A Cartoonish Caricature About the Cause & Nature of “Austerity” in Europe

Søren Søndergaard, a Danish member of the European United Left/Nordic Green Left group & Member of the European Parliament, provides a caricature of assertions about “austerity”. His recent contribution to a European web-based information service (“Europe descending into ‘survival of the fittest’ neoliberalism“) is woefully lacking in substance.

Mr. Søndergaard provides no evidence that neo-liberalism (a term he left undefined) is running rampant in Europe/EU: where are the widespread privatization; deregulation; even decrease in % of GDP claimed by States?

He suggested that the “bloated welfare state” is being blamed but gives no counter-argument as to why it deserves NO blame or even less blame…? Regardless of one’s ideological disposition, there must be an explanation for the cause of the sovereign-debt crisis that afflicts so many EU member countries.

Mr. Søndergaard refers to a “savage austerity offensive on the public sector” but the reality is that there has been a decrease in the rate of increase of public-sector spending, at most. In all events, so-called austerity is nothing more than trying to correct unsustainable imbalances based upon political commitments that do not match economic realities.

Finally, his suggestion that there should be a wave of social & political disruptions to sweep across Europe/ EU is irresponsible. Anyone that exercises this sort of lapse of judgement reveals himself to be unfit to serve in public office.

Thoughts on Democracy

“Many forms of Government have been tried & will be tried in this world of sin & woe. No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of government except all those other forms that have been tried from time to time.”
~Winston Churchill~ Speech in the House of Commons, November 1947

Markets do not have to be “efficient” to be stable

“What is just cannot be inefficient, & what is efficient cannot be unjust. A dynamic analysis reveals that justice & efficiency are but two sides of the same coin, which also confirms the consistent, integrated order that exists in the spontaneous social universe of human interactions.” Jesus Huerta de Soto (“Four Hundred Years of Dynamic Efficiency”) speaking on contributions to economic theory of Spanish scholastic theologians, especially those from the School of Salamanca: http://mises.org/daily/3912

Curing the “Great Recession” Requires Correct Diagnosis

Most mainstream economists believe that ever-larger “stimulus” policies are needed to fix the economic mess that began in 2008. Despite experiments with massive & repetitive deficit spending accompanied by artificially-suppressed interest rates that remain at historic lows, it has all been to little or no avail. The “recovery” that supposedly began in December 2010 has not been able to generate a substantial economic rebound or sufficient job growth.

The problem is that there has been a misdiagnosis of the cause of the US housing “bubble” & the continued slump.

A better understanding begins with tracing the impacts of an inflationary bank credit expansion based on interventions by central banks that began as early as 1997. Taking “loose” credit & money out of the picture, there could not have been such an overshoot in housing prices in the US unless prices of some or most other things went down. Clearly, that did not happen.

Throughout modern history, central bank induced inflationary booms have ended with an inevitable recession, as we are experiencing now. Since the economic downturn began with the initial manipulations of interest rates & supply of credit & money, interfering with necessary adjustments & liquidations of poorly-advised investments will only make matters worse.

In propping up prices & unsound business situations (did someone mention, GM? AIG?), what might have been a short, sharp shock is converted into a lingering & chronic downturn.

Instead of trying to promote more consumption spending or investments that will become unprofitable once interest rates go up; there must be more saving to provide sustainable support for future investments.

Alas, politicians and central bankers have been doing exactly the opposite. Consequently, old bubbles as seen in the housing market are now being replaced by mini-bubbles in the stock and bond markets.

Central banks excel at one thing–“forever blowing bubbles!!!”

Less Need for Alarm about Global Warming…?

It seems that the alarm over climate change, aka, global warming was exaggerated or what…?

At least that is apparent conclusion tucked away in a report by the UK Met Office that has been one of the most outspoken supporters of sending out alarm bells over so-called antroprogenic climate change (aka, man-made global warming).

The accompanying graph suggests there is no upward trend between 1997 & 2012. And that, despite the fact that CO2 emissions over that period increased substantially…?

“This means that the ‘plateau’ or ‘pause’ in global warming has now lasted for about the same time as the previous period when temperatures rose, 1980 to 1996. Before that, temperatures had been stable or declining for about 40 years.”

Bringing back the “barbarous relic”!?!

There are initiatives in Switzerland for a referendum on preserving the stock of gold within Switzerland’s borders & another one that would introduce a “gold franc”.

While most mainstream economists, especially those not confined to the loony-bin, view the reintroduction of a gold (or any commodity) standard as anathema, others see it as a panacea for many ills.

For example:
“The creation of a Gold Swiss franc & the free coinage thereof, along with the repeal of taxation by the US of gold & silver coins used as legal tender, would liberate market participants to generate spontaneously a new monetary order. With government barriers removed, people all over the world will find ways to use gold-backed money to facilitate the exchange of goods & services with their counterparts anywhere in the world, & to engage in saving & investing, lending & borrowing using monies whose value would be anchored in the remarkably stable & trustworthy purchasing power of gold.”

That restoring sanity to the global might be a good idea can be found in a recent paper by the Bank of England that does not support a gold standard, but the authors do point out the serious problems of instability within the global monetary system.

The High Price of Hugo Chavez’s Victory in Venezuela

The re-election of Hugo Chavez as Venezuela’s president by polling just over 54% of the vote against Henrique Capriless with almost 45% is another case of wishful thinking over experience.

There are no surprises since this electoral outcome was pre-ordained by a strongman-ruler that has been in power for 13 years, enough time to hold sway over judges, electoral commissions & most of the media.

In all events, populism insures that there can be short-term rewards from feeding the masses with “seed corn” that is an immoral inter-generational transfer from future generations to those that today are consuming the birthright of the unborn.

It can be said that Chavez’s “Bolivarian Socialism” has reduced poverty & mostly eliminated extreme poverty & reduced illiteracy with state-provided welfare transfers to large swathes of the population.

No doubt this is why so many voters ignored the diminution of capital & wealth. What is more surprising that they willfully ignored the ruinous effects of price inflation, shortages of basic commodities, power/water outages & rampant urban crime.

Among other failures is that Venezuelans experience a black market in their currency, the bolivar, something that for most people is an historical artifact of the bad old days of communist autarky. That is except in Argentina, where President Cristina Kirchner, one of Hugo’s allies in Argentina has accomplished this same dubious feat by relying upon similar populist fantasies .

US Central Bankers to “The 99%”: Drop Dead!!!

While the share of US households owning stocks rose from just under 37% in 1992 to just over 51% in 2007, those with lower incomes were much less likely to be shareholders.

As such, people with middle class incomes or below do not invest in equities or hold them as a fraction of their wealth in mutual funds or some other investment vehicle.

It turns out that central bank policies that continue to hold interest payments at artificially low rates tend to worsen income disparities in favor of those with higher incomes.

This is because such absurdly-low interest rates create an incentive for people with deep pockets to take on additional risk in their asset portfolios. Similarly, financial institutions are also encouraged to have a greater risk profile on their credit positions, something that the crash of 2008 suggests is a very bad idea.

Investors required by law or covenant to hold risk-free assets or retirees or people on fixed incomes or financially conservative individuals and institutional investors are out of luck. For them, the real return on 5-year US Treasuries over the past decade (adjusted for the CPI or GDP deflator) fell from 3% at the beginning of 2002 to -1% (negative, as in less than zero!) by July 2012.

In sum, they are making losses of 1%, year-on-year.

Over the past 10 years, it ain’t been much better since the average annual real return on 5-year US government notes was only 0.6% & 0.8%.

It is hard to make a coherent case for US central bankers looking after the best interest of most citizens.

In fact, the biggest beneficiary of artificially-low interest rates is the US federal government that would have to cut spending dramatically if interest rates were at their long-term rates of about 3%.

“I am a government official: A manifesto for the entitled”

Washington Post columnist, Steven Pearlstein, offers a vapid & smirky set of comments about corporate executives (“I am a job creator: A manifesto for the entitled“).

He reveals his confusion by conflating corporate execs with entrepreneurs.

In all events, here is a retort to his absurdist claims:

“I am a government official: A manifesto for the entitled”

I am a government official.

I own nothing that is put at risk by my actions & taxes taken from my income make no net contribution to the pool of tax revenues.

I am a civil service bureaucrat.

I am granted attributes that defy reality, e.g., that my actions create wealth or contribute to prosperity even though the incentives that I face make this almost impossible.

I am a welfare recipient and I am entitled.

I am entitled to demand more even if the private economy underperforms & insist that there can never be reductions in the largess that I receive.

I am entitled to receive transfers from others in the workforce, to be subsided to use mass transportation systems, and I am entitled to demonize those taxpayers that provide these things for me.

I am entitled to complain bitterly about any challenges to the political status quo that might undermine or reduce these handouts.

I am entitled to implement a preferential system even if that means violating the underlying law of contracts.

I am entitled to complain about wanting more services provided by taxpayers even though they are provided through inefficient government agencies.

I am entitled to compensation that increases at a more rapid rate than growth of the private-sector economy that ultimately must be the source of any new jobs or wealth to support higher revenues needed to cover my costs.

Depending on my position, I am entitled to have taxpayers pay for breakfasts and lunches, chauffeured cars and jet travel, while all my colleagues in government service are in a pension plan that is far more generous than available to most taxpayers.

I am entitled to “forget” to pay my income taxes without suffering any consequence, except a temporary flurry of disquiet expressed in the Media.

As a member of Congress or Senate, I am entitled to use insider information to make favorable investments not available to ordinary citizens, however, I never brag about my investment returns.

I am entitled to pass on my gold-plated pension that can claim to be entitled to such largess.

I am entitled to use unlimited amounts of taxpayers’ funds to buy elections by implementing policies that are cloaked under the guise of the “common good”.

I am entitled to use taxpayers’ funds to burnish the impression that it is my own actions that lead to charitable outcomes.

I am entitled to be a radical, uncompromising politician and then complain about how dysfunctional Washington has become.

Although I am part of the government, I am entitled to ignore the constraints that are imposed by the Constitution.

I am entitled to criticize and demonize high-income earning citizens for their reluctance to continue contributing to the never-ending expansion of growth of government spending and waste.

I am entitled to fire any worker who tries to organize a union. I am entitled to break any existing union by moving, or threatening to move, operations to a union-hostile environment.

I am entitled to a duty of care and loyalty from citizens & taxpayers while I feel no such duty to return this respect.

I am entitled to impose new government regulations regardless of compliance costs, even if it forces firms to close and jobs to be lost.

I am entitled to load up abusive amounts of public-sector debt in order to buy influence and political, blaming any failures on anything else other than.

I am entitled to contracts, subsidies, tax breaks, loans and even bailouts from government, even as I complain about job-killing government budget deficits.

I am entitled to reform federal entitlements as long as it supports my populist agenda.

I am entitled to take credit for all the jobs I pretend to “create” while ignoring any jobs destroyed by the regulations or public policies I support.

I am entitled to claim credit for a booming economy but blame the private sector when there are job losses or setbacks from adverse market or economic conditions that I had a hand in causing.

I am entitled to deny knowledge or responsibility for any controversial decisions made after my departure from government service, secure in the generous perks that I take with me.

I am entitled to ignore corruption & waste yet insist that taxpayers, especially the “rich”, must pay more.

I am entitled to all the rights and privileges of being a part of the “ruling class” but owe no loyalty to American taxpayers and only those workers that are members of groups whose financial & electoral support I seek.

I may be entitled to confidential information about American citizens or companies.

I am entitled to be treated with deference and respect by citizens that I mislead, taxpayers that I screw out of money, judicial officials that I deadpan and military personnel that I view as expendable.

I am entitled to be lionized in the media without answering any questions from reporters that tend to be ill-informed about the impact of legislation that I pass or regulations that I oversee.

I am entitled to VIP treatment as part of the political establishment.

I am entitled to demand almost everything you have; that is far more that I deserve & denounce you for trying to keep the fruits of your own efforts by saying you do not pay your “fair” share.