Fund Your Utopia Without Me.™

09 May 2012

Europe, How Can You Have Any Pudding If You Don't Eat Yer Meat?



Music to read by:





I have seen the writing on the wall.
Don't think I need anything at all.
No! Don't think I'll need anything at all.
All in all it was all just bricks in the wall.
All in all you were all just bricks in the wall.

"If you don't eat yer meat, you can't have any pudding. How can you
have any pudding if you don't eat yer meat?"







 Europeans hold elections and take revenge on the austerity bogeyman.  I wonder what they'll do when he really shows up?




By Richard W. Rahn


Denial is leading to collective economic suicide in Europe and the United States. The French on Sunday elected a socialist president who wants to raise taxes on those elusive rich and keep spending as if there is no tomorrow.

Many on the left, including European socialists, the New York Times and its economist Paul Krugman, are falsely claiming that Europe and even the United States are being saddled with austerity. Their claim is that governments are not spending enough to reduce unemployment. They want higher taxes on the most productive plus bigger government. They suffer from a collective memory loss. Don't they remember that socialism did not work? Every time the big-government "solution" has been tried for the past two centuries, it has failed, but those on the left seem to be incapable of learning.

When the current economic crisis began — largely caused by a government-created housing bubble — we were told that if the government spent an extra trillion dollars or so and ran up the deficit, all would be well. Did it work as advertised in the United States? No. In the United Kingdom? No. In France? No. In Italy? No. In Spain? No. And not even the left wants to talk about Greece. The accompanying chart shows that rather than the austerity the left is whining about, government spending has risen as a share of gross domestic product (GDP) in all of the major economies. Again, the left said unemployment rates should have come down by now, but the opposite is happening. The U.S. unemployment rate has come down slightly, but the percentage of the labor force at work continues to decline, so the real unemployment rate is approximately 15 percent.

The irony is that the refusal by those on the left, in both Europe and the United States, to deal with the "entitlement" problem is going to cause an involuntary austerity in which real incomes are going to fall for most people. Incomes have not been rising as fast as inflation in the United States and most places in Europe, but what has happened is only a very mild introduction to what is going to happen.

GDP-to-debt ratios keep rising in all the major economies, and realistically, this will continue until a reversal in policy or a surge in inflation begins to erode the value of the debt. Chancellor Angela Merkel in Germany has demanded that her fellow Europeans reverse the growth in spending to deal with fiscal reality and save the euro. The elections in France and Greece show that Mrs. Merkel's advice will be ignored and the European Central Bank will be pressured to keep printing money — by sovereign bond purchases and/or rate cuts on loans to banks — which ultimately will mean a lot more inflation, resulting in a real drop in incomes.

Of the major economies, only Germany has managed to reduce unemployment, and that was largely by major labor reforms, which now make it possible to fire German workers so employers no longer are so reluctant to hire new workers. Even so, the German economy is slowing down and may be dragged into the new recession that the other European economics are in or about to enter.




Government Spending as a % of GDP Unemployment Rate % (latest number for 2012)

2007 2012* 2007 2012
US 36.7 40.0 4.6 8.1
UK 40.3 45.3 5.4 8.3
Germany 43.5 45.1 8.8 6.8
France 52.6 55.8 8.4 10.0
Spain 39.2 42.0 8.3 24.1
Italy 47.6 50.1 6.1 9.8

* estimated
Sources: International Monetary Fund, The Economist


The next year is not going to be pleasant. The new European recession will only deepen and spread as, once again, the socialist "solutions" add to the problems. The United States is facing a massive 3.6 percent of GDP tax increase on Jan. 1, which will occur unless Congress extends the George W. Bush tax cuts and the other major personal and business tax provisions that are set to expire at the end of the year. The extensions will require both houses of Congress to pass them and President Obama to sign them into law. Even if the Republicans win both Houses of Congress and Mitt Romney is elected president, the Republicans will not take office until January — after the tax provisions' expiration date.

There is no guarantee that Mr. Obama and the Democratic Senate will pass the necessary tax extensions during the lame-duck session, whether they win or lose. Even if the Republicans win, they will not have the necessary 60 votes they might need in the Senate if the Democrats refuse to go along with the extensions. The uncertainty about what is going to happen will build through the remainder of the year, which will inhibit business expansion and job growth. This, coupled with the ongoing avalanche of new bank regulations, and foreign interest and dividend reporting requirements, is going to drive productive capital out of the United States. The rich in Europe and the U.S. are not just going to sit around to be fleeced by corrupt and incompetent governments. Being rich means you and your capital are mobile. There are many nice places on the globe where rich people and their money are well-treated.

Europe is in recession, and the odds are that by January the United States will be back in recession. The central banks will inflate the currency to deal with the government debt problems, the people will be poorer, and the rich will have left. It is all so unnecessary.


Sophie:


The idea of EU austerity is a myth.


In fact, despite a lot of wailing, very few cuts have actually been made in Europe. Austerity? Starting in 2008, most governments enacted large stimulus packages.

As in the United States, stimulus in Europe did not work. As proof, the EU has now entered into its second recession in 4 years, with skyrocketing debt, soaring unemployment and dismal prospects for future growth, democracy, and standards of living.

Austerity? As is often the case, things get lost in translation while crossing the Pond.  Austerity in Europe does not mean the same thing as "austerity" in the United States.  Over the last decade, EU member states have collectively increased government spending by 62%.


Average government spending by EU nations today stands at approximately 49.2% of GDP — v. 44.8% in 2000.


On its own website, the EU itself ridicules the notion of government austerity as a "myth."

"National budgets are NOT decreasing their spending, they are increasing it," the EU says, noting that in 2011, 23 of the 27 nations in the EU increased spending. This year, 24 of 27 will do so.

Let's look at a few, individual countries:

Portugal:

A €2.2 billion stimulus package 2009, 1.25% of GDP, resulted in economic growth that stayed negative and 3 million more unemployed Portuguese workers.  The country's finance minister told the New York Times, “it didn’t turn things around, and may have made things worse.”


 France:

In France, "austerity" almost entirely meant tax increases:

A 3% surtax on incomes above €500,000.

A 1% increase in the top marginal income tax rate (40% to 41%).

The automatic indexation of tax brackets for inheritance, wealth, and income taxes ended.

Corporate taxes were raised 5% on businesses with revenues of more than €250 million.

There was a hike in the capital gains tax rate. )Currently, capital gains are taxed at the rate of 19%, plus 13.5% social charges. The social charges will increase to 15.5% on 1 July 2012, giving a total rate of 34.5%).

Several corporate tax breaks were ended.

The VAT increased from 19.2% to 21.2% and reduced VAT went from 5.5% to 7%.

Excise taxes on tobacco and alcohol were hiked.

There were some reforms to entitlements and the welfare programme, but they haven't taken effect yet.  For example, France raised its retirement age from 60 to 62.....but that reform will not take effect until 2017.  Also, the cap on government spending on healthcare doesn't take effect until next year.

It is kind of hard to blame cuts that haven't taken effect for France's slowing growth while ignoring tax increases that have.


Britain:

One of the first "austerity" measures taken by the Cameron-led coalition was the imposition of a 50% income tax on the "evil rich."  This hike resulted in a £509 million decrease in tax revenues to the Treasury.

The Coalition did trim some government payrolls and cut back on a few government programmes, but government spending still consumes a whopping 49% of GDP.

Most importantly, actual government spending increased by £59.2 billion from 2009 to 2011.   


Spain:

Imposed a wealth tax on citizens with €700,000 of assets.

Imposed 7% income tax on those earning more than €300,000 per year.

Hiked the capital-gains tax rate.


Italy:

Imposed a Solidarity Tax of 3% on all taxpayers earning more than €300,000.


Greece:

Increased taxes nearly twice as much as it cut spending.

5% surtax on the wealthy.

VAT hiked to 23%.

Fuel, alcohol, and tobacco taxes were hiked.

As Michael Tanner of CATO has said, "It should come as no surprise that all those new taxes, combined with a lack of spending restraint, has threatened to throw Europe back into a double-dip recession. Is it any wonder that French, Greek, and British voters were anxious to “throw the bums out”?  Wait, this sounds familiar. Tax hikes on the rich accompanied by vague promises of future spending restraint, while refusing to restructure entitlement programs. That sounds a lot like . . . Barack Obama.  Maybe the U.S. can learn something from Europe after all."

Too bad that Obama is too stubborn and ignorant to heed the lessons of "austerity" in Europe.

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Another Brick in the Wall - Pink Floyd

Daddy's flown across the ocean
Leaving just a memory
Snapshot in the family album
Daddy what else did you leave for me?
Daddy, what'd'ja leave behind for me?!?
All in all it was just a brick in the wall.
All in all it was all just bricks in the wall.
"You! Yes, you! Stand still laddy!

We don't need no education
We don't need no thought control
No dark sarcasm in the classroom
Teachers leave them kids alone
Hey! Teachers! Leave them kids alone!
All in all it's just another brick in the wall.
All in all you're just another brick in the wall.

We don't need no education
We don't need no thought control
No dark sarcasm in the classroom
Teachers leave them kids alone
Hey! Teachers! Leave them kids alone!
All in all it's just another brick in the wall.
All in all you're just another brick in the wall.
"Wrong, Do it again!"
"If you don't eat yer meat, you can't have any pudding. How can you
have any pudding if you don't eat yer meat?"
"You! Yes, you behind the bikesheds, stand still laddy!"


[Sound of many TV's coming on, all on different channels]
"The Bulls are already out there"
Pink: "Aaaaaaaaaaaaaaaaaaaaaaaarrrrrgh!"
"This Roman Meal bakery thought you'd like to know."
I don't need no arms around me
And I don't need no drugs to calm me.
I have seen the writing on the wall.
Don't think I need anything at all.
No! Don't think I'll need anything at all.
All in all it was all just bricks in the wall.
All in all you were all just bricks in the wall.

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