What follows are verbatim quotes from Paul Krugman’s article today in the New York Times.
“Yes, there are big failings in Greece’s economy, its politics and no doubt its society.”
“Greece does indeed have a lot of corruption and a lot of tax evasion, and the Greek government has had a habit of living beyond its means.”
“Beyond that, Greek labor productivity is low by European standards — about 25 percent below the European Union average.”
From that Krugman concludes:
“But those failings aren’t what caused the crisis that is tearing Greece apart…”
“The Germans and the European Central Bank [must] realize that they’re the ones who need to change their behavior, spending more and, yes, accepting higher inflation…Greece will basically go down in history as the victim of other people’s hubris.”
In Krugman’s world, wherever that is, if a nation is ridden with corruption, allows extensive tax evasion and has a habit of living beyond its means for years, then when the money runs out it’s someone elses fault. With thinking like that the man could become president of the United States.
And then the economist turned journalist asks why the U.S. doesn’t have “the kind of severe regional crises now afflicting Europe?” His answer is “that we have a strong central government, and the activities of this government in effect provide automatic bailouts to states that get in trouble.”
So the reason America remains on a relatively sound footing is because we support failures automatically.
You can’t cure an alcoholic. It is something an alcoholic has to do himself. First he must recognize the problem; then he must be willing to endure the cure. Europe isn’t there yet on either count.
France has just chosen to go full bore Socialist, riots continue in Greece as the Neo-Nazis gain political favor and German voters are prepped to depose Angela Merkel. The nanny states with their unsustainable level of benefits are running out of money and the children are shouting like bloody murder for the continuation of their luxury. Reality is unacceptable so they are voting for promises. Apparently the pain has to get worse before Europe will be willing to suffer through the cure.
Some argue that the way out is to spend more to rev up the engine of government income which, of course, is greater tax revenue. The argument to spend more is based on the assumption that the problem is an economic recession. That’s understandable but this time it’s a false premise. The problem is not just another recession. The European private sector is not robust but it’s healthy. It’s only sovereign nations that are bankrupt. The wealth of a nation is derived from two sources, private assets and income that can be taxed and to a much lesser extent its mineral rights. Taken together the wealth is large but government’s capacity to spend is even larger. When nations face insolvency during a more or less normal economic sector down cycle, the problem is overspending, not the economy.
We learn from Mr. Krugman that he, and only he has the answer. There is the “Republican narrative and the German narrative. Neither story fits the facts.”
“The Republican story ….. is that Europe is in trouble because it has done too much to help the poor and unlucky,” This is a classic mischaracterization of Republican and conservative positions. Conservatives have just as much compassion for the truly poor and unlucky as anyone. The objection is to the creation of dependency and an unsustainable welfare state that extends well beyond the poor and unlucky to include a majority of the populace. The inimitable Denis Miller put it succinctly when he said “We just want some bona fides, that’s all”.
“[C]ountries that aren’t on the euro seem able to run large deficits and carry large debts countries that aren’t on the euro seem able to run large deficits and carry large debts without facing any crises. Britain and the United States can borrow long-term at interest rates of around 2 percent; Japan, which is far more deeply in debt than any country in Europe, Greece included, pays only 1 percent… Britain and the United States can borrow long-term at interest rates of around 2 percent; Japan, which is far more deeply in debt than any country in Europe, Greece included, pays only 1 percent.”
What’s that Paul,“without facing any crises” There’s the rub. What must it take to get Mr. K to see a pending crisis? George Osborne holds the position of Chancellor of the UK, a position similar to that of our Treasurer.
The Government ‘has run out of money’ and cannot afford debt-fuelled tax cuts or extra spending, George Osborne has admitted. In a stark warning ahead of next month’s Budget, the Chancellor said there was little the Coalition could do to stimulate the economy. Mr. Osborne made it clear that due to the parlous state of the public finances the best hope for economic growth was to encourage businesses to flourish and hire more workers. “The British Government has run out of money because all the money was spent in the good years,” the Chancellor said.
As far as the U.S. is concerned we already know Krugman’s position is to keep increasing the level of spending until it gets us out of debt. It’s my blog but I am a generous chap so I’ll give the famed economist the final word… which is –
“The next time you hear people invoking the European example …. here’s what you need to know: they have no idea what they’re talking about.”
THE PARTHENON, 2 MILES and 26 CENTURIES AWAY
Right across the street from the Parliament building in Athens there stands an outdoor café. Many times I have sat and sipped Ouzos at that cafe watching the changing of the guard as one stoic protector of the palace replaced another. They strut and stomp across the plaza then placidate themselves in front of those little wooden houses that look like they belong more in cartoons rather than standing as bastions of government. There are two guards. Each carries an unarmed rifle. They don’t protect anything of course; it’s a show, a demonstration of sorts.
I wonder where they are now. Today the demonstrations are in the same place but they are of a different kind. There are fires on the plaza. Did they burn those silly little guard houses, I wonder. I do know, however, that the protesters burned the German flag. They didn’t burn the German flag because Germany contributed more funds than any other European nation to help Greece out. They burned the flag because Germany stopped. Feed a hungry bear and he will lick your hand. Stop and he will bite it off.
The root problem in Greece is not financial; it is cultural. If the Soviet Union was the triumph of Communism, then Greece is the triumph of Socialism. The country has a history of economic distress. In 1922 the government decreed that 50% of all privately held money in banks had to be given to the government. The national treasury gave bonds in exchange, to be repaid on 20 years with a nominal interest rate of 6 ½ %. Neither interest nor principle were ever paid. The people bailed the country out, involuntarily. It happened again in 1926, four years later another bailout. In 1932 the country declared a moratorium on their international debt. Bailed out again, this time by the international community, again involuntarily.
Should the world do it again? For humanitarian reasons, perhaps we must, but for how long and how much. Philanthropy overdone eventually becomes license for continued misbehavior. It is Europe’s problem and Europe is doing its best to solve it. Germany enjoys the largest and strongest economy in Europe so the cross falls primarily on the German people to bear. We empathize. We have been there.
The magazines and newspapers in Europe are filled with stories pronouncing the end of capitalism. They hold globalization and the free market system responsible for the financial crisis that has beset them. It is greed in the private sector that threatens the continuation of the welfare state, they say. There is no thought that it may be greed that drives the protesters who want to be carried by someone else’s life savings rather than work a little bit longer and create a little bit of wealth of their own.
To those who say capitalism is the cause, I have a few questions to ask. When you retired from your government job at age 55 with a pension large enough to live on, where did the money to pay you come from? With the free medical care you have enjoyed for most of your life, where did that money come from? With free public education for your children and heavily subsidized university tuitions, where did that money come from? Do you know? Do you care?
Your government didn’t create it. It was generated by the capitalist system you seek to end. If you are successful what is your plan for a better system that will generate greater wealth, enough to continue and sustain and the benefits you have been enjoying and refuse to sacrifice?
The most absurd claims are the claims you read in the Greek papers, claims that Germany is to blame for the bankruptcy of Greece. By that reasoning, I could buy a yacht for myself and blame you, dear reader, if the yacht is taken away from me because you wouldn’t pay for it. Now that’s greed.
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Quote of the day
”The truth is we have too few jobs today because government stands in the way. If I’m an employer, why would I want to hire someone when Congress and the Labor Department have so many rules that I might not be able to fire that person if he can’t do the job? Why would I take a risk on an investment when still-to-be-written rules about Obamacare, financial regulation and the environment could turn my good idea into a losing venture?” John Stossel
From the You-Can’t-Make-This-Stuff-Up Department
The State of Oregon was a five million dollar gold star by the Obama administration for putting more people on the Food Stamp program. This is not to cover the cost, mind you; it’s a cash bonus for performance. What’s next, a ten million dollar reward to New York if they increase the crime rate?
The skids are being Greeced and the European Union will slip by without breaking up – this time. That’s our opinion, but it’s a squeaker. It certainly wasn’t conservative policies of spending within your means or rule of law that got the European nations into their mess. But it’s conservative policies that will get the public blame. The left will see to that. Sarkozy of France and Merkel of Germany are in big trouble with the voters already and the final deal is yet to be signed.
From Power Line
Blagojevich will be the fourth former governor of Illinois to go to jail since 1973. It is quite remarkable that President Obama has been able to avoid any significant association with the political culture from which he emerged.
About Michelle Bachmann
No, she is not a flake. She is, however, a gaffe a minute. The MSM would love to see her become the Republican candidate. I am concerned that she could suddenly blow it they way Howard Dean did. Pawlenty polls far below Bachman nationally but well ahead of her in Minnesota where they are both very well known.
Gross Domestic Product (GDP) is a measure of the size of a national economy. Comparing a nation’s level of debt to the size of their economy is a measure of prudence
in the level of borrowing. It is also a measure of their ability to make good on their loans.
We all know that Greece is deep in a pile of organic fertilizer; but few seem to realize the United States is headed even deeper. Here are some samples of debt as a percentage of GDP according to the IMF. Portugal 83, Ireland 94, Iceland 116, Greece 143. Germany and France are 74 and 82 respectively. The Congressional Budget Office currently puts the United States at 93 percent and projects it to be 140% in 1928 and 190% by 1935. And you know no one is going to bail us out.
It is no winder the Democrats have not met their obligation to present a budget for 2 ½ years. It would mean they would be held responsible following in the footsteps of Greece.
Excerpts from European Union: A coalition of irresponsibility by George Will as published in the Washington Post.
- By socializing the consequences of Greece’s misgovernment, Europe has become the world’s leading producer of a toxic product — moral hazard. The dishonesty and indiscipline of a nation with 2.6 percent of the eurozone’s economic product have moved nations with the other 97.4 percent — and the United States and the International Monetary Fund — to say, essentially: The consequences of such vices cannot be quarantined, so we are all hostages to one another and hence no nation will be allowed to sink beneath the weight of its recklessness.
- Recklessness will proliferate.
- [T]he European Union is neither a state nor sovereign enough to enforce its rules: No euro-zone nation is complying with the E.U. requirement that deficits not exceed 3 percent of gross domestic product.
- The European Union has a flag no one salutes, an anthem no one sings, a president no one can name, a parliament (in Strasbourg) no one other than its members wants to have power (which must subtract from the powers of national legislatures), a capital (Brussels) of coagulated bureaucracy no one admires or controls, a currency that presupposes what neither does nor should nor soon will exist (a European central government), and rules of fiscal behavior that no member has been penalized for ignoring.
There is nothing I dare add after the eloquence of George Will.
The Greek leader has said he might consider suing American banks as responsible for Greece’s insolvency. This is not as stupid as it sounds. Papandreou knows the lenders are not responsible for his nation’s virtual bankruptcy. He also knows his popularity is plunging and he must focus the anger of the Greek people away from himself if he is to have any hope of continued political power.
There lies throughout Europe an underlying resentment of America and a distrust of banks, Wall Street and capitalism. They serve well as straw men toward which the arrows of public discontent may easily be deflected. The idea of suing the banks may be absurd on its merits but at the same time a wise step for the man who put it forth. This is the mud of which the building blocks of a political house are formed.
This one is for Citibank! And the people cheered.
Nor does it appear the man is fighting a lost cause. Papandreou’s popularity has sunk below 50% but he still leads his closest opponent by 17%. His chances for re-election appear good. In a nation with multiple parties a plurality is all that’s needed.
One should not be too quick to take a politician’s actions at face value. There is an old joke that asks, “How can you tell when a politician is lying?” The answer is “His lips are moving.”
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