every EU country. Here’s the most-recent data from the European Commission. If you focus on the left, you’ll see the average fiscal burden in the EU is about 45 percent of GDP (and slightly higher in the subset of eurozone countries).
The bottom line is that countries such as Italy, Spain, Greece, and Portugal are in trouble because their governments have been spending too much.
Sadly, I fear it is just a matter of time before Article 125 is somehow sidelined and the profligacy of those “Club Med” nations is rewarded.
And if/when that happens, what’s good about the EU (open trade and the remnants of mutual recognition) definitely will be dwarfed by bad policy (bailouts, transfers, and others form of redistribution).
Some supporters of the EEC also were motivated by a desire for some form of political unification and their efforts eventually led to the 1992 Maastricht Treaty, which created the European Union – along with increased powers for a Brussels-based bureaucracy (the European Commission).
There are significant reasons to think that this evolution – from a Europe based on free trade and mutual recognition to a Europe based on supranational governance – was an unfortunate development.
Back in 2015, I warned that this system would “morph over time into a transfer union. And that means more handouts, more subsidies, more harmonization, more bailouts, more centralization, and more bureaucracy.”
A few years earlier, when many of Europe’s welfare states were dealing with a fiscal crisis, I specifically explained why it would be a very bad idea to have “eurobonds,” which would mean – for all intents and purposes – that reasonably well governed nations such as Germany and Sweden would be co-signing loans for poorly governed countries such as Italy and Greece.
Well, this bad idea has resurfaced. Politicians from several European nations are using the coronavirus as an excuse (“never let a crisis go to waste“) to push for a so-called common debt instrument.
…we need to work on a common debt instrument issued by a European institution to raise funds on the market on the same basis and to the benefits of all Member States, thus ensuring stable long term financing… The case for such a common instrument is strong, since we are all facing a symmetric external shock, for which no country bears responsibility, but whose negative consequences are endured by all. And we are collectively accountable for an effective and united European response. This common debt instrument should have sufficient size and long maturity to be fully efficient… The funds collected will be targeted to finance in all Member States the necessary investments in the healthcare system and temporary policies to protect our economies and social model.
Lots of aspirational language, of course, but no flowery words change the fact that “collectively accountable” means European-wide debt and “social model” means welfare state.
I wrote last year that globalization is good whereas global governance is bad. Well, this is the European version.
The Wall Street Journalopined against the concept. Here’s some background information.
Bad crises tend to produce worse policy… We speak of proposals for “corona bonds,” an idea floated as a fiscal solution to Europe’s deepening pandemic. Italian Prime Minister Giuseppe Conte launched the effort, and French President Emmanuel Macron this week joined Mr. Conte and seven other leaders in backing such a bond issue for health-care expenditures and economic recovery. Some 400 economists have joined the chorus. …The bonds would be backed collectively by member governments. The proceeds could be allocated to members such as Italy that otherwise couldn’t borrow from private markets. …Calls for euro bonds last hit a crescendo during the debt crises of 2010-12, when they were pitched to fund bailouts of Greece and others. But the idea has never gone anywhere because it would transform the eurozone into something voters didn’t approve when the currency was created in the 1990s.
And here’s the editorial’s explanation of why eurobonds would be a very bad idea.
Europeans were promised the euro would not become an excuse or vehicle for large fiscal transfers between member states. …Proponents say corona bonds are a special case due to the unfolding economic emergency. But the Italian government that now can’t finance its own recovery was also one of the worst fiscal offenders before Covid-19… Claims that the corona bond would be temporary aren’t credible because European elites have wanted such a facility for years… Voters can assume that if they get these bonds in a crisis, they’ll be stuck with this facility forever. …euro bonds would create profound governance problems. …With corona bonds, German and Dutch taxpayers for the first time are being asked to write a blank check to Italy and perhaps others.
Amen.
Once the camel’s nose is under the tent, it would simply be a matter of time before eurobonds would become a vehicle for bigger government in general and more country-to-country transfers in particular.
Hopefully this terrible idea will be blocked by nations such as Germany, Sweden, and the Netherlands (this satirical video will give you an idea of the tension between the European nations that foot the bills and the ones looking for handouts).
Some advocates for eurobonds say there’s nothing to worry about since the European Commission and related pan-European bureaucracies currently don’t spend much money, at least when measured as a share of overall economic output.
Which is why I sometimes warn my European friends that the United States is an example of why they should be vigilant.
For much of American history, the central government in Washington was very small, as envisioned by the Founders. But beginning with the so-called Progressive Era and then dramatically accelerating under the failed policies of Hoover and Roosevelt, the federal government has expanded dramatically in both size and scope.
The lesson to be learned is that more centralization is a very bad idea, particularly if that centralized form of government gains fiscal power.
That’s especially true for Europe since the burden of government spending at the national level already is excessive. Eurobonds would exacerbate the damage by creating a new European-wide method of spending money.
P.S. While eurobonds are a very bad idea, it would be even worse (akin to the U.S. approving the 16th Amendment) if the European Union somehow got the authority to directly impose taxes.
But Washington and Brussels also will play a role since the U.K. wants to sign free-trade agreements. This could be a problem since the E.U. will be tempted to behave in a spiteful manner and Trump and his trade team are protectionists.
But let’s set that aside for the moment and look at the big picture.
The Wall Street Journal nicely summarized the key takeaways in yesterday’s editorial about Brexit.
The EU was founded on the notion that only an ever-deeper economic union—with an ever-closer political union close on its heels—could secure peace and prosperity… Most continental political leaders, if not their voters, still believe this. …British voters think otherwise. Their 2016 vote to leave the EU, ratified in December’s general election, was not a vote for war and poverty. …voters had the temerity to assert themselves despite resistance from a political and bureaucratic class invested in the status quo. …One feature of this new politics is how immune voters have become to economic scaremongering… Britons instead have heard European anxiety that Brexit will trigger a “race to the bottom” on economic policy. What this really means is that EU politicians are aware that a freer economy more open to commerce at home and trade outside the EU would deliver more prosperity to more people than continental social democracy. British voters may not embrace this open vision in the end, but they’ve given themselves the choice. …All of this frightens so-called good Europeans…because it’s a direct challenge to…their “European project.” Central to this worldview is a distrust of…markets… A Britain with greater political independence and deep trading ties to Europe without all the useless red tape and hopeless centralizing could be a model. …Britain’s voters in 2016, and again in 2019, chose peaceful and prosperous coexistence with their neighbors rather than mindless but relentless integration. It’s the most consequential choice any European electorate has made in at least a generation.
Farage has been called the “most consequential political figure in a generation in Europe, perhaps the whole of the West.”
This actually may be true. Brexit almost surely happened because of Farage’s efforts.
And to achieve that goal in the face of unified establishment opposition is truly remarkable.
Speaking of establishment opposition, let’s close today with an updated version of a PG-13 song about how the British people responded to the practitioners of “Project Fear.”
P.S. You can enjoy other Farage speeches by clicking here, here, and here.
P.P.S. And you can enjoy more Brexit-themed humor by clicking here, here, and here.
It’s basically a welfare scam for politically connected farmers and it undermines the efficiency of America’s agriculture sector.
Some of the specific handouts – such as those for milk, corn, sugar, and even cranberries – are unbelievably wasteful.
But the European Union’s system of subsidies may be even worse. As reported by the New York Times, it is a toxic brew of waste, fraud, sleaze, and corruption.
…children toil for new overlords, a group of oligarchs and political patrons…a feudal system…financed and emboldened by the European Union. Every year, the 28-country bloc pays out $65 billion in farm subsidies… But across…much of Central and Eastern Europe, the bulk goes to a connected and powerful few. The prime minister of the Czech Republic collected tens of millions of dollars in subsidies just last year. Subsidies have underwritten Mafia-style land grabs in Slovakia and Bulgaria. …a subsidy system that is deliberately opaque, grossly undermines the European Union’s environmental goals and is warped by corruption and self-dealing. …The program is the biggest item in the European Union’s central budget, accounting for 40 percent of expenditures. It’s one of the largest subsidy programs in the world. …The European Union spends three times as much as the United States on farm subsidies each year, but as the system has expanded, accountability has not kept up. …Even as the European Union champions the subsidy program as an essential safety net for hardworking farmers, studies have repeatedly shown that 80 percent of the money goes to the biggest 20 percent of recipients. …It is a type of modern feudalism, where small farmers live in the shadows of huge, politically powerful interests — and European Union subsidies help finance it.
By the way, the article focused on the sleaze in Eastern Europe.
The problem, however, is not regional. Here’s a nice visual showing how there’s also plenty of graft lining pockets in Western Europe.
P.S. I imagine British politicians will concoct their own system of foolish subsidies, but the CAP handouts are another reason why voters were smart to vote for Brexit.
P.P.S. The CAP subsidies are one of many reasons why the European Union has been a net negative for national economies.
So I have mixed feelings about this video from Dalibor Rohac of the American Enterprise Institute.
I can’t resist nit-picking on some of his points.
Brexit was unquestionably a vote about the merits of membership in the European Union. The 2016 presidential election was about a lot of issues (trade, immigration, Hillary Clinton, etc). The United Nations was an asterisk at most.
A nation can import flags (or anything else) while retaining sovereignty. A nation can also make a sovereign choice to abide by a certain set of trade rules, such as the World Trade Organization.
While I have disagreements with Dalibor, that definitely doesn’t put me in the same camp as Donald Trump.
The President is an incoherent mix. He combines odious protectionism with mostly-empty rhetoric about globalism. And he does all that without understanding issues – and, in some cases, his actions are contrary to his rhetoric.
Dan Henninger wrote about these issues two days ago for the Wall Street Journal.
Global governance is one distressing possibility. Henninger worries about Chinese-style administrative authoritarianism.
President Trump at the United Nations this week elaborated on his long-running antagonism toward globalism. …There is merit to these concerns, but I think the critics of “globalism,” including most prominently Mr. Trump, underestimate the near-term danger of the serious difficulties appearing today in national democratic governance. Democracies maintain their legitimacy in the public’s eye only if they demonstrate a reasonable capacity to address society’s inevitably complex challenges. …it’s clear that many of the 21st century’s independent nations are having a remarkably difficult time executing their sovereign responsibilities. …Mr. Trump’s concerns about undemocratic governance by remote international bureaucracies are plausible, but the greater threat is more imminent. If the expansion of an increasingly dysfunctional administrative state inside the world’s sovereign democracies is inexorable and unreformable, the future will belong to China’s brand of administrative authoritarianism. …Elizabeth Warren and her multiple plans—heavily dependent on criminal prosecutions and intense oversight—is flirting with a milder version of this future.
Henninger is certainly correct that nations mostly get in trouble because of their own mistakes.
For instance, I’ve pointed out that the fiscal crisis in Europe should not be blamed on the euro.
Let’s now look at an interesting column that John Bolton (Trump’s former National Security Advisor) wrote on global governance for the U.K.-based Times back in 2016. Here are some of the key passages.
He makes the should-be-obvious point that not all international bureaucracies are alike.
…international organisations sometimes act as if they are governments rather than associations of governments and sprout bureaucracies with pretensions beyond those of cosseted elites in national capitals. …International bodies take many different forms, and it serves no analytical purpose to treat them interchangeably. Nato, for example, is not equivalent to the United Nations. Neither is equivalent to the European Union. Each has different objectives, and different implications for constitutional and democratic sovereignty. …Nato is America’s kind of international partnership: a classic politico-military alliance of nation states. It has never purported to assume sovereign functions, and is as distant as is imaginable from the EU paradigm.
He explains that some of them – most notably the IMF – are counterproductive and should be shut down.
Proposals to reform the UN and its affiliated bodies such as the World Bank and the IMF are almost endless. The real question is whether serious, sweeping reform of these organisations…is ever possible. …In 1998, during the Asian financial crisis, the former secretaries of the Treasury William Simon and George Shultz, and Walter Wriston, a former chairman of Citibank, wrote in The Wall Street Journal: “The IMF is ineffective, unnecessary, and obsolete. We do not need another IMF, as Mr. [George] Soros recommends. Once the Asian crisis is over, we should abolish the one we have.” …We should consider privatising all the development banks… We should ask why US taxpayers are compelled to provide subsidised interest rates for loans by international development banks.
…the Brexit referendum was, above all else, a reassertion of British sovereignty, a declaration of independence from would-be rulers who, while geographically close, were remote from the peasantry they sought to rule. …The Brexit decision was deplored by British and American elites alike… It does not surprise Americans that British elites have not reconciled themselves to losing… London and Washington can fashion a new economic relationship, perhaps involving Canada, with the potential for significant economic growth. Let the EU wallow in strangling economic regulation, and the euro albatross that Britain wisely never joined.
The good kind involves trade, peaceful interaction, and jurisdictional competition, all of which are consistent with sovereignty.
The bad kind of globalism involves international bureaucracies acting as supranational governments – almost always (as Nobel laureate Edward Prescott observed) with the goal of enabling and facilitating a larger burden of government.
I’ve written over and over again about how European-sized welfare states require big tax burdens on poor and middle-income taxpayers.
Simply stated, there aren’t enough rich people to finance big government. Especially since they generally have the ability to avoid confiscatory tax burdens.
As a general rule, this means ordinary European taxpayers are suffocated with high payroll tax burdens, onerous value-added taxes on consumption, and income taxes that impose high rates on modest incomes.
But let’s also not forget that politicians in Europe also pillage motorists.
The Tax Foundation recently released a survey showing gas taxes in various European nations.
…the European Union requires EU countries to levy a minimum excise duty of €0.36 per liter (US $1.61 per gallon) on gas. …The Netherlands has the highest gas tax in the European Union, at €0.79 per liter ($3.53 per gallon). …All EU countries also levy a value-added tax (VAT) on gas and diesel.
Wow, this is like the perfect storm of bad European policy, with tax harmonization (minimum-tax requirement) and a version of double taxation (motorist pay both VAT and gas tax when they fill up).
No wonder French motorists launched a yellow vest protest after Macron proposed another tax hike.
Here’s the map, which should have shown the prices in dollars. Just keep in mind that the average European pays almost $2.50 in tax on every gallon of gas.
I’ll close by noting that Europeans don’t get better roads for all that money.
For all the sturm and drang about supposed problems with infrastructure in the United States, it’s worth noting that our gas taxes are much lower and we consistently get above-average scores in various infrastructure rankings.
I’ve argued for many years that a Clean Brexit is the right step for the United Kingdom for the simple reason that the European Union is a slowly sinking ship.
Part of the problem is demographics. Europe’s welfare states are already very expensive and the relative costs will increase dramatically in coming years because of rising longevity and falling birthrates. So I expect more Greek-style fiscal crises.
The other part of the problem is attitudinal. I’m not talking about European-wide attitudes (though that also is something to worry about, given the erosion of societal capital), but rather the views of the European elites.
The notion of “ever closer union” is not just empty rhetoric in European treaties. It’s the ideological preference of senior European leaders, including in many nations and definitely in Brussels (home of the European Commission and the European Parliament).
In practical terms, this means a relentless effort for more centralization.
What’s happening with the taxation of air travel is a good example. Here are some excerpts from a story in U.S. News & World Report.
The Netherlands and France are trying to convince fellow European nations at a conference in The Hague to end tax exemptions on jet fuel and plane tickets… In the first major initiative on air travel tax in years, the conference on Thursday and Friday – which will be attended by about 29 countries – will discuss ticket taxes, kerosene levies and value-added tax (VAT) on air travel. …The conference will be attended by European Union economics commissioner Pierre Moscovici and finance and environment ministers. …The conference organizers hope that higher taxes will lead to changes in consumer behavior, with fewer people flying
The politicians, bureaucrats, and environmental activists are unhappy that European consumers are enjoying lightly taxed travel inside Europe.
Oh, the horror!
A combination of low aviation taxes, a proliferation of budget airlines and the rise of Airbnb have led to a boom in intra-European city-trips. …Research has shown that if the price of air travel goes up by one percent, demand will likely fall by about one percent, according to IMF tax policy division head Ruud De Mooij. He said that in a typical tank of gas for a car, over half the cost is tax…”Airline travel is nearly entirely exempt from all tax… Ending its undertaxation would level the playing field versus other modes of transport,” he said. …Environmental NGOs such as Transport and Environment (T&E) have long criticized the EU for being a “kerosene tax haven”.”Europe is a sorry story. Even the U.S., Australia and Brazil, where climate change deniers are in charge, all tax aviation more than Europe does,” T&E’s Bill Hemmings said. …The EU report shows that just six out of 28 EU member states levy ticket taxes on international flights, with Britain’s rates by far the highest at about 14 euros for short-haul economy flights and up to 499 euros for long-haul business class. …Friends of the Earth says there are no easy answers and that the only way to reduce airline CO2 emissions is by constraining aviation trough taxation, frequent flyer levies and limiting the number of flights at airports.
The only semi-compelling argument in the story is that air travel is taxed at preferential rates compared to other modes of transportation.
Assuming that’s true, it would be morally and economically appropriate to remove that distortion.
As you can see from this chart, the tax burden in eurozone nations is almost 50 percent higher than it is in the United States (46.2 percent of GDP compared to 32.7 percent of GDP according to OECD data for 2018).
So here’s a fair trade. European nations (not Brussels) can impose additional taxes on air travel if they are willing to lower other taxes by a greater amount. Maybe €3 of tax cuts for every €1 of additional taxes on air travel?
Needless to say, nobody in Brussels – or in national capitals – is contemplating such a swap. The discussion is entirely focused on extracting more tax revenue.
P.S. There’s some compelling academic evidence that the European Union has undermined the continent’s economic performance. Which is sad since the EU started as a noble idea of a free trade area and instead has become a vehicle for statism.
Thanks to the glorious miracle of capitalism, I’m writing this column 36,000 feet above the Atlantic Ocean.
I’m on my way back from Europe, where I ground through about a dozen presentations as part of a swing through 10 countries.
Most of my speeches were about the future of Europe, which was the theme of the Austrian Economic Center’s 2019 Free Market Road Show.
So it was bad timing that I didn’t have a chance until now to comb through a new study from three scholars about the economic impact of the European Union. As they point out at the start of their research, EU officials clearly want people to believe European-wide governance is a recipe for stronger growth.
The great European postwar statesmen, including the EU founding fathers, clearly…envisaged the establishment of a common political and economic entity as a guarantor of…domestic economic progress. …Article 2 of the foundational Treaty of Rome explicitly talked about “raising the standard of living.” … in practice EU today mainly emphasizes growth, as is evident from its most ambitious recent policy agendas. In 2000, a stated aim of the Lisbon Agenda was to make the European economy the “most competitive and knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion.” And all seven of the Flagship Initiatives adopted as part of the Europe 2020 Strategy were about growth—smart, sustainable, and inclusive.
Here’s a bit of background on their methodology.
…the focus of the present paper will be on prosperity as the key outcome that the EU will be measured up against… Our approach in the present paper is to use different empirical strategies (difference-in-differences type setups and standard growth regressions); slice the length of the panel in various ways (e.g., dropping post crisis observations); look at different samples of countries (e.g., a global sample, the sample of original OECD countries, the sample of formerly planned economies, and the sample of EU member countries); pay attention to spatial dependencies; and, finally, require manipulability of the treatment variable.
And what did they find?
It seems that the European Union has not triggered or enabled better economic performance.
The conclusion that emerges upon looking systematically at the data is that EU membership has no impact on economic growth. …We start by simply looking at the comparative performance of the EU and the United States, which is the comparison that Niall Ferguson makes. The IMF’s World Economic Outlook Database provides real GDP growth rates going back to 1980 for the EU and the US. These are plotted in Figure 1. The EU only managed to outperform the US economy in terms of real GDP growth in ten out of the 35 years between 1980 and 2015. …With these growth rates, the US economy would double its size every 27 years, whereas the corresponding number for the EU is 36 years. This hardly amounts to stellar performance on part of the EU.
Yet the opposite is happening. Here’s the relevant chart on US vs. EU performance.
The scholars conducted various statistical tests.
Many of those test actually showed that EU membership is associated with weaker performance.
…we basically measure pre- and post-entry growth for the EU countries up against the growth trajectories of all other countries. …EU membership is associated with lower economic growth in all columns. …where we use the maximum length WDI sample (i.e., 1961-2015), EU entry is associated with a statistically significant growth reduction of roughly 1.8 percentage points per year. When we remove the period associated with the sovereign debt crisis in the Eurozone (i.e., 2010-15), the reduction remains significant but is lower (1.27 percentage points per year). Finally, when we remove the global financial crisis of 2008-09, the reduction (which is now statistically insignificant) is 0.5 percentage points per year. Using GDP per worker growth from PWT gives roughly similar results… Consequently, in a difference-in-differences type setting EU entry seems to have reduced economic growth.
Moreover, a bigger EU (i.e., more member nations) is associated with slower average growth.
Last but not least, the authors compared former Soviet Bloc nations to see if linking up with the EU led to improvements in economic performance.
…we ask whether growth picked up in the new Eastern European EU countries after accession vis-à-vis growth in 18 formerly planned non-EU countries. …Of the 11 accession countries, not a single one had higher average annual real GDP per capita growth in the period after the EU accession as compared to the period before.
Ouch.
These are not flattering results.
Here’s a look at the relevant chart.
These findings leave me with a feeling of guilt. For almost twenty years, I’ve been telling audiences in Eastern Europe that they probably should join the EU.
I’ll have to do some thinking about this issue before my next trip.
P.S. In case you’re wondering why I’ve been telling Eastern European nations to join the EU while telling the United Kingdom to go for a Clean Brexit, my analysis (at least up til now) has been that market-oriented nations are held back by being in EU while poorer and more statist economies are improved by EU membership.
It’s a simple issue of what route is most likely to produce prosperity for the people of the United Kingdom. And that means escaping the dirigiste grasp of the European Union.
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….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.
But if I was rewriting that column today, I would change the title to “The Economic Case for Hard Brexit.”
That’s because Prime Minister Theresa May and other opponents are pushing for a watered-down version of Brexit. Sort of Brexit in Name Only.
Indeed, Dan Hannan, a member of the European Parliament, explains in the Washington Examiner that the deal negotiated by Theresa May is the worst possible outcome.
This is the sort of deal that a country signs when it has lost a war. Under its terms, Britain will remain subject to all the costs and obligations of EU membership, but will give up its vote, its voice and its veto. …EU exporters will enjoy privileged access to the world’s fifth-largest economy. They won’t need to worry about world competition. …In the two-and-a-half years since the referendum, civil servants, politicians, financiers and politically-connected business cartels have worked assiduously to overturn to result. …Some, including George Soros and Tony Blair, sought to overturn the result outright with a new referendum. Others, more craftily, sought instead to ensure that, while something technically called Brexit may happen, nothing actually changes. Sadly, they have achieved something far worse than no change. Their deal — Theresa May’s deal — will leave Britain in a more disadvantageous place than either leaving cleanly or staying put. It keeps the burdens of EU membership but junks the advantages.
Brian Wesbury and Bob Stein, both with First Trust Advisors, point out that Hard Brexit is the best option. Trade would continue, but based on WTO rules instead of the EU’s free trade agreement.
Some analysts and investors are concerned about a “Hard Brexit,” in which the U.K. supposedly plunges into chaos as it crashes out of the EU without an agreement. …Count us skeptical. …Any harm to the U.K.’s economy would be relatively mild… It’s not like there would be no trade between the U.K. and the EU after a Hard Brexit. Trade rules would simply shift to the ones that apply between the EU and other countries under the World Trade Organization, like those that apply to EU-U.S. trade.
While WTO rules are quite good, they’re not as good as complete free trade.
But there would be pressure to move in that direction under a Hard Brexit.
…the EU would be under enormous pressure to lower tariffs and cut a new deal with the U.K. In 2017, the rest of the European Union ran a roughly $90 billion trade surplus with the U.K. So if a Hard Brexit makes it tougher for the rest of the EU to export to the U.K., every national capital in the EU would be flooded with lobbyists asking to cut a deal. Meanwhile, leaving the EU means the U.K. would have the freedom to make free trade deals with the U.S. and Canada, and any other country it wanted, without having to wait for the EU. Yes, a Hard Brexit risks some financial jobs, but the same argument was used when the U.K. decided not to join the Euro currency bloc, after which London kept its role as Europe’s financial center.
For what it’s worth, I’m more interested in whether we can get a really good trade deal between the US and UK following a Hard Brexit.
Regardless, any possible slippage on trade between the UK and EU would be more than offset by the likelihood of better policy in other areas.
…there’s another basic reason why a Hard Brexit would be in the long-term interests of the U.K….any organization powerful enough to overrule the democratic process in the U.K. regarding economic laws and regulations…is also powerful enough to impose anti-free market policies… And, over time, since men are not angels and power corrupts, any international body with such power would gravitate toward policies that aggrandize the international political elite… In fact, the EU has already issued rules that stifle competition, like setting a standard minimum Value-Added Tax rate.
Felix Hathaway from London’s Institute of Economic Affairs, debunks Project Fear in an article just published by Cayman Financial Review.
…the only option ahead with a clear path, and requiring no new legislation in parliament, is some form of ‘Hard Brexit.’ …By Hard Brexit I mean the U.K. leaving the EU on March 29 without a withdrawal agreement. Unlike most other options, this does not require the cooperation of the EU to proceed. In this scenario, the U.K. leaves both Single Market and Customs Union of the European Union at 11 p.m. on March 29, 2019, along with leaving the various political institutions of the EU and the jurisdiction of the Court of Justice of the EU. …many of the more alarming warnings of no cooperation at all can be dismissed as fanciful. A more believable ‘no deal’ Brexit might look as follows. …the Commission is doing all it can to publicly rule out this sort of “managed no deal,” yet in doing so has stated that it would unilaterally extend agreements in selected sectors, including for financial services, following a WTO exit. …one could reasonably expect further agreements, possibly at the 11th hour in March… These would likely cover citizens’ rights, road haulage, and facilitated customs checks for certain classes of goods, and would be negotiated with the member states with which the U.K. does the most business.
For what it’s worth, I think vindictive EU bureaucrats probably want to inflict some needless harm, even though it will hurt them as much – and maybe more – than it would hurt the UK.
But Felix is right that common sense – sooner or later – will lead to agreements to smooth over any bumps in the transition. Indeed, he just wrote another article demonstrating how this is already happening.
Here’s the most important part of his article, which I like because it echoes my arguments about the pressure for better policy in an independent United Kingdom.
Ultimately, the most significant factor will be domestic policy decisions by the U.K. government, particularly in areas of taxation and housing. This may be fairly unexciting news at the end of an article about Brexit, but if the U.K. is to succeed as a “free trading, buccaneering nation,” such success will depend in large part on the ability of companies to attract investment through low corporate taxes, and the ability of workers to move to where they will be most productive through further housebuilding in key areas. …perhaps as an unexpected consequence of the conversation surrounding Brexit,… A recent ComRes poll found that, although divided on almost every other aspect, a clear two thirds of voters agree that when Brexit is complete, “the U.K. should try to become the lowest tax, business-friendliest country in Europe, focused on building strong international trade links.”
The Cockburn column in the Spectatormocks the New York Times for its anti-Brexit fanaticism.
The Times usually supports democracy in backward and violent states, but it hates Brexit. No news is too fake for the Times to print when it comes to Brexit. This week, the Times hit new heights of fantasy. ‘Roads gridlocked with trucks. Empty supermarket shelves. An economy thrown into paralysis,’ a would-be novelist named Scott Reyburn wrote earlier this week. His story, ‘As Brexit Looms, the Art World Prepares for the Fallout’, was recycled as a front-page item on the Times’s international edition. …Britain is in a ‘crazed Brexit vortex’, adds Roger Cohen, holder of the Tom Friedman Chair in Applied Chin-Stroking. …Yes, the British government are useless. But nobody in London is stockpiling food. Nobody is fighting in the streets, as the French are every weekend. The markets factored in their Brexit uncertainty two years ago. The supermarkets and roads are as jammed as ever. …The economy is doing much better than the Eurozone, which is slipping into recession. Polls show the British, who the Times characterize as sliding down a neofascist vortex, to be more welcoming of immigration than any other European people.
I’m mostly sharing his column because this satirical paragraph got me laughing.
The scene that met Cockburn’s eyes upon exiting the terminal at Heathrow reminded him of his days as a foreign correspondent during the Lebanese civil war, or a night out in south London. A dog was eating the innards of a corpse, because supplies of Romanian dog food have broken down. A naked fat man had carved off a slice of his own buttock and was roasting it over a burning tyre, because imports of Bulgarian lamb are held up at Calais. A woman offered to prostitute herself for an avocado, and to sell both of her blank-eyed children for a packet of French butter. There were no black taxis either, because London’s notoriously pro-Brexit taxi drivers had all joined one nationalist militia or other. Finally, a black-market cheese dealer with a rocket launcher affixed to the back of his pickup agreed to take Cockburn into the city. They bribed their way through the checkpoints with wedges of brie. Or not.
Here’s a new Brexit-related installment in the series.
Not as clever as the first Hitler parody I shared as part of my collection of Brexit humor, but it has some funny moments.
And if you have time, this Brexit tapestry is quite amusing.
P.S. There are some anti-Brexit people who support free markets, which is rather baffling since I can’t imagine why they would want the U.K. to be part of a bureaucracy that tries to brainwash children in favor of higher taxes. Indeed I was only semi-joking when I wrote that Brussels was “the most statist place on the planet.”
P.P.S. Though there are many reasons to question whether U.K. politicians can be trusted to adopt good policy.
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.
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 under the Treaty of Rome) has become a bad idea (economic union under the Maastricht and Lisbon treaties) 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?
…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.
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 Postcolumn, 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 Telegraphdisagrees 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.
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.
And that’s a good description of why the U.S. economy is out-performing Europe and why people in the United States enjoy higher living standards than their European counterparts.
In 2010, I shared data showing that Americans had far higher levels of consumption than Europeans.
In 2012, I updated the numbers and showed once again that people in America far ahead of folks in Europe.
And here are the most recent numbers from the Organization for Economic Cooperation and Development, showing “average individual consumption” for various member nations of that international bureaucracy.
The average for all OECD nations is 100, and the average for eurozone nations is 96, so the U.S. score of 147 illustrates how much better off Americans are than citizens of other countries.
The only nations that are even close to the United States have oil (like Norway) or are low-tax international financial centers (such as Luxembourg and Switzerland).
So why is the United States doing better than Europe?
There are two responses.
First, notwithstanding what I’ve just written, it’s a bit misleading to compare the U.S. to Europe. Simply stated, there are vast differences among European nations in terms of policies and living standards, much more than you find between and among American states.
There are nations such as Switzerland and Finland, for instance, that rank above the United States in Economic Freedom of the World. But there are also highly statist and moribund countries such as France, Italy, and Greece, as well as transition economies in Eastern Europe that are still trying to catch up after decades of communist oppression.
So overall America-vs-Europe comparisons should be accompanied by a grain of salt.
Second, now that we’ve ingested some salt, let’s draw some general conclusions about the role of public policy. Most important, nations with bigger governments and more intervention (as is the case for many European countries) generally don’t grow as fast or have the same living standards as nations with smaller governments and more reliance on competitive markets.
The comparisons can get complicated because there are a wide range of policies that impact economic performance (many people focus on fiscal policy, but trade, regulation, monetary policy, and the rule of law are equally important). Comparisons also can get confusing because there are some relatively rich nations with bad policy and some relatively poor nations with good policy, which is why it is important to look at how rich or poor nations are (or were) when there were significant changes in policy.
For instance, many nations in Western Europe became relatively rich in the 1800s and early 1900s when the overall burden of government was very small. Now they’ve adopted welfare states and growth is much slower (or, in some cases, nonexistent), but they’re oftentimes still in better shape than nations (such as Estonia and Chile) that only recently have liberalized their economies.
Now that we’ve gone through all this background, let’s look at a couple of stories that make me pessimistic about Europe’s future because they capture the mentality that seems dominant among continental policy makers.
So you won’t be surprised to learn that there’s a new push for tax harmonization in Europe. Here are some of the details from a news report.
France, Germany and Italy have joined forces to outlaw tax competition between EU countries in a letter to the European Commission. …the language and tone in the joint letter to the new Economic and Taxation Commissioner, Pierre Moscovici, is much more aggressive than in the past. …the letter from the finance ministers of the eurozone’s three largest economies says that “the lack of tax harmonisation in the European Union is one of the main causes allowing aggressive tax planning, base erosion and profit-shifting to develop”. …Vanessa Mock, commission spokeswoman said Mr Moscovici “welcomes these significant contributions to the work being carried out by the commission”.
Hmmm…., the Frenchmen who is the Economic and Taxation Commissioner “welcomes” a call from the governments of France, Germany, and Italy to outlaw tax competition. I’m shocked, shocked, by this development.
But as one British politician explained, this approach of higher business taxes will further undermine European economic vitality.
Now let’s shift to our second story, which illustrates the self-serving greed of the political elite at the European Commission.
Here are some passages from a story on the spectacular golden parachutes offered to outgoing senior Eurocrats. And we’ll focus on the former President of the European Council since he’s such a deserving target of ridicule.
Herman Van Rompuy will be entitled to more than £500,000 for doing nothing at the taxpayer’s expense over the next three years, after finishing his term as president of Europe. After standing down on Monday, the former president of the European Council will be paid £133,723 a year, 55 per cent of his basic salary, until December 2017 – to ease him back into life outside the world of Brussels officialdom.
Gee, how kind of European taxpayers to “ease him back” into the real world.
Except, of course, Van Rompuy’s never been in the real world. He’s had his snout in the public trough his entire life.
And he also gets to pay far less tax on this money compared to the poor slobs in the private sector who are footing the bill for this official largesse.
…The “transitional allowance” does not require Mr Van Rompuy to do any work at all and the cash will be paid under reduced rates of EU “community” tax, which are far lower than taxation in his native country of Belgium. …Mr Van Rompuy has not been a stranger to controversy over the perks of EU officialdom since he took the post in December 2009. He was widely criticised four years ago for using his official motorcade of five limousines as a taxi service to take his family on 325-mile round trip to Paris airport en route to a private holiday in the Caribbean. …The cost of Mr Van Rompuy’s retirement is part of a much larger bill for the handover of the administration in EU as former European Commissioners serving in the last Brussels executive pocket “transitional allowances” worth around £30million.
And lavish pay and perks for European Union bureaucrats.
And don’t forget these are the folks who are pushing for bigger government and higher taxes on a pan-European basis. Like many of our politicians in Washington, they think the private sector is some sort of piñata that is capable of producing endless amounts of revenue to finance ever-expanding government.
Even though the evidence from Greece, Italy, Spain, etc, confirms that Margaret Thatcher was right when she warned that the problem with big government is that sooner or later you run out of other people’s money.
Guido Westerwelle is supposed to be the German version of a libertarian. Currently serving as Foreign Minister, he was the chairman of the supposedly pro-market Free Democratic Party for 10 years and Wikipedia says he was known as a “proponent of an unlimited free market economy.”
That’s the optimistic spin, but now let’s look at the column Westerwelle wrote for the Washington Post yesterday. Entitled “A Growth Pact for Europe,” he called for six reforms. Unfortunately, four of the reforms mean more government and two were meaningless boilerplate. Let’s look at what he proposed.
First, the European Union’s budget should be consistently oriented toward growth… The E.U. must utilize its resources better than before without spending more. Money is available for future-oriented tasks; in recent months, E.U. officials have been negotiating a 1 trillion-euro budget for 2014 to 2020. We should concentrate on using this huge sum consistently to promote growth and employment, innovation and competitiveness.
I’m glad he says they shouldn’t spend even more than is currently in the EU budget, but he apparently believes that government can redistribute 1 trillion euro in a way that boosts the economy. Good luck with that.
Second, unused E.U. funds must be activated. Around 80 billion euros in the regional cohesion fund have not been allocated to any concrete projects. The European Commission and member states must invest these funds quickly and effectively in new growth through better competitiveness.
Third, access to capital must be improved. …companies are not in a position to make sensible investments that would stimulate growth. The European Investment Bank is an instrument we could use to a greater extent and in a more targeted fashion, not least to ensure that small and medium-size businesses have better access to loans.
I guess this is the European version of the bastard child of Fannie Mae and the Export-Import Bank. But if anybody thinks government-subsidized cronyism is a route to prosperity, they’ve been asleep for the past 40 years.
Fourth, infrastructure projects must be promoted. …Our roads, railways, and energy and telecommunication networks are among the European economy’s trump cards. …State-of-the-art infrastructure opens new prospects for growth by making private-sector investment more attractive. We need to mobilize private capital for the cross-border expansion of European infrastructure and look at innovative forms of public-private partnership.
Fifth, we must complete Europe’s internal market. In the 1980s and ’90s, realizing the “four freedoms” — the free flow of goods, capital, services and people within the E.U. — released tremendous forces for growth. Today, the expansion of the internal market to cover new spheres again offers great opportunities. That applies to the digitized economy, e-commerce and the energy sector, and it will strengthen small and medium-size companies by reducing red tape and ensuring better access to venture capital.
This boilerplate support for more free trade is fine, but I think all the big benefits of ending protectionism inside Europe already have been captured (and this is the one area where the European project has been a success).
Sixth, we want to strengthen free trade. Three-quarters of the world’s trade occurs outside the European Union. More than 80 percent of global growth is produced outside Europe. The E.U. must work toward making the Doha Round a success while also concluding more free-trade agreements with new and long-established centers of power.
Again, this a good sentiment, but I fear it is a throwaway passage. Almost every nation has empty rhetoric about completing the Doha round, but don’t hold your breath expecting it to happen anytime soon.
What’s notable about Westerwelle’s list is that there is nothing about the overall burden of spending, even though Europe is saddled with bloated welfare states. There is nothing about high tax rates, even though most nations have punitive systems that discourage work, saving, investment, and entrepreneurship. There is nothing about the overall burden of regulation and red tape, particularly the supposedly pro-labor rules that actually discourage hiring (the Germans did implement successful reforms last decade, so he would have been in a strong position to urge other nations to copy those changes).
The eurocrats in Brussels have much bigger fish to fry. They’re addressing the unmitigated horror of inadequate female representation in corporate boardrooms and contemplating continent-wide quotas.
Frustrated that her previous efforts to get more women into the top echelons of European business have not yielded stronger results, Viviane Reding, the senior justice official in the European Union, was to announce a new effort Monday that could result in legislation requiring that women occupy up to 60 percent of the seats on corporate boards. …E.U.-wide rules were now needed, she said. “Personally, I don’t like quotas,” Ms. Reding said. “But I like what the quotas do. Quotas open the way to equality and they break through the glass ceiling.” Countries that have quotas “bring the results,” she said. Ms. Reding has long campaigned for major changes in European boardrooms and had given industry “a last chance” to improve its record on placing women in top management.
Isn’t that nice. She doesn’t like quotas, but she has no choice because she gave industry a “last chance” to engage in gender bean counting and they didn’t comply.
I wonder if it’s ever occurred to this über-bureaucrat that it’s not her job to tell private companies who to hire, fire, or promote?
"Nice business you have, shame if anything happened to it"
As an aside, the New York Times manages to demonstrate its bias by directly implying that “genuine equality” only exists if boardrooms have equal numbers of men and women.
Having now concluded that self-regulation has failed, Ms. Reding has set her sights on legislation that could, if enacted, drastically speed up a revolution in the position of women in the workplace that began many decades ago but has so far failed to deliver genuine equality in many areas of business.
Has it ever occurred to the reporter that “genuine equality” exists when everyone has an equal chance and government doesn’t put a thumb on the scale? But regardless of what he thinks, doesn’t good journalism mean keeping his opinions to himself?
Maybe I’m just too old fashioned.
Let’s return to the meat of the story and the actions of Ms. Reding. In this passage, I like how she blames “society” because companies didn’t kow-tow to her voluntary suggestions.
In the announcement to be made Monday, Ms. Reding will call for a new round of consultations with governments, trade unions, companies and civil groups. The move comes a year after she called on companies to take voluntary steps to increase the representation of women on boards to 30 percent by 2015 and to 40 percent by 2020, by replacing departing male directors. …Ms. Reding said that the severe economic downturn in Europe that has pressured companies to focus on their bottom lines was not responsible for the failure of her voluntary initiative. “It is really a question of society,” she said.
The story continues with discussion of the onerous plans being concocted by Ms. über-bureaucrat.
Ms. Reding said that the consultations, beginning Monday and ending on May 28, would determine the proportion of women that should be on boards under any E.U.-wide legislation; whether quotas should apply to state-owned companies as well as publicly listed ones; whether both executive and nonexecutive boards should be covered by the rules; and what sanctions should apply to companies that do not meet the objectives, and if there are circumstances where exceptions are necessary.
Unfortunately, the private sector in Europe has the same cringing approach as their counterparts in the United States. Instead of boldly saying that corporate boards are a private matter for shareholders to decide, representatives from big companies accept the intrusion and merely complain about implementation.
…the European Round Table of Industrialists, a forum for the chairmen and chief executives of major multinational companies, has warned that big divergences among sectors and national traditions meant any measures should remain voluntary. “Societal changes take time,” said Carlo Bozotti, the chief executive of STMicroelectronics, a semiconductor company, and the head of a group at the Round Table looking at the issue. “There is no one-size-fits-all solution for industrial companies from multiple sectors, of various structures, and from diverse cultural backgrounds,” he said.
The article concludes with an assertion that “gender-diverse” boardrooms lead to better economic performance. That may very well be true, but it suggests that shareholders are deliberately sacrificing income and wealth in order to retain something akin to an old boys’ network. That seems rather implausible, to say the least.
There is plentiful evidence from business consulting firms including McKinsey & Co., and from Catalyst, a nonprofit research group, that companies with gender-diverse management teams experience higher growth in their share prices, better-than-average operating profits, and outperform their rivals in terms of sales, return on investment capital and return on equity, according to the report. That research showed that women asked more questions and made fewer reckless decisions, proving that “women are not a cost, women are a benefit,” Ms. Reding said.
I want to close with a semi-optimistic note. As crazy as it is for Ms. Reding to try to dictate the number of men and women in corporate boardrooms, at least she’s not complaining about discrimination based on looks or height and trying to get government involved in those areas. At least, not yet.
I’m not a big fan of the European bureaucracy. Indeed, I was semi-serious when I stated that Brussels was the “most statist place on the planet.”
Which is why I greatly enjoyed this speech by the head of Ryan Air, who ripped the bureaucrats a new you-know-what while speaking at an event sponsored by the European Union.
All the good stuff – including a great Reagan quote – is in the first 3:35, so don’t be put off by the video’s length.
And if you want examples to help you understand why folks like Mr. O’Leary are so critical of the European Commission, just click here, here, and here.
I don’t often have reason to praise the White House. But the Administration occasionally winds up fighting on the right side when dealing with the statists on the other side of the Atlantic Ocean.
And now it’s time to praise the White House again. In this case, they are fighting against a proposal by the European Union to impose an emissions tax on airliners. And even though the proposed tax is similar to the cap-and-trade scheme supported by Obama, the Administration is on the right side, as noted in this AP story.
The House voted Monday to exclude U.S. airlines from an emissions cap-and-trade program that the European Union plans to impose on all airlines flying to and from the continent beginning next year. With the legislation, which passed by voice vote, lawmakers joined the airline industry and the Obama administration in opposing the EU Emissions Trading Scheme scheduled to go into effect on Jan. 1. The bill now goes to the Senate, where there is currently no companion legislation. The measure directs the transportation secretary to prohibit U.S. carriers from participating in the program if it is unilaterally imposed. It also tells other federal agencies to take steps necessary to ensure that U.S. carriers are not penalized by the emissions control scheme. …The U.S. aviation industry says the cost between 2012 and 2020 could hit $3.1 billion. It says it is unfair that a flight from the United States, for example from Los Angeles, would have to pay for emissions for all parts of flights to Europe, including time spent over the United States and the Atlantic. “It’s a tax grab by the European Union,” Transportation Committee Chairman John Mica, R-Fla., said. “The meter starts running the minute the plane departs from any point in the U.S. until it reaches Europe.” …That drew fire from Krishna R. Urs, the U.S. deputy assistant secretary of State for transportation affairs, who repeated the U.S.’s “strong legal and policy objections to the inclusion of flights by non-EU carriers” in the EU program.
Individual nations have the right, of course, to impose tax on activities that take place inside national borders. And a group of nations, such as the European Union, has the right to impose taxes on things that take place within their combined borders.
In this case, however, the EU wants to levy the tax based on miles flown inside the United Stats and over international waters. This type of extraterritorial tax grab should be strongly resisted.
Sorry to sound like a teenager, but I am endlessly amazed at the hare–brained ways that politicians waste our money and interfere with our lives.
So as part of my ongoing series comparing foolish government policies (previous editions include the U.S. v Germany and the U.S. v. the U.K.), let’s figure out whether California or the European Union is more worthy of scorn.
Children are to be banned from taking part in traditional Christmas games, from blowing up balloons to blowing on party whistles, because of new EU safety rules that have just entered into force. The EU toy safety directive, agreed and implemented by Government, states that balloons must not be blown up by unsupervised children under the age of eight, in case they accidentally swallow them and choke. …Apparently harmless toys that children have enjoyed for decades are now regarded by EU regulators as posing an unacceptable safety risk.Whistle blowers, that scroll out into a long coloured paper tongue when sounded – a party favourite at family Christmas meals – are now classed as unsafe for all children under 14. …As well as new rules for balloons and party whistles, the EU legislation will impose restrictions on how noisy toys, including rattles or musical instruments, are allowed to be.
Heck, let’s surround the little tykes with bubble wrap and never let them out of the house.
I’m pleasantly surprised, by the way, that a sociology professor defended freedom. Here’s another excerpt.
Frank Furedi, professor of sociology at the University of Kent, warned that toy safety bans were part of a trend to micro-manage children’s lives at the expense of allowing them to explore, learn and have fun through play. “Toys and activities, such as blowing up balloons, are part and parcel of the type of children’s play that helps them become independent and self-reliant,” he said.
Now let’s shift to California. The Golden State has a very schizophrenic approach to kids. Let’s start with a nanny state gesture, as reported by Reuters.
Minors in the state of California will no longer be allowed to use tanning beds after Governor Jerry Brown signed a bill on Sunday prohibiting anyone under the age of 18 from using ultraviolet tanning devices. California is the first state in the nation to ban minors from using tanning beds, legislators said. Previously, California had banned minors under the age of 14 from using tanning beds, but allowed those between 14 and 18 years of age to use tanning beds with parental consent. The bill was part of a cluster of legislation signed on Sunday designed to “improve the health and well-being of Californians,” according to a statement from the Governor’s office.
But lest you think California doesn’t want kids to have any fun, here’s a story from the LA Times about letting kids get STD treatment without parental consent or knowledge.
California Gov. Jerry Brown stepped into the middle of a debate over parental rights Sunday by signing legislation giving children 12 or older the power to consent to medical care involving the prevention of sexually transmitted disease. …The measure was backed by groups including the California STD Controllers Assn., the Health Officers Assn. of California, ACT for Women and Girls and the American Civil Liberties Union. The bill was opposed by the California Catholic Conference, which opposed previous measures that allow minors to consent to certain treatments without the involvement of parents. That group wrote to legislators that “this bill is dangerous because it expands a faulty law which assumes that children know better than their parents and because it will allow minors access to HPV vaccines which may cause them permanent harm.”
This is rather surreal. The politicians apparently believe in letting kids make “adult” decisions in some ways, regardless of health risks, but don’t want to let kids make decisions in other ways, precisely because of health risks.
The only unifying theme is that California politicians obviously have very little regard for parental rights.
I guess Reagan was right when he said, “Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
By the way, here’s a post with five different examples of government stupidity in the United States and five different examples of government stupidity in the United Kingdom. One can only imagine how long the list will be 12 months from now.
I’ve joked on many occasions that bipartisanship occurs in Washington when the evil party and the stupid party come up with an idea that is simultaneously malicious and misguided.
The international version of two-wrongs-don’t-make-a-right occurs whenever the French and the Germans conspire on economic policy. The latest example is a joint proposal for “economic governance” for eurozone nations. Here are some blurbs from the BBC’s report.
The French and German leaders have called for “true economic governance” for the eurozone in response to the euro debt crisis. Speaking at a joint news conference, German Chancellor Angela Merkel and French President Nicolas Sarkozy urged much closer economic and fiscal policy in the eurozone. …They also advocated a tax on financial transactions to raise more revenues.
I don’t pretend to have any predictive ability, but I’ll bet dollars-to-donuts that “true economic governance” will lead to more spending and higher taxes. Why? Because “economic governance” is just a sanitized way of describing a cartel of governments.
When politicians don’t have to worry as much about jobs and capital migrating to jurisdictions with less oppressive tax law, they will behave in a predictable fashion by raising tax rates. In other words, the weakening of tax competition is a recipe for bigger, more expensive government.
Indeed, the tax on financial transactions is a perfect example. Any one nation would be unlikely to impose this perverse levy for fear of losing business to neighbors. But if there’s a one-size-fits-all eurozone government, then bad policy becomes more feasible.
The only good news is that Merkel hasn’t totally lost her mind. Perhaps because her de facto socialist party is not doing well in the polls against the de jure socialist party in Germany, she is temporarily resisting the idea of “eurobonds.”
Ms Merkel again played down the chances of introducing “eurobonds” – jointly guaranteed debts of the 17 eurozone governments – as a solution to the crisis. The idea has been advocated by the Italian finance minister, Giulio Tremonti, as well as billionaire investor George Soros as a way of providing cheap financing to struggling governments while also incentivising them to put their finances in order.
And speculators like eurobonds because their holdings can dramatically rise in value when downside risk gets transferred to taxpayers (nothing wrong with speculation, by the way, so long as losses aren’t socialized).
Eurobonds might temporarily calm European markets, but only by setting the stage for a bigger collapse in the near future when the Germans are pulled underwater by their reckless neighbors.
For those who want more information, this video is a primer on the importance of jurisdictional competition.
If Jimmy Carter and Barack Obama are neck-and-neck competitors in the contest to be the public face of incompetent statism in America, then the competition in Europe is between Herman van Rompuy and Olga Stefou.
But since I’ve already crowned Ms. Stefou as the Queen of Greece, then Mr Rompuy (a.k.a., President of the Euorpean Council) is the winner by default.
And “winner by default” is a pretty good description of this statist paper pusher. I’ve previously mocked this über-bureaucrat for:
Even though he has this impressive list of accomplishments, Mr. Rompuy is not taking any chances. To cement his place in history, he is overseeing a series of disastrous bailouts and then ineffectually complaining that markets are unimpressed by his willingness to throw good money after bad. Here’s a blurb from an article in the EU Observer.
Van Rompuy, who brokered the eurozone deal on Greece, precipitated by the very same rising costs as for the Italian government, has tried to allay market fears in an op-ed published in several European newspapers. “Astonishingly,” he writes, “since our summit the cost of borrowing has increased again for a number of euro area countries. I say astonishingly, because all macro economic fundamentals point in the opposite direction.” The Greek bailout conditions are “exceptional” and mark no precedent for other countries, he added. Citing the austerity measures adopted in Italy and Spain, as well as Madrid’s low debt, Van Rompuy accused the markets of making risk assessments “totally out of line with the fundamentals.” Ratings agencies which downgraded the two countries also acted in a “ludicrous” way when putting them in the top tier of default risk countries, he claimed.
Let’s recap: The fiscal collapse of Europe is proceeding in a predictable fashion, as excessive spending and high tax rates are strangling growth and pushing red ink to unsustainable levels.
And Mr. Rompuy thinks the answer is more spending, higher taxes, and additional debt. And then this clown has the nerve to complain that markets are giving a thumbs-down. Amazing.
Even more astounding, or perhaps even more discouraging, President Obama wants America to travel down the same path.
But that’s a story for another day. Let’s close this post by looking at a couple of amusing videos, featuring the head of the UK Independence Party raking Mr. Rompuy over the coals.
It’s not often that I am unenthusiastic about the possibility of a nation reducing its corporate tax rate. But when the country is doing the right thing for the wrong reason, I hope that feelings of ambivalence are understandable.
In this case, some Irish politicians are talking about using a lower corporate tax rate as a weapon to extract more favorable bailout terms from other European nations. That’s an embarrassment, and it makes good tax policy seem like some sort of scam.
Indeed, I’m quite irritated with everything that’s happened in Ireland in the past couple of years. For a period of time, the nation was a positive example of the benefits of lower corporate tax rates and spending restraint. But Irish politicians did not handle prosperity well, and they went on a spending binge with all the tax revenue that was generated by a rapidly growing economy.
And the icing on this unpalatable cake was the decision to engage in the “Mother of all Bailouts” when the big banks became insolvent. That meant not just holding depositors harmless, but also bailing out all bondholders as well.
Given these unfortunate developments, I hope you will share my lack of excitement about the possibility of a lower corporate tax rate in the land of my ancestry.
The Government’s failure to secure a cut in the penal interest rate being charged on Ireland’s so-called ‘bailout’ and worsening diplomatic relations with France over corporation tax have been the catalyst for a surprising increase in Euro-scepticism within Government circles. Last week in Europe, Finance Minister Michael Noonan — who has previously been markedly restrained in his comments — sharply criticised the current ECB bailout strategy and, for the first time, openly asked if it offered a realistic road to success. Now, the Sunday Independent has learned that senior political figures are not ruling out the possibility that the under-fire Irish corporation tax rate of 12.5 per cent might be cut to 10 per cent or an even lower rate — rather than being increased — if the Irish Government does not soon receive a similar cut to that secured by Greece to the interest rate being on its bailout.
Is it that the burden of taxes and spending is very onerous today?Contrary to the rhetoric about the inevitability of a trade-off between social justice and economic growth and a fiscal crisis of the State, the problems of financing the welfare state are far from being inevitable. …everyone should be willing to pay their share of the costs involved, whether individuals or companies.
International Liberty 