The further to the left or the right you move, the more your lens on life distorts.

Thursday, September 27, 2012


The main stream media has spent very little time and virtually no contextual analysis reporting on the rising social unrest in Greece and Spain. Both countries are near bankruptcy, crippled by debt that has been caused by government, entitlement, and public sector pension spending over multiple decades. The Independent, a media outlet in the U.K., reports:
Police fired stun grenades and tear gas at protesters yesterday as tens of thousands poured into the streets of Athens as part of a nationwide strike to challenge a new round of austerity measures that are expected to cut wages, pensions and healthcare once again.

Dozens of youths, some masking their faces with helmets and T-shirts, hurled Molotov cocktails and rocks at police who fired back in an effort to scatter the angry crowds around the parliament building. More than 50,000 people are believed to have participated in the mass walk-out in Athens alone.

Hospital doctors, pensioners, teachers and shopkeepers were among the demonstrators that participated in over 60 rallies throughout the debt-ridden country. Even the president of Greece's police officers participated in the trade union march in Athens alongside uniformed colleagues from the fire department and coastguard.
And this from Reuters:
Violent protests in Madrid and growing talk of secession in Catalonia [a rich province that is being taxed heavily] are piling pressure on Spanish Prime Minister Mariano Rajoy as he moves closer to asking Europe for rescue money.

In public, Rajoy has been resisting calls from bankers at home and the leaders of France and Italy to move quickly to request assistance, but behind the scenes he is putting together the pieces to meet the stringent conditions for aid.

With protesters stepping up anti-austerity demonstrations, Rajoy presents painful economic reforms and a tough 2013 budget on Thursday, aiming to persuade euro zone partners and investors that Spain is doing its deficit-cutting homework despite a recession and 25 percent unemployment.
Of course, the events in Greece and Spain couldn't possibly happen in the US over the next decade, could they? After all, our debt is low. Our entitlements are financially stable. Our leadership recognizes the potential problems and has acted decisively to cut spending and reduce the deficit.

Oh wait, none of those things are true!

As a percentage of GNP, our debt will approach that of Greece is just a few more years under the budget projections proposed by a second Obama administration. And since our President has proposed nothing meaningful to correct the financial instability of our major entitlements, they will likely go into default over the next decade. And unlike Greece and Spain, there won't be anyone around to bail us out.

On the positive side, at least the leaders of Greece and Spain have recommended real and substantive spending cuts in an effort the avoid default. They had the courage to face their people and do something that is necessary, if very unpopular. It would have been encouraging to have seen the same courage from Barack Obama, but instead, he takes the easy road politically. If we just tax "millionaires and billionaires" and cut "waste and abuse" (the only specific recommendations that President Obama has made) all of our financial woes will be mitigated. The math is weak, but who cares, it sounds so good and it may very well get an incompetent leader re-elected.

Are the news stories presented above a harbinger of what might happen in the United States over the next 10 years? To paraphrase a well-worn quote: "Those who refuse to learn from economic events in Europe, are doomed to repeat them."

Update (9/27/12):

Sure, taxing the rich as a method for reducing skyrocketing deficits is a great idea with no other economic consequences. Just ask France's Socialist President François Hollande who just raised tax rates precipitously. This from France 24:
French unemployment topped three million for the first time in over a decade, data showed Wednesday, as the country faces a yawning budget gap like those plaguing its southern eurozone neighbours.

The number of jobless in mainland France swelled to 3.011 million in August, 23,900 more than in July, Labour Ministry figures showed, the first time since 1999 that the figure has breached the three million mark.
Of course, the French President, like his kindred American counterpart, takes absolutely no responsibility, suggesting the past leaders are to blame. Sound familiar?

Update (9/28/12):
Paul Krugman is a man who never saw a deficit he didn't think could be remedied by more government spending. It took the Left-wing economist only a day to write a NYT op-ed titled: "Europe’s Austerity Madness."

Krugman argues that there's too much austerity in Europe and writes:
Why, then, are there demands for ever more pain [via spending cuts in Europe]?

Part of the explanation is that in Europe, as in America, far too many Very Serious People have been taken in by the cult of austerity, by the belief that budget deficits, not mass unemployment, are the clear and present danger, and that deficit reduction will somehow solve a problem brought on by private sector excess.
So, those of us "Very Serious People" who worry that astronomical debt may have a negative impact on the country's ability to perform it's vital functions are members of a cult of austerity? We worry that people who depend on the government (think 47%) will be in big trouble when the money begins to run out, and that the burden on our children and grandchildren will become onerous. But we're the one's who are being irresponsible?

Now, I'll admit that I've only taken Econ 101 and 102 in college, but I have run a successful business, understand math, and have observed government spending as an adult for more than four decades. On the other hand, Krugman won a Nobel prize in economics, yet again proving that the Nobel committee makes mistakes.

As a rank amateur, it seems to me that even bigger government with even more spending results in more debt and requires more taxes (just ask Barack Obama and his supporters). Those taxes will extract more money from more people who might otherwise spend it in the private sector. If they were allowed to keep their money, they might spur ecomomic growth through personal spending and investment, thereby creating more jobs that would have resulted in more tax revenue for the government. But because those jobs don't materialize, taxes from those jobs don't materialize, and the government has even less money, resulting in higher deficits, and more debt. But no worries, following Krugman's bizarro-world logic, that means even more government spending.

There's a frightening element of recursion in all of this. When taken to its limit, Krugman's recommendation will lead to ruin.