France and Greece elections - Austerity fails?

[kandrathe]

Today I heard on my morning drive news interviews with the frustrated people in France and Greece who elected a new batch of politicians to attempt to try anew to bail them out of an economic crisis. I'm not sure what this means for Germany who seems to be standing alone for the austerity approach (which I believe to be a bit wrong headed).

Many of them predicted the failure of the Euro, the exit of Greece from the EU, and described the unrealistic expectations of the people who are dependent on their governments.

Specifically from France, they've promised to undo the austerity measures they've already imposed, and added more promises of spending. From what I heard, Greece is already borked beyond easy repair. The imposition of rules by the IMF over the past two years has required tax levies into the past (back to 2007 profits), and has forced thousands of businesses to shutter resulting in massive unemployment and economic turmoil.

I've discussed this here before; I believe some thoughtful government investment is helpful when done for the short term. Few large scale projects would be done in time to have a realistic impact on current economic issues, but they may be worth doing regardless if they offer "hope" of better times to come ( an offering to the animal spirits). A better recourse I think would be for the government to focus on freeing up the money supply, helping to back low interest loans for businesses who expand hiring, and to focus on things that fuel growth.

I believe what has happened in Greece is an example of what not to do. I don't understand how people cannot predict this as an outcome. This is not economics, Austrian or otherwise, but rather the foolhardiness of international bankers who are unwilling to admit they've invested poorly in risky ventures and have lost their money. We'd all be better off if they just told Greece they don't need to worry about their debts for 5 years, and give them time to recover their economy. It does no one any good to have their low productivity go to zero (or negative).

In the US, we are not treated to much European news. What are your impressions? I think the chances are good that the issues of today may escalate and destabilize a tentative economic recovery in the US and elsewhere over the summer months.

P.S. A controversial article by free marketeer Doug Casey that I read today... I don't agree with much of it, but his assertion that all nation states have trended towards fascism is interesting. One of the ideas I've been pondering lately has been the notion that a sound morality ( why we do what we do ) predicates "a prosperous" nation. There are some big questions then about what do we mean by societal morality, and by what success or prosperity mean to us as individuals (aggregated ostensibly into a national prosperity). I'm not talking wealth here, but more the idea that people live the meaningful lives they hope and strive for.

[DeeBye]

I'm going to cherry pick a single out-of-context quote and roll with it, because I'm mean like that.

helping to back low interest loans for businesses who expand hiring

I really don't think you would ever find opposition to this in a general sense, but the devil is in the details. How would this be overseen? Would any business that hires a few part-time workers at minimum wage get a sweet low-interest loan? What if the business hires a few workers for the loan, then fires them all because of "unsatisfactory performance"? Who, exactly, is going to oversee this and be sure that each and every business that is participating in this is not taking extra advantage?

[eppie]

I don't worry too much about France in general but what I think is a huge problem is that countries are at the moment only trying to work in the interest of big banks and those are much more interested in not having a crash than in healthy economies.

Some good things are happening in Europe because of the crisis. In countries like Greece and Italy an effort is made to fight corruption and that was sooooo necessary.
The only problem is that there are also taken a lot of austerity measures that specifically target the already weak.
Corruption fighting has to go a lot farther.....not only looking at the little guys but attacking the rich ones.....because if that is not happening in 10 years everything is back to normal again.

[kandrathe]

I really don't think you would ever find opposition to this in a general sense, but the devil is in the details. How would this be overseen? Would any business that hires a few part-time workers at minimum wage get a sweet low-interest loan? What if the business hires a few workers for the loan, then fires them all because of "unsatisfactory performance"? Who, exactly, is going to oversee this and be sure that each and every business that is participating in this is not taking extra advantage?

I'm assuming that the government of Canada is similar to that in the US when it comes to withholding taxes on payroll. Businesses in the US are required to file taxes on a quarterly basis, and submit SSI/FICA (social welfare) taxes each payroll, which include the name, number, hours worked, and wage for every employed worker. Would it be hard to adjust the terms (rate, length, amount open to borrow) of business loans depending on the number of new hires/ hours worked within the date range of the program? I don't think it would be difficult at all. I would make the borrowing levels for a company a formula based on the number of new hires, and hours worked. It would be pretty easy to administer.

As an aside, computers being what they are today, it boggles my mind that the government has to rely on sampling surveys (of businesses) to measure unemployment. The government knows the work status of most employed persons (working for businesses). Since every person at birth is issued a social security number, we also know the population, and their ages. The numerator is all the people coughing up their payroll tax, the denominator is the number of people (living) on the social security roles between 18 and 65 (granted some people work < 18, and > 65 -- that factor can be an adjustment). The only fuzzy area for employment for our governments should be the types of employment where tax liabilities are not reported until year end (e.g. the gardener, neighbor boy who mows lawns, house cleaner, nanny, and most anyone who works for private individuals -- typically cash businesses).

I don't worry too much about France in general but what I think is a huge problem is that countries are at the moment only trying to work in the interest of big banks and those are much more interested in not having a crash than in healthy economies.

Well, if Sarkozy was only the sacrificial lamb, perhaps there is nothing to worry about. My opinion is that it is not really just the austerity issue of changing the way spending occurs, but change and uncertainty in general.

Some good things are happening in Europe because of the crisis. In countries like Greece and Italy an effort is made to fight corruption and that was sooooo necessary.

Good systems are audited, and "transparency" and openness brings sunlight to the dark secrets and exposes the corruption. But, again, drastic changes are generally bad, so this should be a house cleaning, not a house burning.

The only problem is that there are also taken a lot of austerity measures that specifically target the already weak.
Corruption fighting has to go a lot farther.....not only looking at the little guys but attacking the rich ones.....because if that is not happening in 10 years everything is back to normal again.

My advice would be to divert spending where it will not negatively impact the economy in a large way. For example, rather than buy a new aircraft carrier, which does employ some people to build and operate, but unless you *really* need "defense", it adds little to economic growth. It would be better to divert that money into a program that directly invests in growth industries. Realistically... what we are talking about with military spending here in the US and there in Europe is projection of force and intimidation... I mean, why do those Libyans keep our oil under their sand? We need a military to ensure the status quo of extortion delivers the oil to us at a price per barrel that doesn't stagnate our economies.

I think one mistake from our stimulus package was money used to directly employ people for 2 years. The money ran out and we had a 250,000 worker spike in unemployment. I believe that the best use of government at this time is to help build the enterprises that hire people, not to hire people directly which only adds to the tax burden on the tax payers, or in more debt. Most of the problem in thinking about government spending is that people only start from the governments budget. What they don't think about (reminiscing Bastiat), is where that money the government has came from, and what useful things didn't happen because the government appropriated it and often invests it poorly. In the US, this manifests itself as giving the same modest social security payment to a rich man like Warren Buffet, and to an impoverished homeless elderly person in NYC merely because means testing would turn it into a poverty program. I don't understand the frivolousness of gathering 1$, spending it, then 40 years later borrowing $100 to give that person social security when they don't need it. Or, another way we waste our money is in spending thousands, to hundreds of thousands of dollars on medical treatments for extremely elderly people in their last few months of life. Studies are showing that often for these frail people, its also the trauma of the expensive treatments that shortens their lives.

[Nystul]

As an aside, computers being what they are today, it boggles my mind that the government has to rely on sampling surveys (of businesses) to measure unemployment.

That's kind of how I felt when the Census Bureau sent me the long form. I was like really? Y'all can pull 90% plus of this info off my tax return or public records. But let's pretend it is the nineteenth century and have people guess when their apartment complex was built.

[Lissa]

As an aside, computers being what they are today, it boggles my mind that the government has to rely on sampling surveys (of businesses) to measure unemployment.

That's kind of how I felt when the Census Bureau sent me the long form. I was like really? Y'all can pull 90% plus of this info off my tax return or public records. But let's pretend it is the nineteenth century and have people guess when their apartment complex was built.

There is a lot of waste in the US government. I'll give you one I'm most familiar with (because I now have 4 public trust clearances). When performing a clearance for someone, each department of the US government has to have their own seperate investigation on the individual even though the Office of Personnel Management (OPM) is the primary care holder of doing all clearance investigations and has all the information on persons being investigated for clearances. Likewise, even if you have a higher clearance (like Top Secret with Polygraph), you'd still have to do a brand new investigation for getting a Public Trust clearance (the lowest clearance) for another department within the government. In my case, there has probably been thousands of dollars spent on investigations for my 4 PT clearances when they could have saved a bunch if they had just done it once and said it was transferable to other departments at that level.

[LavCat]

Tearing down Paris and rebuilding it worked for Napoleon III.

[kandrathe]

Tearing down Paris and rebuilding it worked for Napoleon III.

It's about time for Les Miserables to have a sequel.

[ClamsAreHot]

Traditional societies lead to wealth which leads to leisure which leads to people with too much time on their hands which leads to liberalism which leads to collapse and the cycle starts anew. Just like Rome.

[Jester]

Traditional societies lead to wealth which leads to leisure which leads to people with too much time on their hands which leads to liberalism which leads to collapse and the cycle starts anew. Just like Rome.

This claim does not appear to hold up to the empirical evidence. Look at today's wealthy and poor countries. The wealthiest are also the most liberal. The poorest are more "traditional" than the rich, and have been for a long time. No rich society has collapsed in ages.

Do I have this wrong somehow?

-Jester

[FireIceTalon]

Traditional societies lead to wealth which leads to leisure which leads to people with too much time on their hands which leads to liberalism which leads to collapse and the cycle starts anew. Just like Rome.

Fundamentally incorrect.

Traditional societies lead to wealth and power for a particular segment of society, a more pronounced class system that results in the lower classes being the antithesis to the ruling class, followed by revolution, then the creation of a new class system in its ashes - in which the ruling class is overthrown and the once revolutionary ruled class becomes the new reactionary ruling class.

Dialectical Materialism ftw.

[kandrathe]

Traditional societies lead to wealth which leads to leisure which leads to people with too much time on their hands which leads to liberalism which leads to collapse and the cycle starts anew. Just like Rome.

This claim does not appear to hold up to the empirical evidence. Look at today's wealthy and poor countries. The wealthiest are also the most liberal. The poorest are more "traditional" than the rich, and have been for a long time. No rich society has collapsed in ages.

Do I have this wrong somehow?

-Jester

<mumbles> ... democracy works until people figure out they can vote themselves money from the treasury... </mumbles>

I'm still not sure that they understand that they cannot continue to fund their government on the backs of debt. The lenders have stopped lending, unless they agree to bring their spending into balance with their revenues. Or, they can look for new lenders who are willing to throw risk money on a failing state. It's looking dubious to me that Greece will remain on the Euro.

I'm still holding to my domino theory on human nature and European debt. Spain appears to be next in line to toss out their austerity hawks. Then who? Italy? Ireland? Portugal?

[eppie]

I'm still holding to my domino theory on human nature and European debt. Spain appears to be next in line to toss out their austerity hawks. Then who? Italy? Ireland? Portugal?

''my'' domino theory??

It is looking a bit bleak at the moment. The Greeks will have elections again it seems because they don't manage to form a coalition.

About the other countries.....the big difference is still that they have pretty stable governments at the moment. And that helps.

[kandrathe]

''my'' domino theory??

I might share it with others... I haven't done enough investigations on who might also believe as I do.

It is looking a bit bleak at the moment. The Greeks will have elections again it seems because they don't manage to form a coalition.

I haven't been to Europe for some years, but from my discussions with them I can't imagine that Greeks (or Netherlanders for that matter) view themselves more as Europeans than as Greeks first. I've always been somewhat dubious of how successful a European Union can be, when the individual states have such unique identities and a high level of nationalism. I could imagine that a large population of Greece would nostalgically welcome back the Drachma, and doubly so if they can shed the perceived shackles of fiscal (accountability) austerity recently imposed upon them. I say perceived, because financially they have hit the limit of what lenders are willing to do for them. The government is broke, and without external inflows of cash they cannot pay their own government workers salaries, benefits or meet the needs of pensions.

In contrast, here in the US in successive waves of emigration, states are more heterogeneous culturally (with some exceptions e.g. Alaska, Hawaii). Around here (other than some mild ribbing), their is little difference between a Minnesotan, or an Iowan, or a Wisconsinite. There is more of a difference between rural southern Minnesota (prairie folks), and northern Minnesota (forest & mining folks), than there is across our borders. States really serve as smaller administrative districts within a national context, just as counties generally serve as the next level below states administratively.

About the other countries.....the big difference is still that they have pretty stable governments at the moment. And that helps.

Helps, yes. However, once the government stops honoring its commitments to the people, the loyalty quickly wanes. In the case of the EU imposed austerity measures, the growing movement we are seeing in France, in the Netherlands, in Greece, in Spain, and in Portugal reveals a growing sense of the national governments violation of the peoples expectations and trust. And, when it happens with those smaller nations like Greece, Spain, Ireland, Portugal, and etc. Then, the people of the larger France and Italy will say "Me too!"

For France, and François Hollande, I don't believe it is possible for him to deliver on his promises to expand unproductive social spending, and also prevent a fiscal crisis. We face the same dilemma in the US. We have our government running obscene deficits, printing billions of new dollars and virtually hurling that money from helicopters heedless of the longer term consequences (inevitable devaluation, and eventual inflation). What we don't ask ourselves, or have the stomach to face would be what if this doesn't help? What if we are just digging an even bigger hole? But, I guess if you are on a trajectory to auger in, you might as well double down and hit the after burners.

[kandrathe]

As much as I dislike George Soros... A recent speech he gave does shed some light on the European crisis and possible outcomes.

I'm currently weighing the odds that Spain's banks will get capitalization relief. By whom?

"In my judgment the authorities have a three months’ window during which they could still correct their mistakes and reverse the current trends. By the authorities I mean mainly the German government and the Bundesbank because in a crisis the creditors are in the driver’s seat and nothing can be done without German support.

I expect that the Greek public will be sufficiently frightened by the prospect of expulsion from the European Union that it will give a narrow majority of seats to a coalition that is ready to abide by the current agreement. But no government can meet the conditions so that the Greek crisis is liable to come to a climax in the fall. By that time the German economy will also be weakening so that Chancellor Merkel will find it even more difficult than today to persuade the German public to accept any additional European responsibilities. That is what creates a three months’ window."

I'm not as optimistic about Greek elections becoming less polarized. I still think there is a very strong group opposed to reform and fiscal austerity sufficient to appease the creditors, and an equally strong group who see it as the only way forward. From what I read, the middle ground is diminishing.