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Posts Tagged ‘Greece’

There’s a reason that Greece is almost synonymous with bad economic policy. The country has endured some terrible prime ministers, most recently Alexis Tsipras of the far-left Syriza Party.

Andreas Papandreou, however, wins the prize for doing the most damage. He dramatically expanded the burden of government spending in the 1980s (the opposite of what Reagan and Thatcher were doing that decade), thus setting the stage for Greece’s eventual fiscal collapse.

But Greek economic policy isn’t a total disaster.

Policy makers in Athens are trying a bit of supply-side tax policy, at least for a limited group of people.

The U.K.-based Times has a report on Greece’s campaign to lure foreigners with low tax rates.

“The logic is very simple: we want pensioners to relocate here,” Athina Kalyva, the Greek head of tax policy at the finance ministry, said. “We have a beautiful country, a very good climate, so why not?” “We hope that pensioners benefiting from this attractive rate will spend most of their time in Greece,” Ms Kalyva told the Observer. Ultimately, the aim is to expand the country’s tax base, she added. “That would mean investing a bit — renting or buying a home.” …The proposal goes further than other countries, however, with the flat tax rate in Greece to apply to other sources of revenue as well as pensions, according to the draft law. “The 7 per cent flat rate will apply to whatever income a person might have, be that rents or dividends as well as pensions,” said Alex Patelis, chief economic adviser to Kyriakos Mitsotakis, the prime minister. “As a reformist government, we have to try to tick all the boxes to boost the economy and change growth models.”

Here are excerpts from a Reuters report.

Greece will offer financial incentives to encourage wealthy individuals to move their tax residence to the country, part of a package of tax relief measures… Greece’s conservative government is keen to attract investments to boost the recovering economy’s growth prospects. …The so-called “non-dom” programme will offer qualified wealthy investors who opt to shift their tax residence to the country a flat tax of 100,000 euros ($110,710) on global incomes earned outside Greece annually. “The tax incentive will run for a duration of up to 15 years and will include the benefit of no inheritance tax for assets outside Greece,” a senior government official told Reuters. One of the requirements to qualify will be residing in Greece for at least 183 days per year and making an investment of at least 500,000 euros within three years. …Investments of 3 million euros will reduce the flat tax to just 25,000 euros. There will also be a grandfathering clause protecting investors from policy changes by future governments.

By the way, Greece isn’t simply offering a flat-rate tax to wealthy foreigners. It’s offering them a flat-amount tax.

In other words, because they simply pay a predetermined amount, their actual tax rate (at least for non-Greek income) shrinks as their income goes up.

And since tax rates matter, this policy is luring well-to-do foreigners to Greece.

That’s good news. I’m a big fan of cross-border tax migration, both inside countries and between countries. And I’ve specifically applauded “citizenship by investment” programs that offer favorable tax rates to foreigners who bring much-needed investment to countries wanting more growth.

But I want politicians to understand that if low tax rates are good for newcomers, those low rates also would be good for locals.

But here’s the bad news. Fiscal policy in Greece is terrible (ranked #158 for “size of government” out of 162 nations according to the latest edition of Economic Freedom of the World).

What’s especially depressing is that Greece’s score has actually declined ever since the fiscal crisis began about 10 years ago.

In other words, the country got in trouble because of too much government, and politicians responded by actually making fiscal policy worse (aided and abetted by the fiscal pyromaniacs at the IMF).

And the bottom line is that it’s impossible to have overall low tax rates with a bloated public sector – a lesson that applies in other nations, including the United States.

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There are many reasons to oppose the various bailouts of the Greek government. Here are my two main reasons.

  1. I don’t like rewarding investors who make imprudent decisions, and it really galls me to bail out the (mostly) rich people who bought Greek bonds.
  2. I don’t like rewarding politicians who make imprudent decisions, and it really galls me since bailouts encourage additional imprudent behavior.

Let’s focus today on the second point.

Here’s Greece’s score for the “Size of Government” component from Economic Freedom of the World. As you can see, bailouts have actually subsidized a decline in fiscal responsibility.

And it’s worth pointing out that Greek politicians have been doing a bad job in other areas.

The burden of red tape has been, and remains, stifling.

Greece ranks at the top in difficulty in setting up and running a business among 75 countries, according to the Global Business Complexity Index for 2019. The difficulty in starting an enterprise in Greece is mainly due to a labyrinth bureaucracy, frequent changes in legislation, differences in taxation and VAT rates in regions and unpredictable treatment of businesses by authorities. Indonesia, Brazil, the United Arab Emirates, Bolivia, and Slovakia follow Greece in the first six places. The easiest state to start and run a business is in the Cayman Islands.

Here are the rankings. Keep in mind that “01” is the worst score and “76” is the best score (kudos to the Cayman Islands for being the most entrepreneur-friendly).

Interestingly, voters ousted a left-wing government earlier this year.

And Bloomberg reports that Greece’s new right-of-center government intends to reduce the burden of government.

Mitsotakis presented his four-year economic agenda in his first plenary speech to parliament since winning national elections on July 7. …The premier’s priority is a reform of Greece’s complex tax system to create a more pro-business environment, necessary for attracting investment to boost the economy’s recovery. Mitsotakis wants to make good on election pledges to alleviate the tax burden for crisis-weary Greeks, specifically for the middle classes who were targeted the most by the previous administration. …Mitsotakis said he will introduce legislation…to reduce the so-called Enfia property tax by as much as 30%, according to the value of properties. …The government plans to reduce the corporate tax rate to 20% in two phases. The first step, in September, will cut the rate to 24% from 28% in 2019 and to 20% in 2020. The tax on dividend payments will be slashed by half to 5%… Also planned is the privatization of Hellenic Petroleum SA and the sale of a 30% stake in Athens Airport.

Indeed, a columnist for the New York Times frets that the new government is hard right.

New Democracy…seems to be a right-wing party… And Mr. Mitsotakis, who promised to unite the country, is following divisive and polarizing policies. …You don’t have to search far for evidence. …Three crucial regulatory agencies — protecting the country’s finances, work force and environment — have been effectively dissolved as part of a bill, recently passed by Parliament, to restructure government. …Domna Michailidou, the vice minister of labor, personifies the cabinet’s ideological agenda. In 2017, she openly praised cuts in wages as “necessary” for the sake of competitiveness. …Greece finished its third and last bailout program last August, but remains shellshocked after nearly a decade of austerity. Official unemployment is at 18 percent; youth unemployment scores a staggering 40 percent. …None of New Democracy’s vaunted policies — to cut corporation taxes and privatize industry in an effort to stimulate economic growth and create “new jobs” — are likely to address the country’s problems. They may well do the opposite.

Some of this sounds good, but I’ll have to see concrete results before I become a believer.

Most supposed right-of-center governments are either very inconsistent (think Trump) or generally bad (think Macri or Sarkozy).

I just focus on results.

Speaking of which this chart, based on the OECD’s fiscal database, shows what happened to revenue (left side) and spending (right side) between 2007 and 2018.

As you can see on the right side, the burden of spending has actually increased.  That’s not my idea of austerity.

The big change that stands out over the past 10 years, though, is that the burden of taxation has jumped. A lot.

In other words taxpayers have been forced to tighten their belts but politicians haven’t tightened government’s belt.

The moral of the story is that tax increases always make a bad fiscal situation worse. Greece has proved that over and over and over again.

P.S. I guess bad results should be expected in a nation where bureaucrats demand stool samples before you can set up an online company. Another sign of Greece’s moral and fiscal bankruptcy is that pedophiles can get disability payments.

P.P.S. To offset the grim message of today’s column, let’s also enjoy some Greek-related humor. This cartoon is quite  good, but this this one is my favorite. And the final cartoon in this post also has a Greek theme.

We also have a couple of videos. The first one features a video about…well, I’m not sure, but we’ll call it a European romantic comedy and the second one features a Greek comic pontificating about Germany.

Last but not least, here are some very un-PC maps of how various peoples – including the Greeks – view different European nations.

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In the absence of genuine entitlement reform, the United States at some point is going to suffer from a debt crisis.

But red ink is merely a symptom. I used numbers from Greece in this interview to underscore the fact that the real problem is government spending.

The discussion was triggered by comments from the Chairman of the Federal Reserve.

Federal Reserve Chairman Jerome Powell said Wednesday that reducing the federal debt needs to return to the forefront of the agenda, warning that the government’s finances are unsustainable. “I do think that deficits matter and do think it’s not really controversial to say our debt can’t grow faster than our economy indefinitely — and that’s what it’s doing right now,” Powell said.

As I noted in my comments, Powell is right, but he’s focusing on the wrong variable.

The real crisis is that spending is growing faster than the private sector (Powell needs to learn the six principles to guide spending policy).

To be more specific, politicians are violating my Golden Rule.

Spending grew too fast under Bush. It grew too fast under Obama (except for a few years when the “Tea Party” was in the ascendancy). And it’s growing too fast under Trump.

Most worrisome, the burden of spending is expected to grow faster than the private sector far into the future according to the long-run forecast from the Congressional Budget Office.

That doesn’t mean we’ll have a crisis this year or next year. We probably won’t even have a crisis in the next 10 years or 20 years.

But I cited Greek data in the interview to point out that excessive spending eventually does create a major problem.

Here’s the data from International Monetary Fund’s World Economic Outlook database. To make matters simple (I should have done this for the interview as well), I adjusted the numbers for inflation.

So how can America avoid a Greek-style fiscal nightmare?

Simple, just impose a spending cap. At the end of the interview, I added a plug for the very successful system in Switzerland, but I’d also be happy if we copied Hong Kong’s spending cap. Or the Taxpayer Bill of Rights from Colorado.

The bottom line is that spending restraint works and a constitutional spending cap is the best way to achieve permanent fiscal discipline.

P.S. By contrast, proponents of “Modern Monetary Theory” argue governments can finance ever-growing government by printing money. For what it’s worth, nations that have used central banks to finance big government (most recently, Venezuela and Zimbabwe) are not exactly good role models.

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In Part I of this series, we examined the horrific tragedy of Venezuelan statism, and in Part II of this series, we looked at the Scandinavian “free-market welfare state.”

Today, Part III will look at the ongoing deterioration of Greece.

I’ve written many times about how the mess in Greece was caused by an ever-rising fiscal burden.

Let’s look at two charts, drawing from the government spending section of Our World in Data, that confirm my argument.

This first chart shows the overall burden of government spending starting in 1880. As you can see, spending generally consumed a bit more than 20 percent of the nation’s economy (other than during wars) all the way from 1880 to the mid-1960s.

And then the spending burden exploded.

What drove that unfortunate increase in the spending burden?

We get that answer in our next chart, which shows that redistribution outlays have skyrocketed in recent years.

In other words, the welfare state is 100-percent responsible for the Greek fiscal crisis, whether you look at short-run data or these long-run numbers.

Has all this additional spending generated any good results?

Hardly.

As government has become larger and crowded out the private sector, that has dampened hopes for the Greek people. As reported by the Washington Post, they are responding with fewer children and more emigration.

During the country’s deep and prolonged crash, which began in late 2009 and worsened in 2011 and beyond, an already low birthrate ticked down further, as happened throughout the troubled economies of southern Europe. Greece was also hit by a second factor, with half a million people fleeing the country, many of them young potential parents. …Greece’s fertility rate, of about 1.35 births per woman, is among the lowest in Europe, and well below the rate of 2.1 needed for a stable population… In 2009, just before the fiercest parts of the crisis, there were 117,933 births in Greece. The number has since fallen steadily, becoming well eclipsed by the number of deaths. The birth total in 2017, 88,553, was the lowest on record.

This chart from the story is amazing, though in a very grim way.

This demographic implosion might not be a big problem if Greece was like Hong Kong and had a privatized system for Social Security.

But that’s obviously not the case. Instead, Greece is a morass of expensive entitlements.

Notwithstanding all the bad news, special interests in Greece continue to lobby for more spending and favors.

And they have allies in Europe, as indicated by this report in the EU Observer.

Dunja Mijatovic, the CoE’s commissioner for human rights, told EUobserver that Greeks are still suffering from the aftermath of international bailouts and imposed economic structural reforms. …Her comments follow the publication of her 30-page report on the impact of austerity measures in Greece, which says the fallout has violated people’s right to health, enshrined in the European Social Charter, and eroded the quality of schools. …Mijatovic, who toured Greece over the summer, says she was struck at the large cuts in areas like maternal and child health services.

Though I want to be fair.

There is occasional progress in the country, as indicated by another story from the EU Observer.

Greece has taken one step closer to the separation of church and state by removing 10,000 church employees off the public payroll. A deal agreed between prime minister Alexis Tsipras and archbishop Ieronymos II also includes a settlement of a decade-old property dispute between the Greek state and the Orthodox Church – which is one of the country’s largest real estate owners.

I consider this a small step in the right direction.

The Israeli government may even want to learn something from this reform.

And there are other hopeful signs, as illustrated by this story from Der Spiegel.

Olga Gerovasili, …administrative reform minister…is overseeing an administrative overhaul that could transform the country like nothing else has since Greece joined the EU. She wants to abolish Greek clientelism. …For centuries, the Greek administration was little more than an excuse for legal nepotism. …Relationships were more important than skills for filling official positions. …Job appointments are no longer to be in the hands of powerful local politicians… The aim of the system is also to use it to remove incompetent officials. …Another revolution. The Greek administration was legendarily labyrinthian. Files could travel for years through dozens of official offices. When bureaucrats aren’t hired for their skills, they need to justify their existence by signing as many things as possible. …Much like the nepotism, this is also to become a thing of the past.

I hope these reforms are real and permanent.

After all, a bloated and inefficient bureaucracy is one of the primary causes of excessive spending in Greece. But time will tell.

After all, it’s not easy taking away goodies from an entitled population.

“Greece finally needs to open its markets — that’s the most important thing,” says Aristides Hatzis, 51, a law professor at the University of Athens. Hatzis has written one of Greece’s most surprising bestsellers of the past few years: an introduction to laissez-faire thinking. It’s surprising because economic liberalism doesn’t have any deep roots in Greece. …”In the past decades, the governments have so overwhelmingly failed that Greeks blame everything that goes wrong on the state,” says Hatzis. …”It’s difficult to take away the privileges of influential lobby groups.” As long as that doesn’t happen, he says, the country won’t recover.

Having looked at the evolution of Greece’s economy, let’s now look at how the nation’s politicians have been responding to the crisis.

Are they liberalizing, or are they digger the hole deeper? In other words, are the good reforms larger than the backsliding, or vice-versa?

Naomi Klein will be happy with the answer. Here are two more charts, based on numbers from Economic Freedom of the World, both of which show that Greece is moving in the wrong direction.

First, we see that Greece’s score has dropped over the past 10 years.

And why has economic freedom declined?

The main cause is that fiscal policy has become much worse, thanks in large part to the IMF and various bailouts (which actually were designed to bail out irresponsible banks in nations such as France and Germany).

In any event, the nation’s politicians gladly accepted bad advice and used bailout money as an excuse to impose higher taxes, followed by higher taxes, and then decided to push taxes even higher.

The bottom line is that it is difficult to be optimistic about Greece.

Yes, there are some signs of hope. More and more people realize that big government has been bad for Greece.

But it’s not easy to get good reforms in a nation where most voting-age adults are directly or indirectly mooching off taxpayers.

P.S. Democratic socialism is better than totalitarian socialism, but it doesn’t produce good results.

P.P.S. Folks on the left argue that Greece is not a good example of socialism. They say it’s a cronyist economy rather than a socialist economy. Given the various definitions of socialism, they’re both right and wrong. I’ll simply note that there are many state-owned enterprises in Greece and the government has been dragging its feet about auctioning them to the private sector. So Greece is definitely closer to socialism than Sweden.

P.P.P.S. Here’s some Greek-related humor. This cartoon is amusing, but this this one is my favorite. And the final cartoon in this post also has a Greek theme.

We also have a couple of videos. The first one features a video about…well, I’m not sure, but we’ll call it a European romantic comedy and the second one features a Greek comic pontificating about Germany.

Last but not least, here are some very un-PC maps of how various peoples – including the Greeks – view different European nations. Speaking of stereotypes, the Greeks are in a tight race with the Italians and Germans for being considered untrustworthy.

P.P.P.P.S. If you want some unintentional humor, did you know that Greece subsidizes pedophiles and requires stool samples to set up online companies?

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My left-leaning friends periodically tell me that there’s a big difference between their benign policies of democratic socialism and the wretched track records of Marxist socialism, national socialism, and other forms of totalitarianism.

I agree. Living in a European welfare state, after all, is much better than living in a hellhole like Cuba, North Korea, Zimbabwe, or Venezuela.

Not only do you enjoy the rule of law (no Khmer Rouge-style concentration camps!), but you also enjoy considerable prosperity compared to the rest of the world.

But there are two things to understand about that prosperity.

Let’s consider the case of Greece. I’ve written many times about the debilitating impact of high tax rates and wasteful spending in that nation. It has the least economic freedom of all nations in Western Europe, so it’s no surprise that it is falling further behind.

But sometimes a compelling example is the best way of helping people understand the harmful impact of big government.

We were on Filis Street — a warren of alleyways and dingy two-story houses — which has been home to Athenian brothels for most of the past century. The trade is more desperate now because of Greece’s lost decade since the 2008 financial crisis, which has left no profession unscathed. The collapsed economy and the arrival of tens of thousands of migrants have pushed even more women into prostitution — even as prices have fallen through the floor. …“I had a flower shop for 18 years — and now I’m here out of necessity, not out of joy,” said Dimitra, a middle-aged woman who lost her shop in the crisis and now works as a madam…the number of prostitutes in the city had increased by 7 percent since 2012, yet prices have dropped drastically, both for women working on the streets and in brothels. “In 2012, it would require an average of 39 euros” for a client to hire a prostitute in a brothel, Mr. Lazos said, “while in 2017 just €17 — a 56 percent decrease.”

The saddest part of the story is the commentary of the prostitutes.

“I hate sex,” Elena said. “I like the money, not the job.” Anastasia…has worked as a prostitute since she was 14. She’s now 33, and says the work is harder than ever. “People don’t have money anymore,” she said… Monica, a 30-year-old Albanian prostitute…spends six to eight hours a day trying to entice clients, but most do not stay. “They don’t have money,” she said. “They haven’t had money for the past seven years.” …Many Greek men are simply too poor to pay anymore.

I support legal prostitution, in part because the alternative of pushing these unfortunate women even further into the underground economy would be worse.

But that doesn’t change the fact that these women don’t have good lives. And the misery of democratic socialism in Greece is making their lives even sadder.

The bottom line is that I now have three awful anecdotes from Greece to help illustrate the wretched impact of big government. In addition to the price-cutting prostitutes we discussed today, let’s not forget that Greece subsidizes pedophiles and requires stool samples to set up online companies.

Needless to say, I hope we never go that far in the wrong direction.

The moral of the story is that socialism (however defined) has never worked in any form at any time in history.

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Shortly after the fiscal crisis began in Greece, I explained that the country got in trouble because of too much government spending.

More specifically, I pointed out that the country was violating my Golden Rule, which meant that the burden of spending was rising relative to the private economy.

That’s a recipe for trouble.

Unfortunately, thanks in large part to bad advice from the International Monetary Fund, Greek politicians decided to deal with an overspending problem by raising taxes.

Then doing it again.

And raising taxes some more.

And raising them again.

Then adding further tax hikes.

The tax burden is now so stifling that even the IMF admits the country may be on the wrong side of the Laffer Curve.

And establishment media sources are noticing. Here are some excerpts from a report in the Wall Street Journal.

Greece is…raising taxes so high that they are strangling the small businesses that form the backbone of its economy. …The tax increases have left Greece with some of Europe’s highest tax rates across several categories, including 29% on corporate income, 15% on dividends, and 24% on value-added tax (a rough equivalent of U.S. sales tax). Individuals pay as much as 45% income tax, plus an extra “solidarity levy” of up to 10%. Furthermore, workers and employers pay social-security levies of up to 27% of their salaries. …small and midsize businesses and self-employed people…are fighting the government in court over having to pay what they say is up to 80% of their average monthly takings in taxes and levies. Some also have to pay retroactive social-security contributions, to the point where professional associations say some of their members are having to pay more to the state than they make.

Paying more than they make? Francois Hollande will applaud when he learns that another nation has an Obama-style flat tax.

…economists and Greek entrepreneurs say heavy taxation doesn’t help. The tax burden is considered the most problematic factor for doing business in Greece, according to the World Economic Forum. “The tax burden creates a serious disincentive for economic activity. It mainly hits the most productive part of the Greek society… Aris Kefalogiannis, the CEO of olive-oil and food company Gaea, said the fiscal straitjacket is keeping highly qualified executives he would like to hire from coming to Greece. It has also made him more sparing with investments. …“But this abusive taxation is not backed by any actual reforms that would make the state efficient.”

Of course the state hasn’t been made more efficient. Why would politicians shrink government if higher taxes are an option?

It’s not as if Greek voters are poised to elect a Ronald Reagan or Margaret Thatcher, after all.

In any event, all of the tax increases are having predictably bad effects.

Tax evasion has led to higher tax rates on those Greeks who can’t or won’t evade taxes. The so-called gray economy is estimated at 26.5% of GDP… “Overtaxation is a vicious circle, which is not fixing the problem,” said 40-year-old electrician Antonis Alevizakis. “Only a third of customers want a receipt. The incentive to avoid a 24% value-added tax surcharge is big for them.” …More than 100,000 self-employed professionals have closed their businesses since mid-2016, to avoid rising taxation and social-security contributions, according to Finance Ministry data. Some of these people stopped self-employment, while others turned to the gray economy. …tax consultant Chrysoula Galiatsatou said. “A financially active part of the population sees no reason to try to do more.”

Why “try to do more” when the government gets the lion’s share of any additional income?

And why even stay in the country when there are better (less worse) tax systems in neighboring nations? Indeed, Greece is one of the few nations to raise corporate tax rates as the rest of the world is taking the opposite approach.

Here are some of the details. It appears that Bulgaria is a preferred destination for tax exiles.

Greece’s direct competitors for investment in its poorer, southeastern region of Europe have much lower taxes. For that reason, many Greek businesses and professionals are migrating to neighboring countries such as Bulgaria and Cyprus. …Around 15,000 Greek companies are registered in Bulgaria. Greece’s Finance Ministry estimates that 80% of them have a registration number but no activity in Bulgaria, and are only there to avoid Greek taxes. “If I stayed in Greece I would most certainly be in jail by now,” said John Douvis, who used his remaining savings in 2015 to move his family’s furniture factory from Athens to Blagoevgrad in Bulgaria. In Greece, he said, “it’s almost impossible for a company to survive unless it evades tax.”

In other words, the problem is tax rates, not tax evasion.

Lower the rates and evasion falls.

Let’s wrap up today’s column with a final observation. The WSJ story states that there have been spending cuts in addition to tax increases.

That’s basically true, but net effect of the Greek fiscal crisis is that government has become a bigger burden, relative to private economic output. Here’s a chart, based on data from the IMF.

The bottom line is that Greek politicians did way too much spending last decade and now they’re augmenting that mistake with way too much taxing this decade.

P.S. To reward everyone who read to the end, here’s some Greek-related humor.

This cartoon is quite  good, but this this one is my favorite. And the final cartoon in this post also has a Greek theme.

We also have a couple of videos. The first one features a video about…well, I’m not sure, but we’ll call it a European romantic comedy and the second one features a Greek comic pontificating about Germany.

Last but not least, here are some very un-PC maps of how various peoples – including the Greeks – view different European nations. Speaking of stereotypes, the Greeks are in a tight race with the Italians and Germans for being considered untrustworthy.

P.P.S. If you want some unintentional humor, did you know that Greece subsidizes pedophiles and requires stool samples to set up online companies?

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Way back in 2009, I narrated a video explaining that people worry too much about deficits and debt. Red ink isn’t desirable, to be sure, but I pointed out that the real problem is government spending.

And the bottom line is that most types of government spending are bad for an economy, regardless of whether they are financed by taxes or borrowing.

It is possible, of course, for a nation to have a debt crisis. But keep in mind that this simply means a government has accumulated so much debt that investors no longer trust that they will receive payments on government bonds.

That’s not a good outcome, but replacing debt-financed spending with tax-financed spending is like jumping out of the frying pan and into the fire. Or the fire into the frying pan, if you prefer. In either case, politicians are ignoring the real problem.

Greece is a cautionary example. Thanks to a period of overspending, Greek politicians drove the country into a debt crisis. But this dark cloud had a silver lining. The good news (at least relatively speaking) is that the government no longer could borrow from the private sector to finance more spending.

But the bad news is that Greek politicians subsequently hammered the economy with huge tax increases in hopes of propping up the country’s bloated welfare state. And the “troika” made a bad situation worse with bailout funds (mostly to protect big banks that unwisely lent money to Greek politicians, but that’s a separate story).

In other words, Greece got in trouble because of too much government spending and it remains in trouble because of too much government spending. As is the case for many other European nations.

And I fear the United States is slowly but surely heading in that direction. I elaborate about the problem of government spending – and the concomitant symptom of red ink – in this interview with the Mises Institute.

For all intents and purposes, I’m trying to convince people that deficits and debt are bad, but they’re bad mostly because they are a sign that government is too big. Sort of like a brain tumor being the real problem and headaches being a warning sign.

I feel like Goldilocks on this issue. Except instead of porridge that is too hot or too cold, I deal with people on both sides who think red ink is either wonderful or terrible.

For an example of the former group, here’s some of what Stephanie Kelton wrote for the New York Times last October.

…bigger deficits wouldn’t wreck the nation’s finances. …Lawmakers are obsessed with avoiding an increase in the deficit. …It’s also holding us back. Politicians of both parties should stop using the deficit as a guide to public policy. Instead, they should be advancing legislation aimed at raising living standards and delivering…long-term prosperity.

Hard to disagree with the above excerpt.

But here’s the part I don’t like. She’s a believer in the perpetual motion machine of Keynesian economics. She thinks deficits are actually good for the economy and she wants to use debt to finance an ever-larger burden of government spending.

Government spending adds new money to the economy, and taxes take some of that money out again. …we should think of the government’s spending as self-financing since it pays its bills by sending new money into the economy. …the deficit itself could be deployed as a potent weapon in the fights against inequality, poverty and economic stagnation.

Ugh.

Now let’s check out the view of the so-called deficit hawks who think red ink is an abomination.

Here are some passages from a Hill report on the battle over last year’s tax plan.

A handful of GOP deficit hawks are worried that their party’s tax plan could add trillions to the deficit, deepening a debt crisis for future generations. …The tax plan could cost the government $1.5 trillion in revenue over the next decade… Sen. Bob Corker (R-Tenn.), who recently announced his retirement at the end of this Congress, has warned he’ll oppose the tax plan if it adds to the deficit. …In a separate interview, he told The New York Times that the debt is “the greatest threat to our nation,” more dangerous than the Islamic State in Iraq and Syria, or North Korea.

Ugh, again.

The threat isn’t the red ink. The real danger is an ever-increasing burden of government spending, driven by entitlements.

Besides, the GOP tax bill actually is a long-run tax increase!

Let’s close with a video on the topic from Marginal Revolution. It has too much Keynesianism in it for my tastes, but the discussion of Argentina’s default is useful for those who wonder about whether the United States is going to have a debt meltdown at some point.

P.S. I don’t agree with Keynesians and I don’t agree with the self-styled deficit hawks. But I can appreciate that both groups have a consistent approach to public finance. What really galls me are the statist hypocrites who are cheerleaders for debt when there are proposals to increase government spending, but then do a back flip and pretend that debt is terrible and must be reduced when tax increases are being discussed.

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I’ve written that it’s theoretically possible for Greece to pay its debts and restore prosperity.

After all, it’s simply a matter of obeying fiscal policy’s Golden Rule and reforming a suffocating tax system.

But I’ve always figured none of that will happen because Greek voters would never vote for a government that favors Reagan-style or Thatcher-style economic reforms.

Simply stated, there are too may Greek people living off the state. But that’s just part of the problem. An even bigger obstacle to reform is that the people have decided that it’s morally acceptable to mooch off the government.

As a result, I’ve assumed that Greece has passed a tipping point because the moral foundation of Greek society has been corroded by dependency. And it’s very difficult to put that toothpaste back in the tube.

But maybe I’ve been wrong. Courtesy of the great people at the Atlas Network, here’s some remarkable polling data from Greece.

…the people may finally be fed up with big government, runaway spending, public-sector corruption, and job-killing regulations. A recent in-depth survey, published by the daily Kathimerini newspaper and the new think tank Dianeosis, reveals that Greek society seems to be experiencing an ideological sea change.

On a philosophical level, Greeks seem to be embracing the principles of classical liberalism.

In Greece, the term “liberalism” retains its classical meaning of support for individual liberty, free markets, and social tolerance. The latest finding from the Dianeosis poll shows that 27 percent of respondents identify as either liberal or neoliberal, together making the largest ideological group for the country’s overall population. These ideas have taken even stronger hold among the rising generation, with an astonishing 50 percent of Greek youth identifying as either liberals or neoliberals.

And this translates into greater support for small-government policies.

About 60 percent agree that government is intervening too much in economic matters, and thereby prevents the private sector from creating jobs and wealth.

Here’s some of the relevant polling data.

It’s also encouraging to see that there was movement in the right direction between April 2015 and December 2016.

On a policy level, the Greeks now seem to recognize that the state is too big.

Even more telling is that the majority of Greeks, 55 percent, believe that lower taxation is preferable even if that results in less government welfare. This finding is particularly important because two years ago only 39.2 percent agreed with that statement.

Here are those numbers from the survey.

The last bit of good news from the survey is that Greeks have positive feelings about market-oriented terms.

Greeks today also seem to show overwhelming support for many fundamental concepts of the free-market tradition. About 73 percent agreed that “markets” have a positive connotation…a primary reason for this turn toward free markets is that the government regimes in Greece have clearly failed, thereby tainting their devotion to destructive statism and populism. This has caused many Greeks to consider economic freedom as a viable solution for the country’s devastating problems.

On the other hand, the country they most want to mimic is Sweden.

And it’s not even close (though I wonder if this chart would look different if Switzerland and Hong Kong were options).

You may be wondering (like me) how the Greeks can tell pollsters they want smaller government while simultaneously picking Sweden as a role model?

The pessimistic answer is that Greeks don’t know what they’re talking about. Or maybe they are hypocrites, willing to pay lip service to economic liberty but ultimately yearning for a cradle-to-grave welfare state.

The optimistic answer is that Sweden actually is a pretty good role model.

Check out this comparison of Greece and Sweden, based on data from Economic Freedom of the World. Sweden is ranked #27, which is in the top-20 percent of nations for economic liberty. Greece, by contrast, is way down at #116.

Yes, both countries have terrible fiscal policy, but it turns out that Sweden is very market-oriented in areas like money, trade, regulation, and rule of law. And even though it still has a long way to go, Sweden significantly improved fiscal policy in the 1990s and has even enjoyed some modest improvement in recent years.

That’s definitely not the case in Greece.

In other words, I certainly don’t mind if Swedish policy is the short-run goal for Greek voters. If they ever get to that point, then I’ll try to convince them to go the Full Hong Kong.

P.S. In the real world, are there any examples of countries that have escaped statism and enjoyed something akin to a Greece-to-Sweden jump in economic liberty?

The answer is yes. Chile would be an obvious example, as would certain post-Soviet Bloc nations such as Estonia.

It would be great to add Greece to the collection.

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Greece has confirmed that a nation can spend itself into a fiscal crisis.

And the Greek experience also has confirmed that bailouts exacerbate a fiscal crisis by enabling more bad policy, while also rewarding spendthrift politicians and reckless lenders (as I predicted when Greece’s finances first began to unravel).

So now let’s look at a third question: Can a country tax itself to death? Greek politicians are doing their best to see if this is possible, with a seemingly endless parade of tax increases (so many that even the tax-loving folks at the IMF have balked).

At the very least, they’ve pushed the private sector into hospice care.

Let’s peruse a couple of recent stories from Ekathimerini, an English-language Greek news outlet. We’ll start with a rather grim look at a very punitive tax regime that is aggressively grabbing money from taxpayers with arrears.

Tax authorities have confiscated the salaries, pensions and assets of more that 180,000 taxpayers since the start of the year, but expired debts to the state have continued to rise, reaching almost 100 billion euros, as the taxpaying capacity of the Greeks is all but exhausted. In the month of October, authorities made almost 1,000 confiscations a day from people with debts to the state of more than 500 euros. In the first 10 months of the year, the state confiscated some 4 billion euros.

But the Greek government is losing a race. The more it raises taxes, the more people fall behind.

in October alone, the unpaid tax obligations of households and enterprises came to 1.2 billion euros. Unpaid taxes from January to October amounted to 10.44 billion euros, which brings the total including unpaid debts from previous years to almost 100 billion euros (99.8 billion), or about 55 percent of the country’s gross domestic product. The inability of citizens and businesses to meet their obligations is also confirmed by the course of public revenues, which this year have declined by more than 2.5 billion euros. The same situation is expected to continue into next year, as the new tax burdens and increased social security contributions look set to send debts to the state soaring.

The fact that revenues have declined should be a glaring signal to politicians that they are past the revenue-maximizing point on the Laffer Curve.

But the government probably won’t be satisfied until everyone in the private sector is in debt to the state.

There are now 4.17 million taxpayers who owe the state money. This means that one in every two taxpayers is in arrears to the state, with 1,724,708 taxpayers facing the risk of forced collection measures. Of the 99.8 billion euros of total debt, just 10-15 billion euros is still considered to be collectible.

Here’s another article from Ekathimerini that looks at how Greece is doubling down on suicidal fiscal policy.

Greece is defying the prevalent trend among the world’s industrialized nations for reducing tax rates in order to boost investment and competitiveness… According to the report, in contrast to the majority of OECD member states, Greece has raised taxes and social security contributions as government policy is geared toward reaching fiscal targets, even though this inevitably harms the crisis-hit country’s competitiveness.

It’s hard to think of a tax that Greek politicians haven’t increased.

Greece…is also the only one among them that increased taxes on labor and corporate profits. …eight OECD member states reduced rates in 2017 on an average of 2.7 percent…, in stark contrast to Greece, which…has the highest corporate tax rates in the OECD compared to 2008. Many countries also offered breaks and reductions on income tax, …also cutting social contributions in 2015-2016. Not so Greece, which in 2016 raised both, thereby increasing the overall burden on low-income earners by 1.5 percent. Greece was also the only country in the OECD to raise value-added tax rates in 2016.

And what was accomplished by all these tax increases? Less tax revenue and recession. That’s a lose-lose scenario by almost any standard.

…in the 2014-2015 period, 25 of the 32 countries for which data is available recorded an increase in tax-to-GDP levels. The report…mentions Greece as an exception to this trend as well, noting that the country was in recession in that two-year period.

Even an establishment outlet like the U.K.-based Financial Times has noticed.

Unemployment is at 23 per cent and 44 per cent of those aged 15-24 are out of work. More than a fifth of Greeks get by without basics such as heating or a telephone connection. …Sweeping new taxes imposed across the economy have already left communities scrabbling to survive. …this year will bring €1bn worth of new taxes on cars, telecoms, television, fuel, cigarettes, coffee and beer… New taxes have eroded disposable incomes still further. Value added tax has increased to 24 per cent on food, disproportionately hurting the poor, for whom living costs represent a far higher proportion of income. Most detested is the Enfia property levy, which brings in €2.65bn a year – roughly €650 from each of Greece’s four million households. …recent direct taxes like the new estate tax have affected households that have seen their income decline greatly during the crisis. The rise of VAT, meanwhile, only adds to the cost of life of poor families.” …this month, new levies will mean the taxes paid by his business will jump 29 per cent.

Interestingly, the article acknowledges that profligate politicians created the mess, while also noting that the Greek people also deserve blame.

…blame is laid on the politicians who spent the 27 years of Greece’s EU membership before the crisis loading the country with debt to fund increased defence expenditure, more public sector jobs and higher pension and other social benefit payments. …“The Greek people should be blamed. We voted for these people,” he concludes.

The problem, of course, is that Greek voters don’t show any interest in now voting for politicians who will clean up the mess. Simply stated, too many people in the country are living off the government.

In other words, even though it’s mathematically possible to fix the problems, the erosion of societal capital suggests that Greece may have reached the point of collapse.

From a fiscal perspective, this chart from OECD data confirms that policy is getting worse rather than better. Measured as a share of economic output, taxes and spending have both become a bigger burden over the past 10 years.

What makes this chart especially depressing is that economic output is lower today than it was in 2005, which means that the problem isn’t so much that annual tax receipts and spending level are climbing, but rather that the private economy is declining.

Let’s close with an additional look at the moribund Greek economy and a discussion of how the bailouts have made a bad situation even worse.

The Wall Street Journal editorialized on the impact of ever-higher taxes and a still-stifling bureaucratic business environment.

…the bailout is not in fact working, if you think the goal should be to restore Athens to sound public finances and to offer Greeks economic hope for the future. The European Commission’s autumn forecast predicts eurozone economic growth of 2.2% this year, the fastest in a decade. But Greece is falling further behind. …Investment has collapsed in the country, to 11% of GDP last year from 26% of GDP in 2007. …The bailouts are creating a dangerous situation in which the government has enough cash to meet its debts but no one else in Greece can thrive.

And here’s the scary part. What happens when there’s another global recession? The already-bad numbers in Greece will get even worse. Not a pleasant thought.

P.S. If you want to know why I’m not optimistic about Greece’s future, how can you expect good policy from a nation that subsidizes pedophiles and requires stool samples to set up online companies? I’d be more hopeful if Greek politicians instead had learned some lessons from Slovakia or Latvia.

P.P.S. Notwithstanding a the constant stream of bad policy, I am capable of feeling sorry for Greece.

P.P.P.S. Newer readers may not be familiar with my collection of Greek-related humor. This cartoon is quite  good, but this this one is my favorite. And the final cartoon in this post also has a Greek theme.

We also have a couple of videos. The first one features a European romantic comedy and the second one features a Greek comic pontificating about Germany.

Last but not least, here are some very un-PC maps of how various peoples – including the Greeks – view different European nations. Speaking of stereotypes, the Greeks are in a tight race with the Italians and Germans for being considered untrustworthy.

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I like the Baltic nations, as illustrated by what I wrote last year.

I’m a big fan of…Estonia, Latvia, and Lithuania. These three countries emerged from the collapse of the Soviet Empire and they have taken advantage of their independence to become successful market-driven economies. One key to their relative success is tax policy. All three nations have flat taxes. And the Baltic nations all deserve great praise for cutting the burden of government spending in response to the global financial crisis/great recession (an approach that produced much better results than the Keynesian policies and/or tax hikes that were imposed in many other countries).

No wonder the Baltic nations are doing a good job of achieving economic convergence.

I’ve specifically praised Estonia on several occasions.

Estonia’s system is so good (particularly its approach to business taxation) that the Tax Foundation ranks it as the best in the OECD. …Estonia…may be my favorite Baltic nation if for no other reason than the humiliation it caused for Paul Krugman.

Indeed, I strongly recommend this TV program that explored the country’s improbable success. And here’s some data showing that Estonia is leading the Baltics in convergence.

Now I have a new reason to admire Estonia. Having experienced the brutality of both fascism and communism, they have little tolerance for those who make excuses for totalitarianism. And the issue has become newsworthy since Greece decided to boycott a ceremony to remember the victims of communism and fascism.

Estonian Minister of Justice Urmas Reinsalu responded to his Greek counterpart, Stavros Kontonis following the uproar caused by the decision by Greece to not participate in the recent European Day of Remembrance for Victims of Stalinism and Nazism in Estonia.

The letter sent by Reinsalu is a masterpiece of moral clarity. He unambiguously condemns all ideologies that are contrary to free societies. Let’s look at some excerpts.

Our values are human rights, democracy and the rule of law, to which I see no alternative. This is why I am opposed to any ideology or any political movement that negates these values or which treads upon them once it has assumed power. In this regard there is no difference between Nazism, Fascism or Communism.

Amen. That’s basically what I wrote just a few days ago.

Reinsalu points out that free societies (sometimes called liberal democracies, with “liberal” used in the “classical liberal” sense) don’t oppress people, which is inherent with fascist and communist regimes.

Condemnation of crimes against humanity must be particularly important for us as ministers of justice whose task it is to uphold law and justice. …Every person, irrespective of his or her skin colour, national or ethnic origin, occupation or socio-economic status, has the right to live in dignity within the framework of a democratic state based on the rule of law. All dictatorships – be they Nazi, Fascist or Communist – have robbed millions of their own citizens but also citizens of conquered states and subjugated peoples.

The Estonian Justice Minister refers to the bitter experience of his nation.

Unlike Greece, Estonia has the experience of living under two occupations, under two totalitarian dictatorships. …In light of the experience of my country and people, I strongly dispute your claim that Communism also had positive aspects. ……in 1949, …the communist regime deported nearly 2 percent of the population of Estonia only because they as individual farmers refused to go along with the Communist agricultural experiment and join a collective farm. This was in addition to the tens of thousands who had already been imprisoned in the Gulag prison camps or deported and exiled earlier. Thousands more would follow, taken into prison up to mid-1950.

He points out that communism is incompatible with freedom.

…it is not possible to build freedom, democracy and the rule of law on the foundation of Communist ideology. …this has been attempted… This has always culminated in economic disaster and the gradual destruction of the rule of law…there are also countries and peoples for whom the price of a lesson in Communism has been millions of human lives.

The bottom line, he writes, is that all forms of totalitarianism should be summarily rejected.

…we must condemn all attempts or actions that incite others to destroy peoples or societal groups…there is no need to differentiate. It makes no difference to a victim if he is murdered in the name of a better future for the Aryan race or because he belongs to a social class that has no place in a Communist society. We must remember all of the victims of all totalitarian and authoritarian dictatorships.

Kudos for Minister Reinsalu. He doesn’t shrink from telling the truth about communism and other forms of dictatorship.

None of this should be interpreted to mean that western societies are perfect. Heck, I spend most of my time criticizing bad policy in the United States and other western nations. But there’s no moral equivalence.

Here’s Reinsalu’s entire letter, which contains additional points.

I’ll close by elaborating on one of his points. Reinsalu wrote about the miserable track record of communism and made some powerful points.

But I think he was too diplomatic. He should have highlighted the jaw-dropping body count of communist regimes.

He did mention some of the horrid policies of the Soviet Union (perhaps more than 60 million victims), but he also could have listed the incomprehensible misery that communism caused in places such as Cuba, Cambodia, and North Korea. Or China back in the Mao era.

That being said, his letter is a very powerful indictment of the moral bankruptcy of his Greek counterpart (which perhaps isn’t a surprise given the ideology of the Syriza government).

And it’s also an indictment of all of the apologists for communist tyranny.

P.S. Poland is another country that experienced the dual brutality of fascism and communism. So it shouldn’t be surprise that Poles share the same moral clarity as Estonians.

Perhaps this is why Poland has done a reasonably good job of undoing bad Soviet policies.

P.P.S. While I’m a fan of nations such as Estonia and Poland, they need further market-based reforms to compensate for demographic decline.

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I’ve put forth lots of arguments against tax increases, mostly focusing on why higher tax rates will depress growth and encourage more government spending.

Today, let’s look at a practical, real-world example.

I wrote a column for The Hill looking at why Greece is a fiscal and economic train wreck. I have lots of interesting background and history in the article, including the fact that Greece got into the mess by overspending and also explaining that politicians like Merkel only got involved because they wanted to bail out their domestic banks that foolishly lent lots of money to the Greek government.

But the most newsworthy part of my column was to expose the fact that “austerity” hasn’t worked in Greece because the private sector has been suffocated by giant tax hikes.

…the troika…imposed the wrong kind of fiscal reforms. …what mostly happened is that Greek politicians dramatically increased the nation’s already punitive tax burden. The Organization for Economic Cooperation and Development’s fiscal database tells a very ugly story. …on the eve of the crisis, the tax burden in Greece totaled 38.9 percent of GDP. This year, taxes are projected to reach 52.0 percent of economic output. Every major tax in Greece has been dramatically increased, including personal income taxes, corporate income taxes, value-added taxes, and property taxes. It’s been a taxpalooza… What’s happened on the spending side of the fiscal ledger? Have there been “savage” and “draconian” budget cuts? …there have been some cuts, but the burden of government spending is still a heavy weight on the Greek economy. Outlays totaled 54.1 percent of GDP in 2009 and now government is consuming 52.2 percent of economic output.

For what it’s worth, the spending numbers would look better if the economy was stronger. In other words, Greece’s performance wouldn’t be so dismal if GDP was growing rather than shrinking.

And that’s why tax increases are so misguided. They give politicians an excuse to avoid much-needed spending cuts while also hindering growth, investment and job creation.

Let’s close by reviewing Greece’s performance according to Economic Freedom of the World. The overall score for Greece has dropped slightly since 2009, but the real story is that the nation’s fiscal score has dramatically worsened, falling from 5.61 to 4.66 on a 0-10 scale. In other words, during a period of time in which Greece was supposed to sober up and become more fiscally responsible, the politicians engaged in an orgy of tax hikes and Greece went from a failing grade for fiscal policy to a miserably failing grade.

Here’s a the relevant graph from the EFW website. As you can see, the score has been dropping for a decade, not just since 2009.

This is remarkable result. Greek politicians should have been pushing the nation’s fiscal score to at least 7 out of 10, if not 8 out of 10. Instead, the score has gone in the wrong direction because of tax increases.

Though I don’t expect Hillary and Bernie to learn the right lesson.

P.S. For more information, here’s my five-picture explanation of the Greek mess.

P.P.S. And if you want to know why I’m so dour about Greece’s future, how can you expect good policy from a nation that subsidizes pedophiles and requires stool samples to set up online companies?

P.P.P.S. Let’s close by recycling my collection of Greek-related humor.

This cartoon is quite  good, but this this one is my favorite. And the final cartoon in this post also has a Greek theme.

We also have a couple of videos. The first one features a video about…well, I’m not sure, but we’ll call it a European romantic comedy and the second one features a Greek comic pontificating about Germany.

Last but not least, here are some very un-PC maps of how various peoples – including the Greeks – view different European nations.

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I don’t like tax increases, but I like having additional evidence that higher tax rates change behavior. So when my leftist friends “win” by imposing tax hikes, I try to make lemonade out of lemons by pointing out “supply-side” effects.

I’m hoping that if leftists see how tax hikes are “successful” in discouraging things that they think are bad (such as consumers buying sugary soda or foreigners buying property), then maybe they’ll realize it’s not such a good idea to tax – and therefore discourage – things that everyone presumably agrees are desirable (such as work, saving, investment, and entrepreneurship).

Though I sometimes worry that they actually do understand that taxes impact pro-growth behavior and simply don’t care.

But one thing that clearly is true is that they get very worried if tax increases threaten their political viability.

This is why Becket Adams, in a column for the Washington Examiner, is rather amused that Mayor Kenney of Philadelphia has been caught with his hand in the tax cookie jar.

Philadelphia Mayor Jim Kenney fought hard to pass a new tax on soda and other sugary drinks. He won, and the 1.5-cents-per-ounce tax is now in place, affecting both merchants and consumers, because that’s how taxes work. Businesses pay the levies, and they offset the cost by charging higher prices. That is as basic as it gets. The only person who doesn’t seem to understand this is Kenney, who is now accusing business owners of extortion. “They’re gouging their own customers,” the mayor said.

Yes, consumers are being extorted and gouged, but the Mayor isn’t actually upset about that.

He’s irked because people are learning that it’s his fault.

Philadelphians are obviously outraged by the skyrocketing cost of things as simple as a soda, which has prompted some businesses to post signs explaining why the drinks are now do damned expensive. Kenney said that this effort by businesses to explain the rising cost is “wrong” and “misleading.” The mayor apparently thought the city council could impose a major new tax on businesses, and that customers somehow wouldn’t be affected.

In other words, it’s probably safe to say that Mayor Kenney has no regrets about the soda tax. He’s just not pleased that he can’t blame merchants for the price increase.

The International Monetary Fund, by contrast, may actually have learned a real lesson that higher taxes aren’t always a good idea. That bureaucracy is infamous for blindly supporting tax increases, but if we can believe this story from the Wall Street Journal, even those bureaucrats don’t think additional tax hikes in Greece would be a good idea.

IMF officials have said Greece’s economy is already overtaxed. New taxes that came into affect on Jan. 1 are squeezing household incomes further. Economists say even-higher income taxes—in the form of lower tax-free income allowances—could add to a mountain of unpaid taxes. Greeks currently owe the state €94 billion ($99 billion), equivalent to 54% of gross domestic product, and rising, in taxes that they can’t pay.

Here are some stories to illustrate the onerous tax system in Greece, starting with a retired couple that will probably lose their house because of a new property tax.

…the 87-year-old former economist and his 81-year-old wife are unable to repay the property tax imposed on their 70-year old house, a family inheritance. The annual tax is around ‎€33,000, but Mr. Kokkalis’s pension—already cut by half—is €28,000 a year. The couple borrowed money when the tax was imposed, initially as a temporary austerity measure in 2011. But they are already behind on nearly €200,000 of tax payments and can’t borrow more. Mr. Kokkalis says the state is calculating tax based on outdated property prices that have since collapsed, and that if he tried to sell the house now, nobody would be interested. “They impose taxes on an imaginary value,” Mr. Kokkalis says. “This is confiscation.”

I’ve already written about this punitive property tax. The good news is that property taxes generally are transparent, so people know how much they’re paying.

The bad news is that the tax in Greece is far too onerous.

And I’ve also noted that small businesses are being wiped out in Greece as well. The WSJ has a new example.

Tax increases under previous rounds of austerity have put a middle-class lifestyle beyond reach for many. “Our only goal now is survival,” says arts teacher Mimi Bonanou. Until recent years she also made a living as a practicing artist, selling her works in Greece and abroad. But increasingly heavy taxes that self-employed Greeks must pay at the start of each year, based on the state’s often-ambitious forecast of their incomes, have forced her to rely on teaching alone.

All things considered, Greece is a painful example that a country can’t tax its way to prosperity (though some politicians never learned that lesson).

Moreover, it’s nice to have further evidence that even the IMF recognizes that Greece is on the wrong side of the Laffer Curve.

And if a left-leaning bureaucracy is now willing to admit that excessive taxation can lead to less revenue, maybe eventually the Republicans on Capitol Hill will install people at the Joint Committee on Taxation who also understand this elementary insight.

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In 2008, government spending consumed 50.9 percent of economic output in Greece according to OECD fiscal data. That same year, Greece’s score from Economic Freedom of the World was 7.12 (on a 0-10 scale), which was rather poor for a supposedly developed country and only #60 for all nations.

Then the fiscal crisis hit and Greece supposedly has atoned for its profligacy and gone through a tough period of “austerity” to reduce the burden of government spending and cut back on onerous levels of bureaucracy and red tape.

How much progress has occurred? Have Greek politicians, with the help of the European Commission, International Monetary Fund, and European Central Bank (the infamous “troika”), scaled back government and freed up the private sector?

Nope.

The OECD data shows that the burden of government spending is now 53.1 percent of economic output. And the latest data from Economic Freedom of the World shows that Greece’s score has dropped to 6.93 (dropping the country to #86 in the rankings).

In other words, Greece suffered a crisis caused by too much government and too much statism and the politicians (along with outside “experts”) decided that the solution was to….drum roll, please…increase the relative size and scope of government.

As one Greek observer noted in a column for CapX, this has not been a very successful recipe.

…how has the Troika been performing? 3 adjustment programs, 12 reviews, 220 billion Euros and 7 years down the road, the results are abysmal: 179% debt, 0% growth, 25.1% unemployment.

To be fair, there has been some spending restraint since the crisis began. In some years, the budget even shrank. The problem, though, is that the private sector has been battered by huge tax increases, thus crippling incentive to create jobs and growth.

If you want to get a sense of what’s happening, this New York Times story is a very sobering example. Apparently the tax burden is so oppressive that people don’t want to inherit property.

At law courts throughout Greece, people are lining up to file papers renouncing their inheritance. …they are turning their backs on what used to be a pillar of Greece’s economy and society: real estate. …In 2013, two years after a property tax was introduced (previously, real estate tax revenue came mainly from transfers or conveyance taxes), 29,200 people declined to accept their inheritance, according to the Justice Ministry. In 2015, the number had climbed to 45,627, an increase of 56 percent in two years. Reports from across the country suggest that this year, too, large numbers of people are refusing to inherit. …People once hoped that if they came into property they could sell it and live easier; now they fear that they will be unable to sell it and the taxes will drag them down. …After many years in which only very valuable properties were taxed, many Greeks went from paying almost no taxes on real estate to not having enough money to pay. In 2010, property taxes accounted for 0.26 percent of gross domestic product, while this year they are around 2 percent, according to state budget figures. …Arrears in tax payments at the end of September were at 92.8 billion euros and keep increasing by about 1 billion each month.

But give Greek politicians credit for a perverse form of perseverance. They’re doing everything they can to squeeze even more money from oppressed taxpayers. Indeed, the U.K.-based Times reports that they’re even spying on social media to see if people have lifestyles that seem extravagant compared to the income they report to tax police.

Finance ministry officials said that an operation named “24 hours” will monitor about 1.8 million Greeks believed to be declaring an income inconsistent with their lavish lifestyles they enjoy and display on websites. Trifon Alexiades, the deputy finance minister, said: “It may sound ludicrous, but this is a serious effort to crosscheck information about those suspected of concealing wealth.” Tax authorities will begin operating software in September for a month-long trial. “Under this new scheme, auditors will be able to access taxpayers’ Facebook, Twitter and Instagram accounts to extract information and details of assets that may not have declared,” a Greek news site reported.

Ugh, I guess this is the kind of policy you get with you mix French-style economic advice and German-style tax enforcement. Geesh, maybe the IRS isn’t so bad after all.

And it doesn’t seem the current left-wing government is learning from all these mistakes. The EU Observer reports that it wants to make the nation’s infamous bureaucracy even bigger.

Alexis Tsipras’ Greek government plans to hire 20,000 civil servants over the next year to help Greece’s austerity hit education and health services. Government officials believe that the hiring will not run into objections from representatives of Greece’s international creditors, Kathimerini newspaper reports.

By the way, Greek politicians think more spending is the right recipe, even if it means more spending in other nations. Here’s some of what was reported back in June by Bloomberg.

Greek Finance Minister Euclid Tsakalotos urged Germany to take advantage of record-low borrowing costs and invest more to spur the economy, saying Europe should seize the chance to modernize its infrastructure. …Failure to provide the euro area with a Keynesian-type stimulus would risk leaving the region with insufficient infrastructure, said Tsakalotos, whose country has the biggest ratio of debt to gross domestic product in Europe. European Union budget rules should be changed so that investment spending is excluded when calculating whether countries have met deficit targets, he said.

I guess this could be called an example of misery-loves-company economic advice. Germany has actually been complying with Mitchell’s Golden Rule in recent years (and part of last decade also) and its economy is in decent shape.

But Greek politicians are basically saying, “Hey, you should be more like us.”

Heck, the Prime Minister of Greece already is trying to create a coalition of fiscally mismanaged nations.

Greek prime minister Alexis Tsipras on Thursday invited leaders of six southern EU states to meet…in a bid to form a strong southern alliance and counter the stance of countries in Northern Europe. Athens News Agency reports the states invited will include France, Italy, Spain, Portugal, Cyprus and Malta.

The article doesn’t say what this alliance would accomplish, though presumably Tsipras hopes it will be a unified voice for more handouts. Maybe it can agitate for something really crazy such as eurobonds.

I’m also amused that Greek officials think businesses will invest in a highly-taxed economy merely if politicians promise not to raise taxes even further. I’m not joking. Here are some excerpts from a Reuters report.

Greece is offering big investors more than a decade of no increases in their taxes, in an effort to promote entrepreneurship in a country struggling to return to growth after almost seven years of recession. …Under the law, investment plans exceeding 20 million euros and creating at least 40 new jobs could choose a stable tax regime with no tax increases for 12 years once the investment is concluded.

By the way, just in case you think promising not to go even further in the wrong direction is akin to a step in the right direction, you need to keep reading the article because you’ll discover the plan is based on cronyism.

Alternatively, they can apply for a subsidy, amounting to 10 percent of the plan and up to 5 million euros.

And if you want to understand why Greece is hopeless, check out what the Economy Minister said about how any new investments will get “quick” approval.

Stathakis said that Athens will seek to shorten approval time for investment plans to three months instead of the two to three years it takes now.

Needless to say, the approval time in a market economy is zero because people don’t have to get permission from bureaucrats before creating jobs and investing money.

But in Greece, if you curry favor with the mandarins, you’ll “only” have to wait three months. I guess that’s to be expected in a nation where bureaucrats demand stool samples before you can set up an online company.

And since we’re on the topic of regulation and red tape, this is a good time to point out that the Greek government apparently is good at passing laws to liberalize the economy but not very good at implementing them.

Guy Verhofstadt, leader of the European Liberals and Democrats, is very critical… “Greece is passing a lot of legislation, but is not implementing it. It is shocking to see that 74% of the legislation that has been adopted since the first bailout package has never been implemented.”

But let’s look at the bright side. This means 26 percent has been implemented. Of course, that 26 percent presumably includes all the tax increases.

In any event, Greece has a miserable track record when it comes to following through on commitments to reduce state intervention. The government was supposed to engage in sweeping privatizations, but the gap between projections and performance is enormous.

Last but not least, I’ve always thought the ultimate sign of incompetence is when a government can’t even waste money effectively. I’ve already noted that Japan and the U.K. have met this test, and now I can add Greece to the list.

Hundreds of millions of available EU funds have yet to be used by the Greek state to help migrants and refugees. Administrative bottlenecks on the Greek side mean that…The European Commission…will soon be sending someone to Athens to help the government resolve its issues in an effort to better spend the money.

You may be wondering what’s the purpose of today’s attack on Greece. Is it because I think poorly of Greeks? Well, I despise Greek moochers, but I have the same view of French moochers and American moochers, so that’s not the answer.

You also may be thinking this is just another excuse for me to say “I told you so” about the failure of bailouts. Sure, I’m happy to pat myself on the back, even though any non-comatose person should have known bad things were going to happen.

My real goal is to warn that the miserable results in Greece will be replicated if we try the same policy in America. There are several states that are on a very bad trajectory, such as California and Illinois. I don’t know if things will blow up during the next recession or afterwards, but if there’s any hope of forcing politicians to make sensible choices in Sacramento and Springfield, it will be very important for Washington to reject all pleas for handouts.

Likewise, pension funds for state and local government bureaucrats are ticking time bombs. Once again, prudent reforms will only be possible if politicians conclude that there’s no hope for bailouts from Uncle Sam.

The bottom line is that politicians will continue to make mistakes if they can make other people pay the price. That’s today lesson.

P.S. Even though Greece’s debt is sustainable, I would prefer a default if it meant no more bailouts. Yes, Greek politicians would be reneging on their past obligations, but the good news is that they wouldn’t be able to borrow any more money and (hopefully) would have no choice but to copy Latvia and adopt good policy.

P.P.S. Though it’s an open question whether Greece can be saved. Many productive people already have escaped the nation and most of the ones who have stayed are part of the problem.

P.P.P.S. To offset the grim message of today’s column, let’s close with some Greek-related humor.

This cartoon is quite  good, but this this one is my favorite. And the final cartoon in this post also has a Greek theme.

We also have a couple of videos. The first one features a video about…well, I’m not sure, but we’ll call it a European romantic comedy and the second one features a Greek comic pontificating about Germany.

Last but not least, here are some very un-PC maps of how various peoples – including the Greeks – view different European nations.

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In my presentations about how to deal with budgetary deterioration and fiscal crisis, I often share with audiences a list of nations that have achieved very positive results with spending restraint.

The middle column shows how these countries limited the growth of government spending for multi-year periods.

The next column of numbers reveals how multi-year spending restraint leads to significant reductions in the amount of economic output that is diverted to the government.

And when you address the underlying problem of excessive government spending, you automatically ameliorate the symptom of red ink, as shown in the final column of numbers.

At this point, I usually ask the audience whether they’ve ever seen a similar table that purports to show nations that have obtained similarly good results with tax increases.

The answer is no, of course, though it’s not really a fair question to people who don’t study fiscal policy.

More important, I ask the same question when I have debates with my statist friends from left-wing organizations. They generally try to change the subject. Some of them bluster about “fairness.” And a few of them think Sweden is an acceptable answer until I point out that it became rich when government was small but began to lose ground once a large welfare state was imposed beginning in the 1960s (as explained in this video).

But Sweden wouldn’t be a good answer even if its economy hadn’t slowed down. That’s because the question is how to climb out of a fiscal hole. In which case Sweden actually provides evidence for my position!

To understand why tax increases aren’t the right way to deal with a fiscal mess, let’s look at Greece. From the moment the crisis began, Greek politicians started raising taxes. And they haven’t stopped, with many of the tax hikes being cheered by international bureaucracies.

This is a never-ending story.

With new chapters being written all the time. Here’s a report from Reuters on the latest “reform” package from Greece. As you might suspect, it’s basically a bunch of tax hikes. Here’s what the politicians approved on social insurance taxes.

Sets social security contributions at 20 percent of employees’ net monthly income – with 13.3 percent burdening employers and 6.7 percent employees. Reforms the social security contribution base from notional to actual incomes for the self-employed, including farmers and lawyers, forcing them to make a contribution to pension funds which is phased in over a five-year period to 20 percent of their income.

There are also income tax increases.

Lowers the income tax-free threshold, or personal allowance, to an average of around 8,800 euros a year from around 9,500; makes income bands narrower, increases tax coefficients. Lowest tax band is now 22 percent on a gross income of 20,000 a year compared to 22 percent for 25,000 euros which existed previously. The upper tax band, of 45 percent, is now imposed on gross incomes exceeding 40,000 as opposed to 42 percent on income above 42,000 under the previous arrangement. Includes EU farming subsidies on taxable income.

And there are further income tax hikes as part of the “solidarity” levy, which is basically another income tax.

Solidarity Levy…on net incomes ranges from the lowest 2.2 percent on incomes from 12,000 to 20,000 a year, to 5.0 percent up to 30,000, and 6.5 percent up to 40,000. The highest band is 10 percent on incomes above 220,000. By comparison, the highest band in that category was 8.0 percent before the new reform was pushed through, on earnings exceeding half a million euros.

And there also will be more double taxation.

Dividends Tax: Increases to 15 percent from 10 percent.

You would think this big package of tax hikes might satisfy the crowd in Athens for a year or two.

But that would be a very bad assumption. Amazingly, the politicians in Greece already are looking for additional victims, as reported by ABC News.

Already, a new bill is being prepared, calling for higher taxes on a range of products, from tobacco to beer to broadband Internet connections. This bill is expected to pass later in the month.

And they’re not exactly apologetic about their tax-aholic actions.

Prime Minister Alexis Tsipras and his ministers defended their plans, saying…that taxes were better than spending cuts. …Labor Minister George Katrougalos, who introduced the bill, said that…the bill’s provisions showed the way forward for social policy in a Europe dominated by pro-market “neoliberals.”

Sadly, Mr. Katrougalos may be correct. I won’t be surprised if the rest of Europe follows Greece off the cliff.

Though he’s smoking crack if he thinks the rest of the continent is dominated by neoliberals (i.e., classical liberals or libertarians).

Not that we’ve established that Greece has been trying to solve its fiscal mess with tax hikes, let’s look at the results.

Has debt been reduced? Hardly, though to be fair it seems to have stabilized.

In any event, we haven’t seen the big reductions in debt that are associated with spending restraint

And what about the economy? Here, the news is uniformly grim, doubtlessly in large part because of all the tax hikes.

It’s rather ironic this chart is based on periodic IMF forecasts since that bureaucracy is infamous for advocating endless tax hikes.

One wonders if the IMF bureaucrats will eventually learn some lessons?

I’m not holding my breath, just like I’m not optimistic that Greek politicians will address the real problem in their country of excessive dependency caused by a bloated public sector.

But maybe the rest of us (other than Hillary and Bernie) can learn what not to do.

P.S. For more information, here’s my five-picture explanation of the Greek mess.

P.P.S. And if you want to know why I’m so dour about Greece’s future, how can you expect good policy from a nation that subsidizes pedophiles and requires stool samples to set up online companies?

P.P.P.S. To offset the grim message of today’s column, let’s close with my collection of Greek-related humor.

This cartoon is quite  good, but this this one is my favorite. And the final cartoon in this post also has a Greek theme.

We also have a couple of videos. The first one features a video about…well, I’m not sure, but we’ll call it a European romantic comedy and the second one features a Greek comic pontificating about Germany.

Last but not least, here are some very un-PC maps of how various peoples – including the Greeks – view different European nations.

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Greece is special, though not in a good way.

The nation has such a pro-welfare mentality that pedophiles get disability benefits. And the regulatory mindset is so nutty that you need to submit a stool sample if you want to create an online company.

2300-greece0708-a1While those are bizarre examples of foolish government, Greece is probably best known for bailouts. Lots of them.

The politicians spent too much money and drove the economy into a ditch. And ever since, they’ve been trying to tax their way back to solvency, apparently oblivious to the fact that the private sector can’t rescue the economy if it’s being taxed into oblivion.

And that’s not idle rhetoric. A new report from The Economist gives us a very good warning of what happens when politicians get too greedy.

The story starts with an anecdote about a Greek entrepreneur who failed. But he didn’t fail because of a bad idea or a poor work ethic. Instead, the government got too greedy and taxed him into exile.

Panagiotis Korfoksyliotis set up a business in Athens in 2011, ferrying tourists around by car…he paid his staff a decent wage and declared all his earnings. Unfortunately, the taxman did not repay the kindness. Sharp increases in business taxes have prompted Mr Korfoksyliotis to pack his bags and move his company and his life to Bulgaria. Now he employs drivers to take foreign visitors around that country’s tourist spots instead.

And it turns out that Mr. Korfoksyliotis has lots of company.

He is part of a growing trend. …Greek governments desperate for cash have sought to squeeze it from companies, despite evidence that this is driving them away to places like Bulgaria, Cyprus and Albania. …by some estimates more than 200,000 businesses have closed or in some cases left Greece since then. ……accountants, lawyers and businesspeople reckon that perhaps as many as 10,000 Greek-owned firms have moved abroad. In a recent survey of 300 firms, Endeavor Greece, a non-profit organisation that helps entrepreneurs, found that more than a third had either left or were thinking about going.

And guess what? When a whole bunch of entrepreneurs and businesses decide that it’s no fun to work hard when the government is the main beneficiary, they leave. And all of sudden the politicians no longer have as much income to tax.

Between 2009 and 2014 the taxable profits declared by the country’s businesses fell by more than €5 billion ($5.6 billion) to €10 billion.

Wow, that’s a big Laffer Curve effect, even when including all the other factors that would have caused taxable income to decline over the past few years.

We also see the impact of tax competition in this story. The nations that are being sensible are attracting jobs and investment. Greece, of course, isn’t in that category.

Other euro-crisis countries, such as Portugal and Ireland, cut business taxes or kept them low, to encourage investment and growth. …But Greece has raised its corporation-tax rate from 20% in 2012 to 29% in 2015… Greece’s tax rise makes Bulgaria’s rate of just 10% even more alluring; likewise Cyprus’s 12.5% rate and Albania’s 15%.

But what’s really amazing is that Greece will probably go from bad to worse.

…the left-wing ruling coalition is not listening. It is now proposing a 20% rise in a levy on companies’ profits that goes toward pensions. Carry on in this vein, and there will not be many businesses, or much profit, left to tax.

Let that final sentence sink in. Our friends at The Economist are very much part of the left-leaning establishment. Yet they ended the story with about as powerful of an endorsement of the Laffer Curve as one could imagine.

In the meantime, I’ll end my column with an utterly depressing assessment of Greece’s future.

The country is basically doomed. In part, this is because government is too big. But it’s even more because the social capital of the Greek people has been eroded by decades of handouts and subsidies.

Social-Collapse-TheoremAnd when people think that it’s morally acceptable to use the coercive power of government to take money from their neighbors, it’s just a matter of time before than society collapses.

Why? Because people like Mr. Korfoksyliotis eventually decide that it’s no fun being enslaved by a bunch of looters and moochers.

The Economist slowly but surely seems to be waking up to this reality.

But I have very little hope for Bernie Sanders. Like the Syriza government, he would double down on higher taxes even as more and more taxpayers decided to “go Galt.” And just like Greece, there will be no turning back when we reach that dependency tipping point.

P.S. While part of me wants Greece to suffer because of bad politicians and scrounging voters, even I don’t want to subject the Greeks to this much torture.

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This isn’t intentional, but there’s been a European theme to this week’s posts. I wrote yesterday about economic chaos in France, and the previous day I wrote about the grim consequences of Italian statism.

Today, we’re going to look at Greece. In the past, I’ve explained that Greece is special, albeit in a bad way. But I’ve also asserted that Greece could be rejuvenated and could deal with its debt with the right reforms.

Heck, Greece could even renege on its debt and still enjoy an economic renaissance if it adopted the right policies. That’s the message of this short video narrated by Garett Jones of George Mason University

So the $64 question (actually, the $231,199,453,552 question according to the latest projection of Greek debt) is whether Greece will do the right kind of reform.

Unfortunately, it appears that all the bailouts have subsidized bad policy. Writing for National review, a journalist from Greece explains that his government is adding more and more taxes onto an overburdened private sector.

…the new austerity measures, which are often amusingly termed reforms, are for the most part tax increases — which may not be popular, but which conform to SYRIZA’s ideological creed. The new package agreed to by SYRIZA and Greece’s creditors is about 90 percent new taxes or tax increases and 10 percent reforms. The tax increases have the benefit of protecting SYRIZA’s core constituency, which is the public-sector employees. Despite the collapse of public revenue and the overall dismal economic outlook, the SYRIZA government plans to increase the salaries of public-sector employees (by as much as 8 percent) and carry on with 45,000 new hires in 2016. Meanwhile, in the private sector, SYRIZA has increased taxes on all sorts of things and is planning to double the taxation of farmers. It has increased business taxes and also demanded the pre-payment of business taxes. It has increased the VAT on almost all goods, and it is defining affluence down so as to increase income taxes for a greater number of taxpayers. And although Greece has probably the highest social-security contributions in Europe, SYRIZA is planning to increase these contributions even more, despite the fact that pensioners now outnumber those who are still employed in the private sector.

More pensioners that private-sector employees?!?

Wow, even I’m shocked by that factoid. There definitely are far more people riding in the wagon than pulling the wagon when you add up pensioners, bureaucrats, and welfare recipients.

So you can understand why Greece is almost surely doomed.

Especially when you consider that many of the people leaving Greece are the productive ones (i.e., those who normally would be pulling the wagon). Here are some passages from a story in the New York Times from last year.

From 2010 to 2013, about 218,000 Greeks emigrated, according to an estimate from the Greek statistics agency. Nearly half of them went to Germany. …Resentments against Germany — Greece’s most powerful creditor — quickly fade when it comes to the prospect of a regular paycheck. Many of those leaving Greece are highly educated professionals and scientists seeking greater opportunity and better pay. An estimated 135,000 Greeks with post-secondary degrees have left since 2010 and are working abroad, according to Lois Labrianidis, an economic geographer and official in Greece’s Economy Ministry. “We think this is human capital that is crucial for the development of the country,” Mr. Labrianidis told me recently, calling the departures a “major blow.” …While much of the attention on recent Greek emigration has focused on the highly educated, I’ve been surprised by the number of working-class Greeks I’ve met who left due to financial desperation.

But there’s one group of people who aren’t leaving.

You probably won’t be surprised to learn that they are the bureaucrats. As noted in this report from the U.K.-based Telegraph, their privileged position is zealously protected by vote-buying politicians.

The other thing most people in the area seem to agree on is that the biggest impediment to progress is the size of Greece’s public sector. The country has a population of 10 million, of which 2.5 million are pensioners, one million are government employees and two million work in the private sector. A further 1.7 million are unemployed. The rest are children or students. “So you can see why the current situation is unsustainable,” says Tryfon. “The only solution is for the public sector to be cut back. But every government since the crisis has chosen to raise taxes, while doing little to stimulate the private sector because they only want to protect votes.” “…Public sector employees and pensioners are the first to get paid and the only ones to get paid on time. We need investment into the private sector, but there is no motivation for companies to come to Greece…” a company would be nuts to invest in a politically unstable country, creaking under debt and crippled by an incredibly punitive tax regime. “What business will invest in a Greece when it takes six months to set up a company compared to Cyprus where it takes 15 minutes?” asks Dimitris Karkavitsas, an investment banker-turned-strawberry farmer. …the young engineer, says everyone who tries to make it in the private sector gets strangled. “The tax is killing us,” he says. …In the meantime, the public sector remains a massive beast.

Moreover, when you set up a company in Cyprus, there’s never a risk that you’ll be required to provide disgusting forms of DNA  as part of bureaucratic requirements.

Yet rather than be outraged by overpaid and meddlesome bureaucrats, I suspect most Greeks probably think how they can get on that gravy train. Which explains why, in an interview, I said the Greeks shouldn’t be allowed to “loot and mooch their way through life.”

Until and unless they learn that lesson, the nation is doomed to societal collapse.

P.S. Another sign of Greece’s moral and fiscal bankruptcy is that pedophiles can get disability payments.

P.P.S. To offset the grim message of today’s column, let’s also enjoy some Greek-related humor.

This cartoon is quite  good, but this this one is my favorite. And the final cartoon in this post also has a Greek theme.

We also have a couple of videos. The first one features a video about…well, I’m not sure, but we’ll call it a European romantic comedy and the second one features a Greek comic pontificating about Germany.

Last but not least, here are some very un-PC maps of how various peoples – including the Greeks – view different European nations.

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For both policy reasons and narcissism, I wish the most popular item ever posted on International Liberty was Mitchell’s Golden Rule.

But that guide to sensible fiscal policy isn’t even in the top 70.

Welfare State Wagon CartoonsInstead, my most-read post is a set of cartoons showing how the welfare state inevitably metastasizes as more and more people are lured into the wagon of government dependency.

I suspect these cartoons are popular because they succinctly capture and express a concern that is instinctively felt by many people.

But instinct isn’t the same as evidence.

So I’ve shared various estimates of America’s growing dependency problem, though I’ve also warned that these numbers don’t necessarily tell the full story.

Given my dissatisfaction with the current estimates, I was very interested to see a new attempt to measure the degree to which nations are undermined by ever-expanding redistribution. Writing for the Mises Institute and using Greece as an example, Justin Murray analyzes the dependency problem.

…without understanding how Greece got into this problem in the first place and identifying the root cause of an over-indebted society, any plan or solution has a high probability of failure. …Greece, being a nation with a high tax rate on production and a high subsidy rate on public assistance, will generate a population that finds greater preference toward public assistance and away from productive labor.

Mr. Murray puts together a new statistic called “implied public reliance,” which is designed to measure how many strangers each worker is supporting.

…we must identify a nation’s currently employed population. Next, all public sector employees are removed to obtain an adjusted productive workforce. …this productive population is divided into the nation’s total population to identify the total number of individuals a worker is expected to support in his country. …the average household size is subtracted from this result to get the final number of individuals that an individual must support that are not part of their own voluntary household. In other words, how many total strangers is this individual providing for? …Greece…is currently expecting each employed person to support 6.1 other people above and beyond their own families.

And here’s a chart from his article, showing the IPR measures for 18 countries.

I’m not surprised that Greece has the worst IPR number, and it’s also no surprise that nations such as Italy and France do poorly.

Though I am surprised that Canada scores so highly. And Denmark’s decent performance doesn’t make sense considering the data I shared a few months ago.

Mr. Murray then looks at this data from a different perspective.

To demonstrate how difficult it is to change these systems within a democratic society, we just have to look at the percentage of the population that is reliant on public subsidy.

And here are those numbers.

Wow. It’s hard to be optimistic after looking at these shocking numbers.

Moreover, I suspect we’ll remain pessimistic even if Mr. Murray’s initial numbers are revised as he refines his methodology.

And here’s the most depressing part of the analysis.

The numbers imply that 67 percent of the population of Greece is wholly reliant on the Greek government to provide their incomes. With such a commanding supermajority, changing this system with the democratic process is impossible as the 67 percent have strong incentives to continue to vote for the other 33 percent — and also foreign entities — to cover their living expenses.

From a public policy perspective, here’s the real challenge: How do you convince voters to back away from the public trough?

In my humble opinion, the only possible solution is to reject any and all bailouts and force Greece to balance its budget overnight. With luck, that may be such a sobering experience that the Greek people might learn that a society based on mooching and looting doesn’t work.

Not that I’m optimistic. Which is why I’ve been worried for more than five years that we’ll eventually see a loss of democracy in some European nations.

P.S. The second-most viewed post of all time is a parable about buying beer, which is actually a lesson about the dangers of so-called progressive taxation. And the third-most viewed post is a parable about applying socialist principles in a classroom, which is a lesson about the dangers about the dangers of redistribution.

P.P.S. On the topic of dependency, here’s what nursery tales would look like if they were written by statists.

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I wrote last month that the debt burden in Greece doesn’t preclude economic recovery. After all, both the United States and (especially) the United Kingdom had enormous debt burdens after World War II, yet those record levels of red ink didn’t prevent growth.

Climbing out of the debt hole didn’t require anything miraculous. Neither the United States nor the United Kingdom had great economic policy during the post-war decades. They didn’t even comply with Mitchell’s Golden Rule on spending.

But both nations managed to at least shrink the relative burden of debt by having the private sector grow faster than red ink. And the recipe for that is very simple.

…all that’s needed is a semi-sincere effort to avoid big deficits, combined with a semi-decent amount of economic growth. Which is an apt description of…policy between WWII and the 1970s.

Greece could achieve that goal, particularly if politicians would allow faster growth. The government could reduce red tape, which would be a good start since the nation ranks a miserable #114 for regulation in Economic Freedom of the World.

But Greece also should try to reverse some of the economy-stifling tax increases that have been imposed in recent years.

That may seem a challenge considering the level of red ink, but good tax policy would be possible if the Greek government was more aggressive about reducing the burden of government spending.

And if that’s the goal, then the Baltic nations are a good role model, as explained by Anders Aslund in the Berlin Policy Journal. With Latvia being the star pupil.

…austerity policies have not been attempted most aggressively in Greece: all three Baltic countries pursued more aggressive fiscal adjustments, especially Latvia. The Latvian government faced the global financial crisis head-on. …The Latvian government carried out a fiscal adjustment of 8.8 percent of GDP in 2009 and 5.9 percent of GDP in 2010, amounting to a fiscal adjustment of 14.7 percent of GDP over the course of two years, totaling 17.5 percent of GDP over four years, according to IMF calculations. Greece did the opposite. According to the IMF, its fiscal adjustment in the initial crisis year of 2010 was a paltry 2.5 percent of GDP, and in 2011 only 4.1 percent, a total of only 6.6 percent of GDP over two years. Greece’s total fiscal adjustment over four years was only 11.1 percent of GDP.

In other words, Latvia (like the other Baltic nations) did more reform and did it faster.

And it’s also worth noting that the reforms were generally the right kind of austerity, meaning that expenditure commitments were reduced.

Whereas Greece has implemented some expenditure reforms, but has relied far more on tax increases.

Better policy, not surprisingly, meant better results.

In 2008-10 Latvia suffered an output decline of 24 percent, as much as Greece did in the six-year span from 2009-14. However, thanks to its front-loaded fiscal adjustment, Latvia was able to restore its public finances after two years. The country has shown solid economic growth, averaging 4.3 percent per year from 2011-14, according to Eurostat. …The consequences of tepid Greek fiscal stabilization have been a devastating six years of declining output, even as the Latvian economy has revived. In 2013 Latvia’s GDP at constant prices was 4 percent lower than in 2008, while Greece’s was 23 percent less than in 2008, according to the IMF. A cumulative difference in GDP development of 19 percentage points over six years cannot be a statistical blip – it is real.

The bottom line is that Latvia and the other Baltics were willing to endure more short-term pain in order to achieve a quicker economic rebound.

That was a wise choice, particularly since the alternative, as we see in Greece, is seemingly permanent stagnation.

Anders Paalzow of the Stockholm School of Economics in Riga also suggests, in a recent article in Foreign Affairs, that Latvia is a good role model.

Professor Paalzow starts by explaining that Latvia is now enjoying good growth after enduring a dramatic boom-bust cycle last decade.

In 2008, Europe’s most overheated economy, which had been fuelled by cheap credit and rapidly raising wages and real estate prices, collapsed. GDP dropped by 20 percent and unemployment rose to more than 20 percent. But here’s where things take an unexpected turn. By late 2010, the first glimmers of recovery became apparent. Today, the economy is among Europe’s fastest growing, and its GDP is back at pre-crisis levels. So how did Latvia, the hero of this story, do it?

The first thing to understand is that Latvia was determined to join the eurozone, so that meant it wasn’t going to devalue its currency in hopes of inflating away its problems. Which meant the only other choice was “internal devaluation.”

…the Latvian government’s only real option was fiscal policy adjustment, the details of which it unveiled in its supplementary budget for 2009 and its budget for 2010. Both of these saw substantial reductions in social benefits accompanied by long overdue cuts in public employment with close to 30 percent of civil servants laid off. Those who remained in the public sector saw their salaries cut by 25 percent, on average, whereas salaries in the private sector fell by on average ten percent. …the reductions made during the crisis years amounted to approximately 11 percent of GDP. Most of the fiscal consolidation was done on the expenditure side of the public budget… The fiscal consolidation program continued into 2011 and the years following, even though the economy started to grow again.

Not only did the economy grow, but the government was rewarded for making tough choices.

…in 2010, the government responsible for austerity was reelected.

But here’s the challenge. Professor Paalzow warns that fiscal reforms won’t mean much unless the chronic dysfunction of the Greek government is somehow addressed.

The importance of the institutional framework cannot be overestimated. …it seems like a fool’s errand to try to sell off the public assets of a country riddled with high corruption… Furthermore, with a legal system incapable of enforcing current legislation and characterized by slow judicial processes, inefficient courts, and weak investor protection, legal reform will be a necessary condition for an economic turnaround.

So he suggests that Latvian-type fiscal reforms should be accompanied by Nordic-style institutional reforms.

Greece should look further north to Finland and Sweden, which overcame their own crises in the early 1990s. …The three to four years following the initial economic disaster saw remarkable institutional reform…substantial changes in both welfare systems. …both countries pursued austerity…, a remedy that both nations had frequently tried in the 1970s and 1980s without any success. What made the difference this time was that the institutional, and hence the fundamental roots, of the problems were addressed.

While I like his prescription, I suspect Paalzow is being too optimistic.

You can’t turn the Greeks into Finns or Swedes, at least not without some sort of massive jolt.

Which is why my preferred policy is to end bailouts, even if it means that Greece repudiates its existing debt. If the Greeks no longer got any handouts, that necessarily would mean an immediate end to deficit spending (assuming the government doesn’t ditch the euro in order to finance spending by printing drachmas).

Welfare State Wagon CartoonsAnd that might be a very sobering experience that would teach the Greek people about the dangers of having too many people trying to ride in the wagon of government dependency.

That might not turn the Greeks into Nordics, but it presumably would help them understand that you can’t (at least in the long run) consume more than you produce.

That’s also a lesson that some American politicians need to learn!

P.S. I wonder if Paul Krugman will attack Latvia’s good reforms. When he went after Estonia for adopting similar policies, he wound up with egg on his face.

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The conventional wisdom, pushed by the IMF and others, is that Greece’s economy will never recover unless there is substantial debt relief.

Translated into English, that means the Greek government should be allowed to break the contracts it made with the people and institutions that lent money to Greece. That may mean a “haircut,” which would mean lenders (often called creditors) only get back some of what they’ve been promised, or a “default,” which would mean they get none of the money they were promised.

I wouldn’t be surprised if Greece has a full or partial default. And that actually might not be a bad result if it meant an end to bailouts and Greece was immediately forced to balance its budget.

But let’s set that issue aside and look at the specific issue of whether Greece’s debt is unsustainable. Here’s a look at Greek government debt, measured as a share of economic output.

As you can see, when the crisis started in Greece, government debt was about 100 percent of GDP.

Was Greece doomed at that point?

Well, if the situation was hopeless, then someone needs to explain why the United States didn’t collapse after World War II.

As you can see from this chart, debt climbed to more than 100 percent of economic output because of the heavy expense of defeating Nazi Germany and Imperial Japan. Yet the American economy rebounded after the war (notwithstanding dire predictions from Keynesians) and the debt burden shrank.

So maybe the more interesting issue is to look at how America reduced its debt burden after 1945, which may give us some insights into what should happen (or should have happened) in Greece.

Here’s one question to consider: Did the burden of the federal debt drop between the end of World War II and the 1970s because of big budget surpluses?

Nope. If you look at Table 7.1 of OMB’s Historical Tables, you’ll see that there was a steady increase in the amount of government debt in America after 1945. Yes, there were a few years with budget surpluses, but those surpluses were more than offset by years with budget deficits.

The reason that the national debt shrank as a share of economic output was completely the result of the economy growing faster than the debt.

Here’s an analogy. Imagine you graduate from college and you have $20,000 of credit card debt. That might be a very big burden relative to your income.

But in your 50s and (hopefully) earning a lot more money, you might have $40,000 of credit card debt, yet be in a much stronger financial position.

So the real issue for Greece (and Spain, and Japan, and the United States, etc) is not so much whether the amount of debt shrinks. It’s whether debt is constrained compared to private-sector growth.

That doesn’t require any sort of miracle. Yes, it would be nice if Greece and other nations decided to become like Hong Kong and Singapore, high-growth economies thanks to small government and non-interventionism.

But all that’s needed is a semi-sincere effort to avoid big deficits, combined with a semi-decent amount of economic growth. Which is an apt description of U.S. policy between WWII and the 1970s.

Is it unreasonable to ask Greece to follow that model?

Some may say Greece is now in a different situation because debt levels have climbed too high. Debt in the United States peaked a bit above 100 percent of GDP at the end of World War II, whereas government debt in Greece is now closer to 200 percent of GDP.

It’s certainly true that today’s debt burden in Greece is higher than America’s post-WWII debt burden. So let’s look at another example.

Government debt in the United Kingdom jumped to almost 250 percent of economic output by the end of the World War II.

Did that cause the U.K. economy to collapse? Did Britain have to default?

The answer to both questions is no.

The United Kingdom simply did what America did. It combined a semi-sincere effort to avoid big deficits with a semi-decent amount of economic growth.

And the result, as you can see from the above graph, is that debt fell sharply as a share of GDP.

In other words, Greece can fulfill its promises and pay its bills. And the recipe isn’t that difficult. Simply impose a modest bit of spending restraint and enact a modest amount of pro-growth reforms.

Unfortunately, prior bailouts have given Greece an excuse to avoid reforms. Though the IMF, ECB and European Commission (the so-called troika) have learned somewhat from those mistakes and are now making greater demands of the Greek government as a condition of another bailout.

The problem is the troika doesn’t seem to understand what’s really needed in Greece. They’re pushing for lots of tax increases, which will make it hard for Greece’s private sector to generate growth. The only good news (or, to be more accurate, less bad news) is that the troika doesn’t want as many tax hikes as the Greek government would like.

In other words, don’t be too optimistic about the long-run outcome. Which is basically what I said in this interview on Canadian TV.

The bottom line is that a rescue of the Greek economy is possible. But so long as nobody with any power wants to make the right kind of reforms, don’t hold your breath waiting for good results.

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I suggested a couple of months ago that the economic turmoil in Greece and Venezuela is somewhat akin to a real-life version of Atlas Shrugged.

And I’ve also used that analogy when writing about France and Detroit.

But I’m probably not doing justice to Ayn Rand’s famous novel because Atlas Shrugged is not just about an economy that collapses under the weight of too much government regulation, intervention, and control.

I probably won’t give the right description since I’m a policy wonk rather than philosopher, but Atlas Shrugged is also about the perils of self-sacrifice.

And I couldn’t help but think about that aspect of the book when I read the comments of certain Greek politicians during yesterday’s bailout vote in Athens.

If you scroll down to the 14:40 mark of this timeline from the U.K.-based Telegraph, you’ll find some remarkable comments that sound like they came straight from Ayn Rand’s book.

Greece’s ruling Syriza party has accused David Cameron of being mean over his objections to allowing British taxpayer’s money to be used to help Athens meet upcoming debt payments. …Mr Cameron’s attitude was described as cold-hearted by Nikos Xydakis, a deputy culture minister in Syriza. “Mr Cameron must explain to the European people and 11 million Greeks why he wants them to suffer a social crisis,” Mr Xydakis told The Telegraph. “This is not about politics, this is about human souls.”

Wow. I might agree that David Cameron is “mean,” but I think his cruelty is directed against British taxpayers, not Greek politicians.

But let’s stick with our main topic. Notice how the moochers in Greece are trying to use guilt as a weapon. I’m sure some Ayn Rand experts will correct me if I’m wrong, but the aforementioned comments definitely sound like passages from Atlas Shrugged.

That being said, the Germans apparently have more in common with John Galt than Jim Taggart. Here are some excerpts from a column in the New York Times by Jacob Soll, a professor from the University of Southern California. He recently attended a conference in Germany and found very little sympathy for the Greeks.

 …when the German economists spoke…, a completely different tone took over the room. Within the economic theories and numbers came a moral message: The Germans were honest dupes and the Greeks corrupt, unreliable and incompetent. …the Greeks destroyed themselves over the past four years. Now the Greeks deserved what was coming to them. …Debtors who default, they explained, would simply have to suffer…a country like Greece…did not seem to merit empathy. …When the panel split up, German attendees circled me to explain how the Greeks were robbing the Germans. They did not want to be victims anymore.

Wow, who knew the Germans were a bunch of closet Randians!

No wonder the Greek politicians decided to target David Cameron instead.

For what it’s worth, I must have some German blood in my veins because I wasn’t overly sympathetic to Greece in this interview.

I even referred (again) to “looters” and “moochers,” which are terms used in Rand’s book.

I’ll make two comments about the interview.

  1. My prediction about the vote in Greece was correct. Though I wish I had been wrong because the best long-run outcome (both for the Greek people and the world’s taxpayers) is an end to bailouts.
  2. I mentioned that there will be more debt-crisis dominoes at some point in the future. I hope I’m wrong, but it’s hard to be optimistic when you look at long-run fiscal estimates from the IMF, BIS, and OECD.

P.S. Lots of what happens in Washington also is disturbingly similar to scenes from Atlas Shrugged, particularly the corrupt Obamacare waiver process.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

So true.

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

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

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

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

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

Second, it prevents the full meltdown of Greek banks.

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

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

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

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

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

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

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

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

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

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

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

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

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I very rarely feel sympathy for the people of Greece. Indeed, events over the past five years have even led me to write that “I hate the Greeks.”

I also disparaged the people of Greece by stating on TV that they’ve been trying to loot and mooch their way through life.

So you can see that I generally believe in the tough-love approach.

But there comes a point when even a curmudgeon like me is going to say enough is enough and that the Greek people have suffered enough already.

And I had that experience yesterday. Check out this headline from a story in yesterday’s EU Observer.

Economic advice from the French government?!? Isn’t that a bit like asking the Chicago Cubs for suggestions on how to win the World Series?

What are the French advisers going to do, propose ways to make the government even bigger? Suggest ways of driving even more entrepreneurs out of the country?

For Heaven’s sake, this is the last thing the people of Greece need.

Sort of reminds me of a headline I saw attached to a report by Reuters a few years ago.

Geesh, the Greeks already suffered because of an invasion by people working for the German government back in the 1940s. Seems like another deployment of German bureaucrats would be adding insult to injury.

Particularly since it would create the worst of all worlds, marrying Teutonic tax efficiency (for example, taxing prostitutes with parking meters) with Greek profligacy (for example, subsidies for pedophiles).

I’m not sure where that would end, but it surely wouldn’t be a good place.

Now let’s make a more serious point about tough love and Greek suffering.

Back in early 2010, about the time the Greek fiscal crisis was becoming a big issue, I warned that a bailout would actually make things worse. I suggested it would be better to let Greece default, both because it would penalize foolish investors who lent too much money to the Greek government and because it would force Greece to live within its means.

That would have meant short-run pain, to be sure, but I think that approach would have involved the least amount of aggregate suffering.

But the political class ignored my helpful advice and instead decided that bailouts would be a better idea. But how has that worked out? The Greek economy has been moribund and the Greek people are now saddled with far more debt. Yes, some short-run pain was mitigated, but only at the cost of much more pain over the past few years (with more pain in the future).

Interestingly, the International Monetary Fund’s top economist unintentionally has confirmed my analysis. Here’s some of what Olivier Blanchard recently posted as part of an effort to defend the IMF’s choices back in 2010.

Had Greece been left on its own, it would have been simply unable to borrow. …Even if it had fully defaulted on its debt, given a primary deficit of over 10% of GDP, it would have had to cut its budget deficit by 10% of GDP from one day to the next.  These would have led to much larger adjustments and a much higher social cost.

Blanchard obviously thinks reducing government spending by 10 percent of GDP would have imposed too much “social cost,” but imagine if Greece had bitten the bullet back in 2010. Sort of like what Estonia did in 2009.

Yes, there would have been a challenging adjustment. Interest groups would have received fewer handouts. Greek bureaucrats would have lost jobs and/or had their pay reduced. Payments to vendors would have been delayed. State-run TV may have been shut down. The regulatory apparatus probably would have been cut back. And I’m sure the Greek government probably would have raised taxes as well.

Now imagine how much better off Greece would be today if it went with that approach.

We don’t have a parallel universe where we can see the results of that different approach, but consider the fact that Estonia had a deeper downturn than Greece, presumably in part because it undertook strong measures, but since that time has been Europe’s fastest-growing economy.

Greece, by contrast, has been Europe’s slowest-growing economy. Hmmm…seems like this should be part of any discussions about “social cost.”

So what lessons can we learn?

I realize there are lots of factors that determine economic performance and that it’s impossible to isolate the impact of either Estonia’s spending-cut policy or Greece’s bailout policy. But it would take a very bizarre and untenable set of assumptions to conclude that Estonia didn’t make smarter policy choices.

The only silver lining to Greece’s dark cloud is that it’s not too late to do the right thing.

P.S. Since we ended by speculating about the good results of my tough-love approach, let’s also enjoy some Greek-related humor.

This cartoon is quite  good, but this this one is my favorite. And the final cartoon in this post also has a Greek theme.

We also have a couple of videos. The first one features a video about…well, I’m not sure, but we’ll call it a European romantic comedy and the second one features a Greek comic pontificating about Germany.

Last but not least, here are some very un-PC maps of how various peoples – including the Greeks – view different European nations.

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Before getting to the main topic today, here are some excerpts from a New York Post story that patriotic American readers will appreciate.

It deals with a protest.

…the group Disarm the Police…had announced on social media that they had planned to burn the flag in protest of NYPD policies.

But the event didn’t go as planned, thanks to members of the Hallowed Sons Motorcycle Club.

One of the bikers rushed forward in a fit of rage and kicked over the grill, sending embers flying. He then doused it as members of the pro-flag crowd chanted “USA! USA!” The bikers then started trying to rough up the protesters.

Here’s where the ironic part of the story.

…anti-NYPD protesters needed New York’s Finest to save their skin from a gang of angry bikers who tried to pummel them… The protesters were shielded by the cops and escorted out of the park.

And here’s some evidence that silly government regulations (a New York City tradition) take the fun out of protesting and counter-protesting.

While it’s illegal to openly burn anything in Fort Greene Park, the self-styled anarchists managed to find a loophole in the law that allows cooking in closed barbecue grills.

A few final comments on this story.

I realize I shouldn’t care, but I’m always dumbfounded when left-wing crazies refer to themselves as anarchists. Don’t they realize that you can’t be an anarchist while simultaneously advocating for much bigger government?

Reminds me of this bit of humor from the Libertarian Party.

In any event, the supposed anarchists obviously aren’t very bright since they thought it was a good idea to get on the wrong side of a bunch of bikers.

Since this is America’s Independence Day, I can’t help but think they got what they deserved, even though in the abstract I support their right to protest and burn flags that they bought with their own money (or, more likely, with money from their parents or from the welfare office).

==========================

Now for today’s main topic.

I appreciate tax havens for many reasons, mostly having to do with the importance of having some sort of external constraint on the tendency of politicians to over-tax and over-spend.

But I also like these low-tax jurisdictions for non-tax reasons. And high on my list is that I want people to have safe havens for their money as an insurance policy against governments that are incompetent, venal, abusive and/or corrupt.

And for the same reason, I like alternative currencies such as bitcoin (click here is you want to see a short and informative primer). These “cryptocurrencies” give people a way of protecting themselves when government mis-manage or mis-use monetary and financial systems.

And we have some very compelling real-world examples of how this works.

We’ll start with Greece, where people with bitcoins still enjoy liquidity. Those using the banking system, by contrast, are in trouble because of irresponsible government policy.

Here are some excerpts from a Reuters story.

There is at least one legal way to get your euros out of Greece these days, to guard against the prospect that they might be devalued into drachmas: convert them into bitcoin. Although absolute figures are hard to come by, Greek interest has surged in the online “cryptocurrency”, which is out of the reach of monetary authorities and can be transferred at the touch of a smartphone screen. New customers depositing at least 50 euros with BTCGreece, the only Greece-based bitcoin exchange, open only to Greeks, rose by 400 percent between May and June, according to its founder Thanos Marinos, who put the number at “a few thousand”. The average deposit quadrupled to around 700 euros.

Why are people shifting to bitcoin?

One part of the answer is that bitcoins are insulated from political risk.

Using bitcoin could allow Greeks to do one of the things that capital controls were put in place this week to prevent: transfer money out of their bank accounts and, if they wish, out of the country. …the bitcoin buyers’ main aim was to shield their money against the prospect that Greece might leave the euro zone and convert all the deposits in Greek banks into a greatly devalued national currency.

And is anyone surprised that there’s interest from other failing welfare states?

Coinbase, one of the world’s biggest bitcoin wallet providers, which is not currently accessible to Greeks, said it had seen huge interest from Italy, Spain and Portugal.

And it’s just a matter of time, I suspect, before there will be interest from France, Belgium, Japan, etc.

Now let’s look at Argentina, another corrupt and dysfunctional government that has a sordid history of abusing both the monetary system and the financial system.

The New York Times in May had an in-depth report on how people in that nation have been using bitcoin to circumvent bad government policy.

His occupation is one of the world’s oldest, but it remains a conspicuous part of modern life in Argentina…to serve local residents who want to trade volatile pesos for more stable and transportable currencies like the dollar. For Castiglione, however, money-changing means converting pesos and dollars into Bitcoin, a virtual currency, and vice versa. …Castiglione joked about the corruption of Argentine politics as he peeled off five $100 bills, which he was trading for a little more than 1.5 Bitcoins, and gave them to his client. …before showing up, he had transferred the Bitcoins — in essence, digital tokens that exist only as entries in a digital ledger — from his Bitcoin address to Castiglione’s.

Why are so many people interested in bitcoin?

Because the government is debasing and manipulating the official currency in ways that indirectly steal from the citizenry.

Had the German client instead sent euros to a bank in Argentina, the musician would have been required to fill out a form to receive payment and, as a result of the country’s currency controls, sacrificed roughly 30 percent of his earnings to change his euros into pesos. Bitcoin makes it easier to move money the other way too. The day before, the owner of a small manufacturing company bought $20,000 worth of Bitcoin from Castiglione in order to get his money to the United States, where he needed to pay a vendor, a transaction far easier and less expensive than moving funds through Argentine banks.

And don’t forget that Argentina’s government is one of the nations with a track record of stealing money when it’s left in banks.

Commerce of this sort has proved useful enough to Argentines that Castiglione has made a living buying and selling Bitcoin for the last year and a half. …The money brought to Argentina using Bitcoin circumvents the onerous government restrictions on receiving money from abroad. …It makes sense that a place like Argentina would be fertile ground for a virtual currency. Inflation is constant: At the end of 2014, for example, the peso was worth 25 percent less than it was at the beginning of the year. And that adversity pales in comparison with past bouts of hyperinflation, defaults on national debts and currency revaluations. Less than half of the population use Argentine banks and credit cards. Even wealthy Argentines fear keeping their money in the country’s banks.

Bitcoin protects consumers from rapacious and feckless politicians.

…in the fall of 2012, when the Argentine government ordered PayPal to bar direct payments between Argentines, part of the government’s effort to slow the exchange of pesos into other currencies. …Argentines were using Bitcoin to circumvent the government’s restrictions. “…competition eliminates all currencies from noneffective governments,” it said… In Argentina, the banks refuse to work with Bitcoin companies like Coinbase, which isn’t surprising, given the government’s tight control over banks. This hasn’t deterred Argentines, long accustomed to changing money outside official channels.

In an ideal world, of course, there would be no need for bitcoin. At least not as a hedge against bad government policy (if a world of private monies, of course, cryptocurrencies presumably would be one of the market-based options).

But we don’t live in an ideal world. Some of us already live in nations where government financial and/or monetary policy make bitcoin a very important alternative.

And others of us live in countries where there is good reason to worry about future instability because of misguided fiscal, monetary, and economic policy. So it will be good if we have options such as bitcoin.

That doesn’t mean, to be sure, that the average person should transfer all their liquid wealth into bitcoin. Indeed, I’ve specifically stated that “I wouldn’t put my (rather inadequate) life savings in bitcoin.

But I certainly want that option if future events warrant a change of strategy.

P.S. If you’re in a patriotic mood (and if you like the Second Amendment), then you’ll definitely enjoy this slideshow.

P.P.S. If you enjoyed the six-frame image about bitcoin owners, you’ll probably like a similar image portraying libertarians.

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I detest writing about Greece. I suggested back in 2010 that the best outcome was default, which would have been the most likely outcome of a no-bailouts approach.

And for the past five years, events have confirmed – over and over again – that this was the right approach.

So you can understand how frustrating it is to comment again on this issue.

But sometimes the policy proposals from national governments and international bureaucracies are so blindly insane that I feel compelled to restate obvious points.

Consider what is happening now. The various members of the Troika (the International Monetary Fund, the European Commission, and the European Central Bank) are pressuring Greece to make reforms in exchange for additional subsidies, handouts, and bailouts.

But since the Greek government is run by lunatics, the net result of “reforms” is more and more bad policy. To be blunt, the Troika crowd is subsidizing and encouraging a process that is resulting in suicidal tax hikes in Greece.

Here are some excerpts from a story in the EU Observer.

Greece edged closer to a last-ditch agreement with her eurozone creditors on Monday (22 June), after Alexis Tsipras’ government promised to raise an extra €8 billion over the next two years. Under the proposal submitted to eurozone ministers, the Greek government would raise just under €2.7 billion in extra revenue this year, followed by a further €5.2 billion in 2016. …Tsipras’ government has proposed to raise €645 million over the next two years by increasing health contributions to 5 percent. …As expected, the remaining proposals are almost exclusively based around new tax increases, the most significant of which is a new 12 percent levy on all corporate profits over €500,000, which the Greek government expects to bring in €1.35 billion in extra revenue. …together with €100 million per year from a new TV advertisements tax. It also wants to widen the scope of a so-called ‘luxury’ tax to cover private swimming pools, planes and boats.

Here’s a look at the breakdown of the new deal, which I got off Twitter from a pro-liberty Greek citizen (i.e., an endangered species).

So the latest deal is 93 percent tax hikes and 7 percent spending cuts. And I’m sure those so-called spending cuts are probably make-believe reductions in previously planned increases instead of genuine reductions.

That’s so imbalanced that it makes President George H.W. Bush’s disastrous 1990 tax-hike deal seem good by comparison.

And just in case you wonder whether there’s no fat in the Greek budget, consider this shocking sentence from the EU Observer story.

Public spending on pensions currently amounts to 16 percent of Greece’s GDP.

To give you an idea of how crazy that number is, Social Security outlays in the United States consume “only” 4.9 percent of GDP.

And don’t forget the Greeks also squander money on a bloated bureaucracy and a preposterous regulatory regime (click here and here to see I’m actually understating the problem).

Yet rather than change any of these anti-growth policies, the government wants more and more revenue to prop up a bloated government.

The bottom line is that Greek politicians and interest groups are trying to impose an upside-down version of my Golden Rule.

But while my Rule says that the private sector should grow faster than the government, their version is that the tax burden should grow faster than the private sector.

Needless to say, that’s an approach that is guaranteed to produce economic ruin.

Productive people leave the country or operate in the underground economy. And many others decide that it’s far more comfortable to climb into the wagon of government dependency.

The situation is utterly ludicrous, as explained by George Will.

…a nation that chooses governments committed to Rumpelstiltskin economics, the belief that the straw of government largesse can be spun into the gold of national wealth? Tsipras…thinks Greek voters, by making delusional promises to themselves, obligate other European taxpayers to fund them.

But George sees a silver lining to the dark cloud of Greece’s economic illiteracy.

Greeks bearing the gift of confirmation that Margaret Thatcher was right about socialist governments: “They always run out of other people’s money.” …This protracted dispute will result in desirable carnage if Greece defaults, thereby becoming a constructively frightening example to all democracies doling out unsustainable, growth-suppressing entitlements.  …It cannot be said too often: There cannot be too many socialist smashups. The best of these punish reckless creditors whose lending enables socialists to live, for a while, off of other people’s money.

I fully agree with this final point. Just like it’s good to have positive examples (think Hong Kong, Switzerland, Texas, or Singapore), it’s also good to have bad examples (such as France, Italy, California, and Illinois).

Though it’s unclear whether politicians even care about learning any lessons.

P.S. Don’t forget that some American politicians want America to be more like Greece, as illustrated by this Henry Payne cartoon.

P.P.S. Also keep in mind that Greece is just the tip of the iceberg. Other European welfare states are making the same mistakes and will soon suffer similar fates.

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I wrote in May 2011 that the situation in Greece was hopeless because nobody with power and/or influence wanted the right policy.

So I wasn’t bashful about patting myself on the back later that year when it quickly became obvious that bailouts weren’t working.

Ever since then, I’ve tried to ignore the debacle, though I periodically succumb to temptation and highlight the wasteful stupidity of the Greek government.

Having shared all sorts of bad news, I now feel obliged to point out that the situation isn’t hopeless.

Just last year, I explained that the right reforms could rescue Greece. And just in case you think I’m laughably naive, others have the same view.

Writing for the U.K.-based Telegraph, Ivan Mikloš, and Dalibor Roháč explain how Greece can enjoy and economic renaissance.

Greeks have to stop seeing themselves as victims… True, Greece’s international partners need to bear their share of responsibility for the economic catastrophe that has been unfolding in the country. However, it is not its creditors that are holding Greece back – rather, it is the lack of domestic leadership and ownership of economic reforms.

And what gives Mikloš and Roháč the credibility to make this assertion?

Simple, they’re from Slovakia and that nation faced a bigger mess after the collapse of the Soviet Empire and the peaceful breakup of Czechoslovakia.

As Slovaks, we have learned a fair bit about these matters. Once home to much of Czechoslovakia’s heavy industry – exporting arms and heavy machinery to the former Soviet bloc – Slovakia bore a disproportionate share of the costs incurred by the transition from communism in the early 1990s. …At the time of the country’s break-up, in 1992, the per capita income in Slovakia, expressed in purchasing power parity, was merely 62 per cent of that in the Czech Republic.The years that followed were not happy. The lingering sense of victimhood fostered nationalism and authoritarianism, as well as cronyism and corruption… By the time of the parliamentary election of 1998, Slovakia was on the brink of a financial meltdown.

But the election didn’t result in victory of crazed leftists, as we see with Syriza’s takeover in Greece.

Instead, the Slovak people elected reformers who decided to reduce the size and scope of the public sector.

The new government, formed by a coalition of pro-Western parties, restructured the banking sector, brought the public deficit under control… The parliamentary election of 2002 opened a unique window of opportunity. Slovakia’s novel tax reforms, spearheaded by domestic reformers under the auspices of Prime Minister Mikuláš Dzurinda, were seen by the IMF at the time as far too radical. However, the new, simpler, and leaner tax system, alongside other structural reforms, incentivized investment and turned Slovakia, nicknamed the “Tatra Tiger”, into the fastest-growing economy in the EU.

And a handful of other EU nations have followed the right path.

In 2008, instead of devaluing its currency – as recommended by the IMF – Latvia slashed public spending, cutting the salaries of civil servants by 26 per cent. The economy rebounded quickly to a growth rate of 5 per cent in 2011.

Here’s the bottom line.

Today, Slovakia’s per capita income rivals that of the Czech Republic. Together with Poland and the Baltic states, these countries have been catching up with their advanced Western European counterparts.

And the lesson for Greece should be clear, both politically and economically.

The purpose of economic reforms should not be to please the Troika, but to restore durable, shared prosperity. Deep, domestically led reforms need not be a form of political suicide, either. In 2006, after eight years of deep – and sometimes painful – reforms, Slovakia’s leading reformist party recorded its best electoral result in history. Similarly, many of the radical reformers in the Baltic states did well in subsequent elections. And a Greek leader who turns his country into a “Mediterranean Tiger” will most certainly not go down in infamy.

Unfortunately, the slim odds of good policy being adopted in Greece are partly the fault of the United States.

Or, to be more accurate, the Obama Administration is being very unhelpful by urging bailouts instead of reform.

Here’s some of what is being reported by the U.K.-based Guardian.

The Greek television channel, citing a senior German official, described the US treasury secretary, Jack Lew, imploring his German counterpart Wolfgang Schäuble to “support Greece” only to be told: “Give €50bn euro yourself to save Greece.” Mega’s Berlin-based correspondent told the station that the US official then said nothing “because, as is always the case according to German officials when it comes to the issue of money, the Americans never say anything”.

I’m not a big fan of Wolfgang Schäuble. The German Finance Minister is a strident opponent of tax competition, and some of his bad ideas are cited in the CF&P study that I wrote about yesterday.

But I greatly appreciate the fact that he basically told Obama’s corrupt Treasury Secretary to go jump in a lake.

And I’m also happy that Congress has done the right thing so that Obama and his team don’t have leeway to bail out Greece either directly or indirectly.

P.S. Since we ended on some good news, let’s also enjoy some Greek-related humor.

This cartoon is quite  good, but this this one is my favorite. And the final cartoon in this post also has a Greek theme.

We also have a couple of videos. The first one features a video about…well, I’m not sure, but we’ll call it a European romantic comedy and the second one features a Greek comic pontificating about Germany.

Last but not least, here are some very un-PC maps of how various peoples – including the Greeks – view different European nations.

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Over the years, I’ve had many arguments about economic policy with my statist friends. I put them into three categories.

  • The completely unreasonable statists blindly assert, notwithstanding all the evidence around the world, that bigger government and more intervention are actually good for growth.
  • The somewhat unreasonable statists acknowledge that bigger government and more intervention might have some minor “efficiency” costs, but those costs are acceptable and affordable in the pursuit of more “equity.”
  • The semi-reasonable statists admit that bigger government and more intervention hurt growth, but they argue that “libertarian types” must somehow be wrong because our predictions of economic chaos never materialize.

The folks in the last category have a point. For decades, advocates of limited government and free markets have warned about the economic cost of bad policy, yet where’s the collapse?

Why hasn’t Atlas shrugged, as libertarians have warned? Why have predictions of economic dystopia (examples here and here) been wrong?

I have two responses to these questions.

First, the economic damage caused by an expanding welfare state has been offset by improvements in other types of economic policy.

Second, maybe dour libertarians have been right, but got the timing wrong because it takes a long time and a lot of bad policy to destroy an economy.

And that’s today’s topic, because it certainly looks like both Greece and Venezuela have finally reached the end of the road. Let’s call it the Thatcher Inflection Point.

Here are some excerpts from a very grim New York Times story about the economic misery in Greece

Bulldozers lie abandoned on city streets. Exhausted surgeons operate through the night. And the wealthy bail out broke police departments. A nearly bankrupt Greece is taking desperate measures to preserve cash. …In a society that has lived off the generosity of the government for decades, the cash crisis has already had a shattering impact. Universities, hospitals and municipalities are struggling to provide basic services… Greece is already operating as a bankrupt state. …For a generation of Greek politicians who saw government spending (and borrowing) as a national birthright, the idea of deploying only the money at hand has been jarring.

Egads, imagine the horror of only being able to consume what you’re able to produce. Obviously a violation of human rights!

Though some people apparently are learning the right lesson.

…for other Greeks who are eager to break from the country’s tradition of dispensing political favors to the well-connected, these years of imposed restraint have also provided a valuable lesson. “There are no free rides in this country anymore,” said Kostas Bakoyannis, 37, the governor of the Central Greece administrative region. “…Now we have to live on what we can make and produce.”

By the way, don’t cry too many tears for the Greeks. Yes, they’ve had to make genuine budget cuts since outlays peaked near the end of last decade. But government spending in Greece, after adjusting for inflation, is about the same level it was in 2000.

And that wasn’t an era of “harsh austerity.”

In other words, Greece wouldn’t be in trouble today had politicians simply obeyed my Golden Rule.

Besides, how can you feel sorry for a nation that subsidizes pedophiles and requires…um…stool samples to set up online companies.

When it comes to bizarre government policy, Greece truly is special.

Now let’s look at Venezuela, where economic buffoonery is an art form. My Cato colleague Steve Hanke has a new column about that nation’s grotesquely reckless monetary policy.

I estimate Venezuela’s annual inflation rate at 335%. That’s the highest rate in the world. For those holding bolivars, it amounts to: “no rule of law, bad money.” …Facing this inflationary theft, Venezuelan’s have voted with their wallets. Indeed, they have unofficially begun to dollarize the economy.

Here’s John Hinderaker’s summary of the overall situation.

When a country can neither produce nor buy toilet paper, you know the end is approaching. …Venezuela’s regime is long past eating its seed corn; now it’s selling the furniture. Will Maduro’s government default on the country’s debt, some of which carries 30% interest? …The IMF is helping to keep Venezuela’s economy afloat, and if oil prices rise, the Maduro regime might be able to buy a little more time. But the end game is obvious: economic collapse.

I’ll add one modification (and I’m sure John would agree), which is that economic collapse is obvious if policy stays on the current path.

Venezuela (or Greece, or any other nation) could save itself by shifting to a policy of free markets and small government. But I’m not holding my breath.

By the way, I suppose we could also use the example of the Soviet Union. That was a collapse of turbo-charged big government.

But let’s close instead with a point about richer nations in the western world because some readers understandably are thinking that countries such as Germany, Japan, and the United States will never suffer the fate of nations such as Greece, Venezuela, and the Soviet Union.

That’s probably true, but keep in mind that demographic changes are a wild card. Simply stated, aging populations and poorly designed entitlement programs are a very unpalatable combination.

And if governments wait too long to implement reforms, the political obstacles may be too great. Restoring good policy is a lot harder once the people in the wagon outnumber the folks pulling the wagon (as illustrated by these cartoons).

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I don’t know which group is more despicable, Greek politicians or the voters who elected them. In both cases, they think they’re entitled to other people’s money.

But since the “other people” in this case happen to live in nations such as Germany and Finland, and those folks don’t want to write blank checks to a bunch of moochers and looters, Greece faces a difficult choice.

Either the Greeks behave like adults and rein in their bloated public sector. Or they throw a tantrum, which presumably means both a default on payments to bondholders and a return to the unstable drachma currency.

My guess is they’ll eventually go with the latter option.

But maybe there’s hope for Greece. One of the Prime Minister’s chief economic advisers, an out-of-the-closet communist, has announced his resignation. Here are a few of the details from a story in the EU Observer.

Giannis Milios, a member of Syriza’s central committee and long time economic advisor to Greek prime minister Alexis Tsipras, resigned Wednesday… A professor of economic policy who defines himself as a Marxist, Milios is considered one of the most loyal members of the left-wing party.

So does this signal a shift to more mature and sensible policy?

Perhaps not. According to an article in the Wall Street Journal, the problem in Greece isn’t really the communists. It’s the American leftists like Paul Krugman!

Germany, many other governments and senior policy makers in Brussels believe…that recklessness has been encouraged by misguided political and economic philosophies and bad advice from abroad. It isn’t so much that many in Mr. Tsipras’s Syriza party are Marxists—the eurozone can handle followers of the bearded 19th-century German philosopher. It is more that they are seen to be excessively influenced by a 20th-century British economist—John Maynard Keynes—and his living Anglo-Saxon disciples. At finance ministers’ meetings in Brussels, Mr. Varoufakis has been accompanied by American economists James Galbraith and Jeffrey Sachs. From across the Atlantic, the new government gets strong rhetorical backing from Paul Krugman, Joseph Stiglitz and others.

Wow, this is remarkable. Who would have guessed that run-of-the-mill American leftists are more damaging to economic policy than communists!

I guess this is because the Marxists are probably harmless crazies who hang out in coffee houses and gripe about the capitalist class.

The American leftists like Krugman, by contrast, do real damage because they use discredited Keynesian theory to argue that politicians should be spending even more money to “stimulate” an economy that’s in a crisis because of previous bouts of government spending.

Sort of like trying to get out of a hole by digging even deeper.

What’s amazing is that Krugman and other American statists are pushing bad policy when there are successful examples of nations escaping fiscal crisis with genuine spending cuts.

John Dizard wrote an interesting article about Greece for the Financial Times. He began his article by quoting Krugman, who wrote that the plans of the crazy Greek government are “not radical enough.” Dizard also shared another quote from Krugman, which criticized proponents of lower spending because “the best the defenders of orthodoxy can do is point to a couple of small Baltic nations.”

So Dizard decided to compare Greece with those Baltic nations of Estonia, Latvia, and Lithuania.

There are…some practical lessons to learn from…the contrasting ways that Greece has dealt with the world after the global financial crisis compared with the relatively poor Baltic states. Greece took a path of gradual fiscal adjustments weighted towards tax increases, accompanied by a partial debt default. The Baltic states adopted rapid and deep cuts in their state expenditure and current account deficits.

And here’s a shocking bit of news, though it won’t be surprise to folks in the real world. The Baltics have done far better.

The big issue in the Baltic states is upward wage pressure from tight labour markets. That is what we call a high-class problem. This understates the Baltic countries’ achievements. …They also did this without much benefit from concessionary multilateral finance or international debt haircuts.

Dizard looks at some of the differences between the Baltic nations and Greece.

There were virtually no dismissals from the Greek civil service over this period. Salaries were cut, but public sector staffing was reduced with lay-offs of temporary contract workers and early retirements. This had the effect of reducing already low service levels and transferring costs from payrolls to pension obligations. Latvia fired one-third of its civil servants. …The tax burden [in Greece] on salaried workers, compliant domestic businesses and property owners was substantially increased. In contrast, the Baltic states have fairly flat and relatively low tax rates.

All this is music to my ears since I’ve already written about the successful spending cuts in the Baltic countries.

And I particularly enjoyed having the opportunity, back in 2012, to correct the record when Krugman tried to blame Estonia’s 2008 recession on spending cuts that occurred in 2009.

P.S. Since today’s column focused on the statist ideas of Paul Krugman and because he’s a leading voice for the notion that more government spending somehow “stimulates” growth, I can’t resist sharing an explanation of Keynesian economics I gave back in 2009 as part of some remarks to Colorado’s Steamboat Institute.

Feel free to watch the whole video, but fast forward to 3:30 if you’re pressed for time. I’m being snarky, of course, but I also think my debunking of so-called stimulus is spot on.

P.P.S. By the way, the above video is from the Q&A portion of my remarks. If you watch my my actual speech, and if you pay attention about the 1:35 mark, you’ll see I was talking about the importance of having government grow slower than the economy’s productive sector back in 2009 even though I didn’t unveil Mitchell’s Golden Rule until two years later.

P.P.P.S. Since we’re picking on Krugman, here’s something that’s making the rounds on Twitter.

Good ol’ Professor Krugman praised the European approach of bigger government back in 2010, and everything that’s happened since that point has made his assessment look foolish.

Sort of reminds me of the time he attacked me for my gloomy assessment of California and claimed that the Golden State’s job market was strong. But it turns out that California had the 5th-highest unemployment rate in the nation.

P.P.P.P.S. Let’s close with the observation that the mess in Greece shouldn’t be blamed on Krugman. Sure, he’s giving bad advice, but Greek politicians deserve the lion’s share of the blame. Moreover, to the extent that outside advisers get blamed, we should remember that economists like Joseph Stiglitz and Jeffrey Sachs also are involved, and in some cases exercising more influence than Krugman.

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I periodically share this poster, in part because it’s funny, but mostly because it’s true.

After all, can you think of many “success stories” involving government?

When I pose this question to my statist friends, I usually get a blank stare in response. Though some of them will offer answers such as the GI Bill, interstate highways, and landing on the moon.

But even if you accept that those policies were successful, it’s rather revealing that folks on the left have a very hard time identifying any success stories from recent decades.

On the other hand, we have a never-ending and ever-growing list of government failures, boondoggles, and screw-ups.

And that’s our focus today. We’re going to look at all levels of government for new examples that confirm Bastiat was right.

Let’s start with Montgomery County in Maryland, where bureaucrats are waging a legal battle against parents who – gasp! – allow unsupervised play for their children.

Here are some troubling passages from a Washington Post report.

The Maryland parents investigated for letting their young children walk home by themselves from a park were found responsible for “unsubstantiated” child neglect…the finding of unsubstantiated child neglect means CPS will keep a file on the family for at least five years and leaves open the question of what would happen if the Meitiv children get reported again for walking without adult supervision. The parents say they will continue to allow their son, Rafi, 10, and daughter Dvora, 6, to play or walk together, and won’t be swayed by the CPS finding. …The case dates to Dec. 20, when police picked up the two Meitiv children walking in Silver Spring on a Saturday afternoon after someone reported them. …The Meitivs said they would not have allowed the one-mile outing from Woodside Park to their home if they did not feel their children were up to it. …The Meitivs, both scientists by training, embrace a “free-range” philosophy of parenting, believing that children learn self-reliance by being allowed to make choices, build independence and progressively experience the world on their own. …Danielle Meitiv said when she first read the decision, she felt numb. As she reread it, she recalled turning to her husband and saying: “Oh my God, they really believe we did something wrong.” …Danielle Meitiv said that in spite of the decision, her children played at a nearby park by themselves Monday, when schools were closed for the snow day.

I confess that I was more paranoid than the Meitivs when my kids were young, so I can’t claim to have followed the same “free-range” approach.

But I also tried to avoid being a “helicopter” parent.

Not that my decisions on child rearing matter. What’s important from the perspective of public policy is that the Montgomery County bureaucracy is trying to dictate how to raise kids. And there’s a very clear implicit threat that it will arrest the parents and/or confiscate the children if the Meitivs don’t acquiesce.

And if you think I’m exaggerating and governments don’t behave this way, check out the story of the mom who was jailed overnight because her kids played outside – while she was watching them!

All of us should be outraged, regardless of our parenting approach.

Now let’s look at an example of a state government in action.

As reported by the Washington Post, the Georgia State Patrol enjoyed a Keystone Cops moment when it raided an old man because…drum roll, please…he was growing okra.

Georgia police raided a retired Atlanta man’s garden last Wednesday after a helicopter crew with the Governor’s Task Force for Drug Suppression spotted suspicious-looking plants on the man’s property. A heavily-armed K9 unit arrived and discovered that the plants were, in fact, okra bushes. …Okra busts like these are good reason for taxpayers to be skeptical about the wisdom of sending guys up in helicopters to fly around aimlessly, looking for drugs in suburban gardens. And that’s not to mention the issue of whether we want a society where heavily-armed cops can burst into your property, with no grounds for suspicion beyond what somebody thought he saw from several hundred yards up in a helicopter.

In some sense, this is an amusing story of government incompetence.

But military-type raids, when the supposed offense involves a possible “crime” with no victims, are a recipe for disaster. Let’s be glad that the cops didn’t accidentally kill anybody in this raid.

By the way, this isn’t the first time cops have seized okra bushes. Or looked foolish because of an inability to identify marijuana leaves.

At the point, I don’t want to miss an opportunity to say that it’s time to end the foolish Drug War. People who abuse drugs may be stupid, but they’re not infringing on the rights of others. The War on Drugs, by contrast, has led to all sorts of policies that do infringe on our rights, from disgusting asset forfeiture policies to pointless snooping on our bank accounts. Or, as we just read, raids on okra growers.

Time now for a look at an example of federal government fecklessness.

But this story from the Washington Times won’t surprise anybody. Because anybody with a pulse already knows that there is a lot of waste in Washington.

Federal agencies across the board are continuing to waste tens of billions of taxpayer dollars on duplicative spending efforts, even after Congress‘ official watchdog has made hundreds of recommendations for cutting back. The spending issues, ranging from Medicare and Medicaid mismanagement to transportation programs to weapon systems acquisitions, cost taxpayers $125 billion in improper payments in 2014 alone, as highlighted in a new report from the Government Accountability Office. …GAO investigators noted in the report that the government can’t continue to sustain its wasteful spending habits… “The federal government faces an unsustainable long-term fiscal path. Changing this path will require difficult fiscal policy decisions to alter both long-term federal spending and revenue,” the GAO analysts concluded. …The GAO report targeted both the Internal Revenue Service and the Department of Health and Human Services for mismanaging programs that saw rampant wasteful spending. …“These programs combined account for over 76 percent of the government-wide estimate. We have made numerous recommendations that if effectively implemented, could help improve program management, reduce improper payments in these programs, and achieve cost savings.”

Notice that HHS and the IRS win the prize for wasteful incompetence.

But don’t laugh. After all, those are the two bureaucracies that got lots of new power and authority as a result of the costly Obamacare boondoggle. So the joke’s on us.

By the way, the GAO’s definition of waste is very narrow. It merely applies to funds that are improperly disbursed.

If you also include monies that are squandered, then the amount of waste includes every penny at the Department of Agriculture, Department of Education, Department of Housing and Urban Development, Department of Transportation, etc.

Last but not least, let’s look at a great moment in foreign government.

I’ve written about the crazy Greek government on many occasions. And given that this collection of misfits does utterly bizarre things (such as giving handouts to pedophiles and requiring stool samples when setting up online companies), I’m never surprised to learn when they adopt foolish policies.

But even I was taken aback to learn about the latest gimmick they concocted to “solve” the nation’s fiscal crisis. Here are some excerpts from a report in the U.K.-based Guardian.

The Greek government has told its eurozone creditors it has a novel way of tackling the country’s chronic tax evasion culture – wiring students, tourists, and housewives for sound and video to spy on tax dodgers while posing as shoppers and customers. …Varoufakis’s plans for a new government-sponsored amateur snoopers’ charter…attracted most attention. …He said the prospects of successfully countering tax dodging were dismal because of the demoralised and understaffed state of the tax inspection service. Instead, he proposed recruiting large numbers of “non-professional inspectors” on short-term casual contracts of no longer than two months who would be paid by the hour. They would be “wired for sound and video”, trained to pose as “customers” and “will be hard to detect by offending tax dodgers.” …Varoufakis said the launch of the amateur snoopers would act as a deterrent, “engendering a new tax compliance culture” in Greece. He added that Athens would need to ask eurozone partners for help with the equipment and the training. Germany has previously offered to send 500 tax inspectors to Athens. …In Athens, news of the undercover tax agents was quick to spark ridicule and widespread disbelief.

Hmmm….so the Germans offered to send 500 tax inspectors? Sounds like a perfect job for ex-Stasi officials.

And there are some bureaucrats in Chicago who almost surely would want to help implement this snitch-on-your-neighbor scheme. And the governor of New York has related experience, though his police-state policy focused on guns rather than tax revenue. Let’s also not overlook the U.K. politicians who have a tax-enforcement-über-alles mentality.

Never mind that all the research shows that low rates are honest government are the best ways of getting high compliance.

So I’m not holding my breath expecting success from this latest Greek scheme.

But I can say it’s a perfect example of how governments operate. Screw up, grab for more money, screw up some more. Lather, rinse, repeat.

It’s almost a shame that there’s no life on Mars. We could make today’s list even longer if there was another layer of government.

Now you know why it’s almost always the right time to mock politicians.

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There’s a big fiscal battle happening in Europe. The relatively new Greek government is demanding continued handouts from the rest of Europe, but it wants to renege on at least some of the country’s prior commitments to improve economic performance by reducing the preposterous burden of spending, regulation, and intervention.

That seems like a rather strange negotiating position. Sort of like a bank robber holding a gun to his own head and saying he’ll shoot himself if the teller doesn’t hand over money.

At first glance, it seems the Greeks are bluffing. Or being suicidally self-destructive.

And maybe they are posturing and/or being deluded, but there are two reasons why the Greeks are not totally insane.

1. The rest of Europe does not want a Greek default.

There’s a famous saying, attributed to J. Paul Getty, that applies to the Greek fiscal fight. Simply stated, there are lots of people and institutions that own Greek government bonds and they are afraid that their investments will lose value if Greece decides to fully or partially renege on its debts (which is an implicit part of Greece’s negotiating position).

So while Greece would suffer if it defaulted, there would be collateral damage for the rest of Europe. In other words, the hypothetical bank robber has a grenade rather than a gun. And while the robber won’t fare well if he pulls the pin, lots of other people may get injured by shrapnel.

And to make matters more interesting, previous bailouts of Greece have created a rather novel situation in that taxpayers are now the indirect owners of a lot of Greek government debt. As you can see from the pie chart, European taxpayers have the most exposure, but American taxpayers also are on the hook because the IMF has participated in the bailouts.

The situation is Greece is akin to a bankruptcy negotiation. The folks holding Greek government debt are trying to figure out the best strategy for minimizing their losses, much as the creditors of a faltering business will calculate the best way of extracting their funds. If they press too hard, the business may go bust and they get very little (analogous to a Greek default). But if they are too gentle, they miss out on a chance of getting a greater share of the money they’re owed.

2. Centralization is the secular religion of the European elite and they want Greece in the euro.

The bureaucrats at the European Commission and the leaders of many European nations are emotionally and ideologically invested in the notion of “ever closer union” for Europe. Their ultimate goal is for the European Union to be a single nation, like the United States. In this analogy, the euro currency is akin to the American dollar.

There’s a general perception that a default would force the Greek government to pull out of the euro and re-create its own currency. And for the European elite who are committed to “ever closer union,” this would be perceived as a major setback. As such, they are willing to bend over backwards to accommodate Greece’s new government.

Given the somewhat blurry battle lines between Greece and its creditors, what’s the best outcome for advocates of limited government and individual liberty?

That’s a frustrating question to answer, particularly since the right approach would have been to reject any bailouts back when the crisis first started.

Without access to other people’s money, the Greek government would have been forced to rein in the nation’s bloated public sector. To be sure, the Greek government may also have defaulted, but that would have taught investors a valuable lesson about lending money to profligate governments.

And it would have been better if Greece defaulted five years ago, back when its debt was much smaller than it is today.

But there’s no point in crying about spilt milk. We can’t erase the mistakes of the past, so what’s the best approach today?

Actually, the right answer hasn’t changed.

And just as there are two reasons why the Greek government is being at least somewhat clever in playing hardball, there are two reasons why the rest of the world should tell them no more bailouts.

1. Don’t throw good money after bad.

To follow up on the wisdom of J. Paul Getty, let’s now share a statement commonly attributed to either Will Rogers or Warren Buffett. I don’t know which one (if either) deserves credit, but there’s a lot of wisdom in the advice to stop digging if you find yourself in a hole. And Greece, like many other nations, has spent its way into a deep fiscal hole.

There is a solution for the Greek mess. Politicians need to cut spending over a sustained period of time while also liberalizing the economy to create growth. And, to be fair, some of that has been happening over the past five years. But the pace has been too slow, particularly for pro-growth reforms.

But this also explains why bailouts are so misguided. Politicians generally don’t do the right thing until and unless they’ve exhausted all other options. So if the Greek government thinks it has additional access to money from other nations, that will give the politicians an excuse to postpone and/or weaken necessary reforms.

2. Saying “No” to Greece will send a powerful message to other failing European welfare states.

Now let’s get to the real issue. What happens to Greece will have a big impact on the behavior of other European governments that also are drifting toward bankruptcy.

Here’s a chart showing the European nations with debt burdens in excess of 100 percent of economic output based on OECD data. Because of bad demographics and poor decisions by their politicians, every one of these nations is likely to endure a Greek-style fiscal crisis in the near future.

And keep in mind that these figures understate the magnitude of the problem. If you include unfunded liabilities, the debt levels are far higher.

So the obvious concern is how do you convince the politicians and voters in these nations that they better reform to avoid future fiscal chaos? How do you help them understand, as Mark Steyn sagely observed way back in 2010, that “The 20th-century Bismarckian welfare state has run out of people to stick it to.

Well, if you give additional bailouts to Greece, you send precisely the wrong message to the Italians, French, etc. In effect, you’re telling them that there’s a new group of taxpayers from other nations who will pick up the tab.

That means more debt, bigger government, and a deeper crisis when the house of cards collapses.

P.S. Five years ago, I created a somewhat-tongue-in-cheek 10-step prediction for the Greek crisis and stated at the time that we were at Step 5. Well, it appears my satire is slowly becoming reality. We’re now at Step 7.

P.P.S. Four years ago, I put together a bunch of predictions about Greece. You can judge for yourself, but I think I was quite accurate.

P.P.P.S. A big problem in Greece is the erosion of social capital, as personified by Olga the Moocher. At some point, as I bluntly warned in an interview, the Greeks need to learn there’s no Santa Claus.

P.P.P.P.S. The regulatory burden in Greece is a nightmare, but some examples of red tape are almost beyond belief.

P.P.P.P.P.S. The fiscal burden in Greece is a nightmare, but some examples pf wasteful spending are almost beyond belief.

P.P.P.P.P.P.S. Since we once again have examined a very depressing topic, let’s continue with our tradition of ending with a bit of humor. Click here and here for some very funny (or sad) cartoons about Obama and Greece. And here’s another cartoon about Greece that’s worth sharing. If you like funny videos, click here and here. Last but not least, here’s some very un-PC humor about Greece and the rest of Europe.

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I’m a pessimist about public policy for two simple reasons:

1) Seeking power and votes, elected officials generally can’t resist making short-sighted and politically motivated choices that expand the burden of government.

2) Voters are susceptible to bribery, particularly over time as social capital (the work ethic, spirit of self reliance, etc) erodes and the entitlement mentality takes hold.

Actually, let me add a third reason.

The first two reasons explain why countries get into trouble. Our last reason explains why it’s oftentimes so hard to then fix the mess created by statism.

3) Once a nation adopts big government, reform is difficult because too many voters are riding in the wagon of dependency and they reflexively oppose good policy.

Or they’re riding in the party boat, but you get the idea.

Now that I’ve explained why I’m a Cassandra, let me try to be a Pollyanna.

And I’m going to be Super Pollyanna, because my task is to explain how Greece can be saved.

I’ll start by pointing out that government spending has actually been cut in recent years. And we’re talking about genuine spending cuts, not the make-believe cuts you find in Washington, which occur when spending doesn’t grow as fast as previously planned.

This chart, based on IMF data, shows that the budget increased dramatically in Greece from 1980-2009. But once the fiscal crisis started and Greek politicians no longer had the ability to finance spending with borrowed money, they had no choice but to reduce the burden of government spending.

This seems like great news, but there’s one minor problem and one major problem.

The minor problem is that there hasn’t been nearly enough structural reform of the welfare state in Greece. For long-run fiscal recovery, it’s very important to save money by reducing handouts that create dependency, while also shrinking the country’s bloated bureaucracy. By comparison, it’s less important (or perhaps even harmful) to save money by letting physical infrastructure deteriorate.

The major problem is that controlling government spending is just one piece of the puzzle. There are five major factors that determine economic performance, with experts assigning equal importance to fiscal policy, trade policy, regulatory policy, monetary policy, and rule of law.

Moreover, not only is fiscal policy just 20 percent of the puzzle, it’s also important to understand that spending is just part of that 20 percent. You also have to consider the tax burden.

And the progress Greece has made on the spending side of the budget has been offset by a bunch of destructive tax increases.

But there is a glimmer of hope because Greek politicians apparently realize that this is a problem.

Here are some excerpts from the Wall Street Journal’s coverage.

Greek Prime Minister Antonis Samaras promised tax-relief measures to help jump-start the country’s economy and boost the government’s popularity as it faces a series of political challenges in the months ahead. “The overtaxation has to end,” Mr. Samaras said Saturday during a speech.

It’s easy to see why there’s a desire to boost economic performance.

Since entering recession in 2008, Greece’s economy has shrunk by more than a quarter… This year, however, the country is expected to emerge from recession and post growth of 0.6%. But the recovery has yet to trickle down to ordinary Greeks who continue to face a jobless rate of more than 27% and higher taxes imposed during the past few years.

However, don’t get too excited. The Premier isn’t talking about sweeping reforms.

Instead, it appears that the proposed changes will be very minor.

In his remarks, the Greek premier announced a number of tax changes, including a 30% reduction in the levy on home heating oil and amendments to a new unified property tax that has been so far marred by errors and miscalculations in implementation.

Geesh, talk about rearranging the deck chairs on the Titanic.

Indeed, at least one of the tax cuts may be designed to bring in more money for the government. The New York Times, for instance, reports that the energy tax didn’t generate any extra tax revenue.

That levy, which was introduced in 2012, raised the tax on heating oil 450 percent. But it has failed to bring in additional revenue and has led to environmental damage as Greeks turned to burning wood for heat.

I guess it’s progress that both the Greek government and the New York Times are acknowledging the Laffer Curve, but this is a perfect example of why it’s important to be on the growth-maximizing point of the curve rather than the revenue-maximizing point.

So why am I expressing a tiny sliver of optimism when the Greek government’s tax agenda is so timid?

Well, there’s at least some hope of bigger and more pro-growth reforms.

He also announced a reduction to a so-called solidarity tax on income, the size of which is to be determined when the state budget for 2015 is drafted in October. The changes would be part of a “road map” for lowering taxation with cuts to the property tax, income tax and corporate tax to come later, he said. “Overtaxation may have been necessary, but now it must stop,” he said.

And the Greek press is reporting further details indicating that the government wants to reduce marginal tax rates

Samaras said that it his ultimate aim to reduce the top income tax rate to 32 percent and for business to pay no more than 15 percent.

If these policies actually took place, then I suspect Greece’s economy would enjoy robust growth.

Particularly if policy makers also dealt with the major problem of excessive regulation (see here and here to get a flavor of the awful nature of red tape in Greece).

In other words, any nation can prosper if good policy is adopted.

Including Greece, though I must admit in closing that I suspect that there’s a less-than-15-percent chance that my optimistic scenario will materialize. And if you read this Mark Steyn column, you’ll understand why the pessimistic scenario is much more likely.

P.S. Click here and here for two very funny (or sad) cartoons about Obama and Greece. And here’s another cartoon about Greece that’s worth sharing.

P.P.S. Click here and here for some amusing Greek policy humor.

P.P.P.S. The IMF also has admitted that Greece is on the wrong side of the Laffer Curve.

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