-
The Incredible Shrinking Monsieur Hollande
May 7, 2013 | 11 comments
-
Islam and the Closing of the Secular Mind
September 19, 2012 | 97 comments
-
A Book That Changed Reality
August 15, 2012 | 5 comments
-
The Prophet of Europe’s Crisis
July 2, 2012 | 9 comments
-
Europe’s Right in Disarray
May 7, 2012 | 71 comments
A Further Perspective
Why Austerity Isn’t Enough
First of all, it’s not austerity to raise retirement age by two years or cut public spending to 41 of GDP.
No more austerity! Judging from recent European election results, that’s the message presently being shouted at European politicians all over the old continent. It’s a mantra echoed across the Atlantic by Americans such as Paul Krugman. Austerity, they argue, isn’t just ineffective as a solution to Europe’s economic woes. It’s also providing, so they say, conservatives with the cover they need to do what they’re always wanted to do: dismantle by stealth that most sacred of social democratic cows — the welfare state.
Much depends, of course, on what’s meant by “austerity.” Strictly speaking, the type of austerity being pursued in most European countries is primarily focused on long-term government debt-reduction. This translates into tax increases and spending cuts. Part of the object of the exercise is to convey to creditors a serious intent on the part of governments to meet their present financial obligations, thereby allaying concerns they might default on their existing — and extensive — liabilities.
Here, however, it’s useful to put European expectations of what constitutes austerity into perspective. Does France’s raising of the official retirement age from 60 to 62 really constitute “hardship”? Does Greece’s effort to reduce its public sector payroll expenses from a 2009 high of 55 percent of state revenues to something close to the 40 percent figure recorded in 2000 represent “privation”? Does the British government’s 2010 plan to return public spending to 2006 levels of a mere 41 percent of GDP suggest that David Cameron is “gutting” the welfare state? Please.
Leaving aside, however, many European governments’ modest conceptions of fiscal restraint, there is a case to be made that austerity alone won’t be enough to facilitate the growth needed to pull Europe out of its economic black-hole. Restoring sanity to public finances is one thing. Wealth creation is quite another.
The standard Keynesian argument is that economic downturns necessitate government stimulus packages. Unfortunately, the track record for stimulus programs — Exhibit A being the Obama Administration’s 2009 injection of a trillion (borrowed) dollars into America’s economy — doesn’t provide many grounds for optimism.
But the lesson of successful economic reform programs — Sweden, ironically, being a good example — is that stabilizing or reducing government debt and spending isn’t enough. You also need substantial economic liberalization: i.e., measures such as deregulating labor markets and removing other barriers that inhibit competitiveness, discourage entrepreneurship, and thereby unduly restrict an economy’s growth-capacity.
There is considerable evidence suggesting that the prevalence of high labor costs and regulations in many European countries contributes significantly to their relatively low productivity levels. Many European businesses actually choose to stay small because of the heavy regulatory environment and often-compulsory unionization immediately imposed on many businesses once their employees exceed a certain number.
According to France’s 3,200 page Code du Travail, for example, any company inside France that exceeds 49 employees is legally obliged to establish no fewer than three worker councils. If such businesses decide they need to let go some employees, they’re required to present a reorganization plan to all three councils. Is it any wonder that many French businesses simply don’t bother expanding their employee base, a factor that often inhibits their capacity to generate more wealth?
Unfortunately for Europe’s other problem children, it’s precisely in these areas that little reform has occurred. In April, for instance, Italy’s Prime Minister Mario Monti tried to change the law that essentially forbade businesses with more than 15 full-time employees from dismissing staff. Monti’s goal was to substitute a situation of jobs-for-life for some and perpetual insecurity for others, with severance provisions for people let go on economic grounds. Under pressure from Italian unions, however, Monti’s proposal was watered down to uphold the extensive powers enjoyed by courts to investigate whether a company’s decision to fire someone was justified. This guaranteed maintenance of the status quo.
Needless to say, Greece is Europe’s poster child for reform-failure. Throughout 2011, the Greek parliament passed reforms that diminished regulations that applied to many professions in the economy’s service sector. But as two Wall Street Journal journalists demonstrated one year later, “despite the change in the law, the change never became reality. Many professions remain under the control of professional guilds that uphold old turf rules, fix prices and restrict opportunities for newcomers.” In the words of one frustrated advisor to German Chancellor Angela Merkel, “Even when the Greek Parliament passes laws, nothing changes.”
Politics helps explain many governments’ aversion to reform. Proposals for substantial deregulation generates opposition from groups ranging from businesses who benefit from an absence of competition, union officials who fear losing their middle-man role, to bureaucrats whose jobs would be rendered irrelevant by liberalization. The rather meek measures that Europeans call austerity have already provoked voter backlashes against most of its implementers. Not surprisingly, many governments calculate that pursuing serious economic reform will result in ever-greater electoral punishment.
In any event, America presently has little to boast about in this area. States such as Wisconsin have successfully implemented change and are starting to see the benefits. But there’s also fiscal basket-cases such as (surprise, surprise) California and Illinois that continue burying themselves under a mountain of debt and regulations.
America’s national debt situation is even more sobering. The Congressional Budget Office recently stated that by the end of 2012 “the federal debt will reach roughly 70 percent of gross domestic product, the highest percentage since shortly after World War II.” Without major policy changes, it added, America is on track to realize a national debt-to-GDP ratio of 93 percent within ten years. Several studies suggest that it’s at this level that public debt starts to undermine an economy’s growth-capacities.
Yet former Administration heavyweights such as Larry Summers are actually calling for more government borrowing. As for deregulation, the current Administration is hardly going to alienate those interest-groups whose support it desperately needs in an election year. More importantly, it’s manifestly not philosophically-inclined to freedom-orientated solutions to economic problems.
And perhaps, in the end, that’s what it’s all about. Most of Europe’s political class — and many of their American equivalents — have no faith in people’s economic creativity or their ability to assume responsibility for themselves and their families. Nor do they trust civil society to help those genuinely in need. Moreover, despite generating unsustainable debt and failing to pursue growth-orientated reforms, they remain utterly convinced they know better.
Of course, it may be that many ordinary Europeans also remained wedded to the social democratic myth of eternal security through endless government. As Edmund Burke once lamented, “Among a people generally corrupt, liberty cannot long exist.” If so, then much of Europe is doomed to steady economic decline and dissatisfaction. The question is whether enough Americans have effectively succumbed to European-like expectations, or if they have the gumption to actually embrace the liberty they talk so much about.
On that issue, I’m afraid, the jury’s still out.
About the Author
Samuel Gregg is Research Director at the Acton Institute. He has authored several books including On Ordered Liberty, his prize-winning The Commercial Society, Wilhelm Röpke’s Political Economy, and, most recently, Becoming Europe: Economic Decline, Culture, and America’s Future.
Letter to the Editor View all comments (26) | Leave a comment
More Articles by Samuel Gregg
More Articles From A Further Perspective
http://spectator.org/archives/2012/06/08/why-austerity-isnt-enough
Follow us:
ADVERTISEMENT
Current Issue
- What’s in a Name?
- Ailes: A Voice for the Silent Majority
- The Demise of Money and Credit
SPONSORED LINKS
FLASHBACK TO: 1995
-
Pope Culture
A man of faith in a godless age is hitting Americans where it hurts.
-
Why the GOP Does Not, Like, Totally Suck
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
-
Dames at Sea
-
In the Absence of Guns
In Britain, defending your property can get you life.
-
The Metaphysical Martini
-
Counting the Costs of Clintonism
The debacle of this president’s administration is both a cause and a symptom of the decline of American values. Unless Congress impeaches him, that decline will go on unchecked. An eminent jurist surveys the damage and assesses the chances for the recovery of our culture.
-
Chuck McHagel
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
-
The Legacy of Old John and Mother Fresh-Roasted
-
It’s the Best Time of the Year
The American Christmas, like the songs that celebrate it, makes room for everybody under the rainbow. Is that why so many people seem to be hostile to it?
-
The Bush Crack-Up
Was the President done in by the economy, or by the politics of the economy?
Clip of the Day
ADVERTISEMENT
Appleby| 6.8.12 @ 6:52AM
In the end there's only one solution to Socialism: stand back and let it crash. Yes, it will be as painful as Samson's destruction of the Temple, but the only thing that will convince the screaming, flailing socialist kiddies that the earthquake will take down their house is to let'er rip and leave them standing in the ruins. As Heinlein and many others have observed, there is no cure for stupid, and Mother Nature has a way of thinning that segment out of the herd that is often concluded, in many places in the Bible, with "and great was the fall thereof."
If you would like to read a poem over the ruins, I suggest Carl Sandburg's "Four Preludes on Playthings of the Wind." (I know some people prefer Dover Beach, but I think the former is more to the point.)
And if you are one of those who starts screaming "What about the Children?" as soon as the joint starts rocking and the rocks start rolling, well, Daddy used to say that he didn't worry about the bullet with his name on it; it was all those bullets marked "to whom it may concern." Y'all started the shooting; look out for the riccochet.
Petronius| 6.8.12 @ 8:58AM
Remember that post with the full text of The Gods of the Copybook Headings? They "with terror and slaughter return."
JD| 6.8.12 @ 12:00PM
The Atlas Shrugged ending, huh? I suspect that Rand was actually wrong about that - even if conservatives completely withdraw from the world, the Left will STILL find a way to blame them for all the problems.
Appleby| 6.8.12 @ 3:32PM
Doesn't matter whom they blame; we will know we didn't do it and anyway, we won't be listening.
TLP| 6.8.12 @ 7:01AM
First of all, and right out of the gate: California and Illinois are not representative of America, any more than the Upper West Side of Homo World, does.
In fact, the only resemblance that these two states share with the rest of us, is the number of Blacks born to a Simgle Ho, with no "Baby Daddy" (there are no Black MEN) who then proceed to Drop out of School, pick up a Gun, and end up in Prison. And, all of the Mexicans standing on the Corner. (But at least, these guys are LOOKING FOR WORK!)
Economics is not a Zero Sum Game. Austerity MUST Happen, and I don't see the same Bogeyman, that all of these Geniuses seem to see.
If you were to reverse EVERYTHING, that The Muslim has done, we could get there, in the blink of an eye, with the Firing of every New Government Employee, as a good 1st step.
Drill everywhere. Build the Pipeline. Get rid of every single REGULATION, put in place by that Communist Ccksckr -Cass Sunstein.
Let the Farmers, out West, have the WATER they need to grow their Crops. Get Rid of the NLRB. Stop using the EPA as the GESTAPO.
Implement a FLAT TAX for "EVERYBODY", getting rid of all Deductions. We cannot survive as a Nation With half the population paying NOTHING.
Make our Corporate Tax, one of the Lowest in the world, instead of THE HIGHEST.
Stop with the Double Taxation on the Money that Corporations have made Overseas.
Elliminated PENSIONS for all Public Employee Unions. They can sign up for 401Ks, just like the rest of us.
Class dismissed.
Mimi | 6.8.12 @ 11:11AM
Tim...Dr. Right said you should be advising the Romney campaign...I agree...They should hire you!
Somebody please send Romney Tim's POSTS...and Hurry!
Quartermaster| 6.8.12 @ 7:10PM
Romney is enough of a warmonger his ownself and doesn't need any help. The country is better off leaving TLP to rave in this little corner of the world.
Truth to Power| 6.8.12 @ 8:46PM
It is time to listen to Rand Paul.
Warrior| 6.10.12 @ 10:39AM
Romney is more of a political chameleon, his position on the issues changes with the audience he is speaking to. His true foreign policy stance really can't be determined until he takes office.
Von Mises Jr| 6.8.12 @ 8:31AM
Von Mises taught that there is no "Third Way" where you mix capitalism and socialism to create a hybrid. You are either a capitalist economy or you are socialist.
Fortunately, America is still predominantly a capitalist model. We still have free speech, private energy producers, relatively free insurance, other than GM and GE we have private manufacturing, and we still have many attributes of free market health care.
This is why Solyndra, GM and Wall Street bailouts, and ObamaCare repeal are critical.
By contrast, Europe does not have a thriving energy sector (save Britain with BP and RDS), pensions have replaced insurance, decades of government health care and inability to speak freely have eroded and undermined their capital market mechanisms. When capital markets cease to exist, you are stuck with socialism or barter.
Another four years of Obamanomics and America may reach that point of no return. But the American people are not going quietly into the night.
JD| 6.8.12 @ 12:03PM
We are not "still predominantly a capitalist model". We are a fascist model. Things are nominally private, but government tells us what we can and can't do with "our" money. Is that any different than just officially calling it "their" money?
The only difference is that it allows liberals to blame "capitalism" and "the Right" for all of our problems, which is why smart liberals have always preferred fascism to socialism. It keeps them in power!
Von Mises Jr| 6.8.12 @ 4:37PM
And you and I didn't even go to Harvard!
Quartermaster| 6.8.12 @ 7:12PM
The only people that go to Harvard are already brain damaged. If you did, you might end up like TLP who, I'm sure, didn't go either. Just goes to show there are other routes to brain damage.
JayDick| 6.8.12 @ 10:02AM
Europe has so many things that inhibit growth, reducing government spending might not be their highest priority. But, Europe can never be an economic dynamo long term until government spending is reduced.
The same applies to the U.S. Not only do the deficits need to be reduced (preferably eliminated), but total federal spending must be reduced to LESS THAN 20% of GDP. Somewhere around 15-18% would be good.
Quartermaster| 6.8.12 @ 7:13PM
Given that 95%+ of what FedGov does is illegal, I would say we could get it far below that level if we could get FedGov back in its constitutional cage.
If we don't, we'll be back here again and again.
Drunken Sailor| 6.8.12 @ 11:03AM
It may not be enough but it's a damn good place t start.
Drunken Sailor| 6.8.12 @ 11:04AM
Should be "good place to start"
lost| 6.8.12 @ 11:52AM
I remember when United States was where one stood on their own 2 feet, where being on welfare was embarrassing and taking government handouts was to be avoided.
chuck| 6.9.12 @ 8:05AM
Yes, a place where single teenage mothers were an embarrassment to the entire family, and "shotgun weddings" were common. Where neighbors helped neighbors, not by giving handouts, but by providing some type of work. My dad needed some storage built in his house and had the neighbor come by and do it, not because he was the best or cheapest, but because he could really use the extra money.
Being an American meant standing up, going to work, taking care of your family, being an asset to your community.
Now 40% of kids are bastards. The rest of us get to pay for them. The "baby daddy" is selling drugs on the corner, dead, or in jail. The "baby momma" is ready to download another little bastard, number 5 or 6, sitting her hugely fat ass in a Section 8 house watching HBO on her plasma TV and talking on her iphone.
JD| 6.8.12 @ 12:04PM
A rare good CNN editorial on this subject actually does a better job than this article:
http://www.cnn.com/2012/06/07/.....index.html
Austerity is not a policy. It is a consequence of bad policy.
Quartermaster| 6.8.12 @ 7:14PM
And that is just the sad and sorry truth. Austerity is something forced on you by previous bad choices and judgment.
james wilson| 6.8.12 @ 12:46PM
Austerity has nothing whatever to do with it. Definitions are essential in controling people through language. When we accept the language of the left we will be channeled into their principles.
The elimination of overwhelming government results in prosperity. But not for empires of government or the left.
JD| 6.8.12 @ 12:51PM
I couldn't agree more strongly with your point about the language of the Left. Heck, they call themselves "liberals", even though they're the opposite of classical liberals - they support more government power than any other group!
Seriously, how did we get to the point where the party that wants more government power can condemn the party that wants less government power by accusing them of supporting a dictatorial police state (as they often do)?
Who Knows?| 6.8.12 @ 1:49PM
A-well-a everybody's heard about the bird
B-b-b-bird, bird, bird, b-bird's the word
A-well-a bird, bird, bird, the bird is the word
Who Knows?| 6.8.12 @ 1:51PM
“Austerity” is not the word.
WORK is the word!
Staying alive is defined by always creating order, since the universe is always winding down---entropy, or disorder, is the natural tendency of our material reality.
So, one is either with the program, or not.
In Greece, pace the regular reporting by Victor Davis Hanson, the average citizen is culturally endowed with the deep desire to AVOID work---their 24/7 “job” is to find ways for someone else to work. They all want to be like a king, with servants supporting them---everything CREATED should be free!
Well, physical reality cannot be mocked.
Europe is not only “toast” demographically, a la Mark Steyn’s brilliant take, but when it comes to creating wealth, or order, the lawyers are massively in control. What else is it when a group of workers, also known as a company, faces such stupid rules that are triggered when they hire the 50th employee?
Trying to “work around” all the lawyerly blockages to free labor doing its thing will be futile.
Hello more stagnation!
I think it has to do with brains, in that some societies use them and some don’t, and some only use them sometimes. The Germans are using them enough to keep WORK free, so that increased productivity happens.
Picture a scale from “strangulation” to “stagnation” to “Growth”, when it comes to economies.
Greece is strangling itself; France is choosing stagnation; Germany is growing.
Workers of the world, fight the lawyers!
cicero| 6.8.12 @ 3:11PM
The U.S. need only go back to the budget of 2006, (when we were not underspending by any means), and it will pay off the existing debt in less than a dozen years. This non-sense of starting each years' budget on the shoulders of the last is rediculous. No deficit spending, will solve our problems. This will require the firing of the last 2 million federal hires (since Obama). That, and the abolition of about 5 federal departments should do the trick.
As far as Europe is concerned, they ran out of blood and guts between 1794 and 1946. They no longer have a sufficiently strong gene pool to support their civilization, so they are abandoning it. They do not realize that that is not how the game is played. You win or lose. If you lose, you do not survive. They are trying to shift the debt from the bankers who have been buying worthless soveriegn debt onto the backs of the taxpayers. The Germans won't go along with it. It will be interesting (not fun) to watch.