The Shifting Borders of Eastern Europe

Posted by PITHOCRATES - March 18th, 2014

History 101

By 1300 the Mongol Golden Horde took all of Kievan Rus

Vladimir Putin took Crimea from Ukraine.  Because he said the people there are more Russian than Ukrainian.  The people there wanted to be a part of Russia instead of Ukraine.  And that the land historically has belonged to Russia.  But that’s not true.  Yes, if you go back in time the land was Russian.  But if you go further back it wasn’t.  In fact the borders of Eastern Europe have changed so much that today’s borders bear little resemblance to what they have been over time.  You can watch 1,000 years of this change play out in a video on Loiter.co (see Watch as 1000 years of European borders change).  We’ll recap some of the changes in century intervals.

In the early 1100s the Western Roman Empire was gone.  In its place was the Holy Roman Empire stretching from central Italy to the North Sea.  Spain was mostly Muslim.  France was taking shape.  The Eastern Roman Empire (the Byzantine Empire) was still in modern day Turkey, Greece and the Balkans.  Going north there was Hungary.  Then Poland.  And Lithuania.  To the east of these countries was the large expanse of Kievan Rus.  Modern day Ukraine, Belarus and western Russia.  And the Crimea was held by the Turkic Cumans.  But this land would change hands many times in the centuries to come.

By 1200 the Byzantine Empire moved further north into the Balkans.  While the Muslims moved into Byzantine territory from the south.  Hungary, Poland and Lithuania adjusted their borders slightly.  The Holy Roman Empire pushed further west in Europe.  The Cumans pushed into southern Kievan Rus.  While Kievan Rus moved south between the Black and Caspian seas.  By 1300 the Mongol Golden Horde (northwest part of the Mongol Empire) took all of Kievan Rus.  Hungary pushed out her borders while Poland shrank hers.  With East Prussia taking her northern lands.  Lithuania reshaped her borders in part to East Prussia.  The Byzantine Empire was reduced to a small area of the southern Balkans.  The Mongols were in Crimea.

Russia, Prussia and Hungary reduced Poland to the Grand Duchy of Warsaw by 1800

By 1400 the Ottoman Empire had replaced the Byzantines in the Balkans.  Hungary adjusted her borders a little.  East Prussia remained the same.  Poland and Lithuania had joined in a commonwealth and pushed their border south and east.  Into the lands that were once Kievan Rus.  Except for Crimea and the area just north of Crimea.  Pushing the Mongols east.  As the Republic of Novgorod and Muscovy pushed down on the Mongols from the north.  By 1500 the Ottoman Empire pushed further into southern Europe.  Into Hungary.  Crimea.  And Poland-Lithuania.  Which pushed north into East Prussia.  While Russia replaced the Republic of Novgorod and Muscovy and pushed south into Poland-Lithuania.

By 1600 the Ottoman Empire adjusted her northern borders a little.  Poland replaced the Poland-Lithuania Commonwealth.  And pushed her border slightly east into Russia.  Russia pushed her southern border to the Caspian Sea.  Sweden was across the Baltic Sea into modern day Finland and Estonia.  On Russia’s most western border.  By 1700 Hungary had pushed the Ottoman Empire back into the Balkans.  Prussia formed on the Baltic Sea west of Poland.  With East Prussia to the east of Poland on the Baltic Sea.  The Russian Empire pushed west to the Baltic Sea.  Pushing the Swedes out of Estonia and part of Finland.  Russia had also pushed south through Lithuania and pushed deep into Poland.  The Ottoman Empire was still on the northern side of the Black Sea at Russia’s southern border.

By 1800 the Russian Empire had pushed their southern border all the way to the Black Sea.  Pushing the Ottoman Empire back.  The Russians also pushed their southern border further south between the Black and Caspian seas.  They pushed west through modern day Finland to the sea.  They pushed their western border through half of what was Poland.  Hungary pushed north into what was Poland.  Prussia and East Prussia joined together, taking land from Poland on the Baltic Sea.  Russia, Prussia and Hungary left little of Poland.   What was left of her lands became the Grand Duchy of Warsaw.

Vladimir Putin has said one of the Greatest Catastrophes of the 20th Century was the Collapse of the Soviet Union

By 1900 the Ottoman Empire was pushed almost completely out of the Balkans.  Greece and Bulgaria were now on the lands the Ottomans once held.  Russia pushed their southern border between the Black and Caspian seas further into the Ottoman Empire.  Hungary pushed her southern border to Greece and Bulgaria.  And west into Austria (which would later form the Austria-Hungary Empire).  The Germanic states had formed into a greater Germany that stretched from France to Russia.  Absorbing the Grand Duchy of Warsaw.  And even pushing into Russia’s western border.

Then came World War I.  And afterwards the borders of Europe were greatly changed.  The Austria-Hungary Empire was broken into Romania, Yugoslavia, Austria, Hungary and Czechoslovakia.  The eastern half (approximately) of the greater Germany was given to a reconstituted Poland.  With East Prussia bordering Poland on the north and separated from Germany (Hitler’s opening shots in World War II was to recover this lost territory).   To the north of Poland and East Prussia were Lithuania, Latvia and Estonia.  Russia was now the Soviet Union with her western border pushed slightly back from where it was before World War I.  Bordering Estonia, Latvia, Poland and Romania in the west.  And pushed back out of Finland.  The Soviet southern border between the Black and Caspian seas was pushed back a little.  And Turkey replaced what was left of the Ottoman Empire.

After World War II the Soviet Union pushed her border through Lithuania, Latvia and Estonia to the Baltic Sea.  After the Soviet Union fell Lithuania, Latvia and Estonia restored their borders.  And the former lands of the Kievan Rus are now divided between Russia in the north and east.  Belarus between Poland and Russia.  And Ukraine bordering Poland, Slovakia, Hungary, Romania and Moldova to the west.  The Black Sea to the south.  And Russia to the east.  With Crimea a part of Ukraine.  Well, until recently, that is.  As Russia has recently annexed Crimea.  And may be looking further west.  For this former KGB officer—Vladimir Putin—has said one of the greatest catastrophes of the 20th century was the collapse of the Soviet Union.  Which he began to put back together with his annexation of Crimea.

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Scotland wants to Keep the Pound in a (somewhat) Independent Scotland

Posted by PITHOCRATES - March 8th, 2014

Week in Review

The Greek crisis happened because there was a currency union without a political union.  The Eurozone set some pretty strict limits on deficits and debt to join.  Why?  Because people in the Eurozone would all be using the same Euro.  So they didn’t want one country running up deficits or their debt.  Because if they did they wouldn’t just be messing with their economy.  They would be messing with the entire Eurozone economy.

Well, that’s what Greece did.  They were spending so much money that they had large deficits that added to a large debt.  A euro-denominated debt.  Which meant a default would raise borrowing costs for other euro-denominated debt.  Raising the borrowing costs for the Eurozone.  So to avoid that required other Eurozone nations to help Greece with their debt.  Requiring higher taxes in the more responsible countries of the Eurozone to pay for the irresponsible spending of Greece.  Neither option (default or rescue package) being a popular option.  Especially for the Greek people.  For the rescue package came with strings.  And the big one was austerity.  They had to stop spending so much.  Which meant a lot of people lost some of their government benefits.  Making them very unhappy.  Leading to some rioting in the streets.

Had there been a political union this would not have happened.  For there would have been only one entity borrowing and spending Euros.  One entity taxing the Eurozone nations.  And one entity printing money.  Much like the federal government in the United States.  And London in the United Kingdom (see Scotland’s referendum: Salmond says independence will benefit whole UK posted 3/4/2014 on BBC News Scotland Politics).

An independent Scotland with a strong economy would benefit the whole of the UK, First Minister Alex Salmond has told a gathering in London…

“I believe George Osborne’s speech on sterling three weeks ago – his ‘sermon on the pound’ – will come to be seen as a monumental error.

“It encapsulates the diktats from on high which are not the strength of the Westminster elite, but rather their fundamental weakness.

“In contrast, we will seek to engage with the people of England on the case for progressive reform.”

But Tory MP Mr Mundell said that Mr Salmond was saying that a choice to leave the UK and become independent “means staying exactly the same as we are now”.

He added: “By definition, that simply cannot happen.

“No one should be under any illusion that voting for independence means getting independence, which means becoming a new country outside the UK.

If the Eurozone sovereign debt crisis has taught us anything it’s that a currency union without a political union is not a good thing.  An independent Scotland would eliminate the political union there is now.  And the reason why England does not want a currency union with an independent Scotland is because of what happened in the Eurozone.  It doesn’t work.  At least, it doesn’t work well.  Which begs the question why do they want independence but not complete independence (keeping the pound)?

One can only surmise so they can have more autonomy over their taxing, borrowing and, of course, spending.  Perhaps to spend more.  Creating larger deficits.  And a greater pound-denominated debt.  Which would be of great concern to other holders of pound-denominated debt.  The rest of the United Kingdom.

It is unlikely that independence would lead to a stronger Scottish economy.  Or a stronger UK economy.  If it did then the whole point of the Eurozone would be a lie.  To create a larger economic zone to compete with the large economic zone that is the United States.  Because bigger is better.  At least in terms of GDP.  The British Empire was bigger than the United Kingdom is now.  And the United Kingdom is bigger than a United Kingdom without Scotland.  And an independent Scotland would be smaller than all of the above.  So if you want to maximize GDP you would want to maximize the size of your economy.  Not shrink it.  Which leads one to believe that the reason for independence is something other than economic.  Because the UK is too English?  Perhaps.  Whatever the reason let’s just hope everything works out for the best.  For the United Kingdom did make the world a better place.  With great people like Adam Smith from Scotland.  And John Locke from England.  To name only two of the greats to come from the United Kingdom.

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Like Greece Japan looks forward to the Economic Stimulus from Hosting the Olympics

Posted by PITHOCRATES - September 15th, 2013

Week in Review

During the Eighties Japan was an economic powerhouse.  The government partnered with business.  Creating what became known as Japan Inc.  It was the way of the future.  Way better than free market capitalism.  Because smart government people were tweaking the free market.  Making it better.  Or so they thought.  All that tweaking came in the form of a credit expansion.  Which created a huge asset bubble.  And when it burst Japan fell into a deflationary spiral.  Through their Lost Decade.  The Nineties.  And beyond.

Tired of sluggish economic growth since their Lost Decade their prime minister, Shinzō Abe, returned to the ways of their past.  And starting pumping yen into the economy like there is no tomorrow.  And the economy has turned.  Of course, the economy was going gangbusters before it collapsed into its deflationary spiral. So this spurt of economic activity may be nothing but that.  A spurt.  And sluggish economic growth will return.  With more inflation to wring out of the economy.  And this will probably not make things better (see Hopes Japan’s win to host Olympics could kickstart the economy by Bill Birtles posted 9/10/2013 on Radio Australia).

Japan could get an economic boost from hosting the 2020 Olympics in Tokyo…

As Japan begins its largest project in 42 years in preparation for the Olympics, there is still plenty left to do.

Just last week, Abe’s government pledged $US500 million to fix Fukushima.

In addition, Japan faces the problem of massive debt and an ageing population.

Prime Minister Shinzo Abe will also need to take a call on raising the country’s sales tax.

The Chief Economist at RBS Securities, Junko Nishioka, says for now though, keeping spending under control will be a priority for the country of about 130 million.

Greece was talking the same way in the run-up to the 2004 Summer Games.  Where Greece went on an expansionary binge.  Then came the Great Recession.  Greek economic activity fell.  As did their tax revenue.  All the while they had a new boatload of debt on the books from the Olympics.  They had to borrow money to pay for what their tax revenue did not.  Borrowing more and more increased their debt.  And their borrowing costs.  Until they could borrow no more. Kicking off the Eurozone sovereign debt crisis.  And an economic malaise that continues to this day.

So with Japan’s past history and Greece’s past history a surge in more spending to get ready for the Olympics is not likely to solve any problems.  Or bring back Japan Inc.  As this kind of spending has a history of causing problems more than solving problems.

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Greece is cutting their Goods and Service Tax (GST) to replace the Lost Economic Activity the High GST Caused

Posted by PITHOCRATES - August 3rd, 2013

Week in Review

There are few things more enjoyable than going out to a nice restaurant.  Where you and your significant other can enjoy a fine meal.  And some adult beverages.  A couple of cocktails each before dinner.  A couple of glasses of wine each with dinner.  Then dessert and coffee after dinner.  It doesn’t get better than this.  But it can get costly.  Especially when there is a 23% GST (see Greece slashes restaurant taxes by Alanna Petroff posted 8/2/2013 on CNNMoney).

This week, the Greek government slashed the restaurant sales tax on food and drink across the country, making it cheaper for everyone to go out and grab a meal.

The restaurant sales tax, which was 23%, has been cut down to 13%…

It’s expected that the break will cost the government €100 million in lost tax revenue in the short term, but will ultimately benefit the country in the long run as it boosts tourism spending and encourages restaurant owners to declare more of their revenue to the government.

They acknowledge that a high GST tax (goods and service tax) rate discourages people from going out.  But the notion that cutting a tax rate will cost the government is a foolish Keynesian notion that must be done away with.  For example, let’s look at the numbers for the above noted dinner out.  If each entree is €8, each cocktail/glass of wine is €5, each dessert is €5 and each coffee is €2 the total for a dinner out is €70.  Add in the 23% GST (€16.10) brings the total up to €86.10.  That’s a lot of money.  So let’s say we can only do this twice a week.

The best part of going out is relaxing over adult beverages.  Which is often the largest part of the bill.  In our example, we drink a total of 16 adult beverages in those two dinner outs (and walk home/back to the hotel or take a taxi as we shouldn’t drive anywhere after enjoying 4 adult beverages during a meal).  Our total GST comes to €32.20.  Equivalent to the cost of 6.4 adult beverages.  In other words, the GST makes us pay for 6.4 adult beverages that we’re not allowed to drink.  So our 2 nights out we pay for 22.4 adult beverages but can only drink 16 of them.  If we went out 4 nights a week we’d pay for 44.9 adult beverages but could only drink 32 of them.  Or drink about 71.3% of what we paid for.  Which would limit our evenings out.  Now let’s look at what happens when the GST is only 13%.

The GST for our 2 nights out only costs us 3.6 adult beverages.  Not 6.4.  Which isn’t too bad.  So we are more willing to eat out.  If we go out 4 nights a week that GST now only costs us 7.3 adult beverages.  In other words, we pay for 39.3 adult beverages while getting to drink 32 of them.  Or about 82%.  Which would encourage us to go out more than before.

So with the high GST rate we may go out only twice a week and pay €32.2 in GST taxes.  But at the lower GST rate we may go out 4 times a week and pay €36.40 in GST taxes.  A 4.2% increase.  And because the lower tax rate is getting people to go out the restaurant owner doesn’t have to cheat the government out of the tax to get people into the restaurant.  If the tax rate is reasonable people will pay it and the owner will pass it on to the government.

This is something Keynesians don’t understand.  They see only loss tax revenue with a cut in tax rates.  Not the additional economic activity those lower tax rates will generate.  Which is why Keynesians have horrible economic records.  Like President Obama.  And the Eurozone nations.  While people who understand classical economics have good economic records.  Like Ronald Reagan.  And Margaret Thatcher.

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The Problems in the Eurozone may Influence Scottish Voters in their Independence Referendum

Posted by PITHOCRATES - April 27th, 2013

Week in Review

During the Roaring Twenties the American economy was giving the economies of Europe a run for their money.  The Europeans, accustomed to running the world for so long, looked at the economic prowess of America with concern.  And began to talk about a United States of Europe to compete with the economic juggernaut across the pond.  But when Calvin Coolidge chose not to run for a second term the progressives got back into power.  And Herbert Hoover put an end to that surging economy.  Causing a stock market crash.  And throwing the country into recession.  Which FDR turned into the Great Depression.

So there was no United States of Europe.  But there would be a European Union one day.  And after that, a currency union.  The Eurozone.  To compete against the economic prowess of the United States.  But a currency union without a political union.  Without a single fiscal and monetary policy to support that currency union.  Which turned out to be a problem.  For without that political union the currency union was only as strong as its weakest state.  In the Eurozone that state was Greece.  Whose unrestrained government spending caused a debt crisis that threatened to bring down the entire Eurozone.  Unless the other members stepped in to bail out Greece.  Which they have.  But the crisis hasn’t gone away.  For the central governing authorities can only ask Greece to cut their spending.  Which there is a lot of opposition to in Greece.  Putting a lot of pressure on the Euro.

Greece isn’t the only problem.  There was Ireland.  Spain.  Portugal.  And Cyprus.  All sovereign nations.  Sharing a common currency.  Making it all but impossible to maintain a uniform fiscal policy throughout the Eurozone.  Like they can in the United States.  Because the United States of America is a political union.  With one central government.  One central fiscal authority.  And one central monetary authority.  Making it hard for any one state to undermine the currency.  (Though California is making a valiant effort.)  Which is the problem they’re having in the Eurozone.  Many of the states are threatening to undermine the common currency.  Making a very strong case against future currency unions without a political union.  Which is something they are considering with an upcoming referendum on Scottish independence (see UK says “no clear reason” to let independent Scotland use the pound by David Milliken posted 4/23/2013 on Reuters UK).

The euro zone’s experience of countries sharing a currency but not a government shows there is no clear case for an independent Scotland to use the pound, the Treasury said on Tuesday.

The nation of 5 million will hold a referendum on September 18 next year to decide whether to split from the United Kingdom, at the instigation of the Scottish National Party that runs the country’s devolved government.

Pro-independence campaigners want Scotland to keep sterling, at least in the early years of independence, and then to decide later whether to switch to its own currency.

But in a report on Tuesday, the Treasury said there was no clear case for the United Kingdom to agree to a formal currency union with an independent Scotland, which would have an economy of a similar size to New Zealand’s…

“The recent experience of the euro area has shown that it is extremely challenging to sustain a successful formal currency union without close fiscal integration and common arrangements for the resolution of banking sector difficulties,” it added.

Scotland and England have a long history.  Not all of it good.  But if we’ve learned anything from history it is that large economic blocs do better than smaller counties.  As the United States demonstrated.  And as the Eurozone tried to duplicate with their currency union.  But as that experiment showed us a currency union without a political union is a recipe for disaster.  If Scotland breaks from the United Kingdom they will have to go all of the way.  And leave sterling.  Which will make independence more difficult.  Having to set up a new currency with everything else they will have to do.  (Such as dealing with separating their military forces from the UK’s.  And providing for their own defense.  Or forming a military union with the UK.  Which will tie them closely to the UK.  Something many Scots no doubt will consider before voting in the referendum.)

Of course if they do and they devalue their new currency it would make their exports cheaper to those nations with a stronger currency.  But that weak currency will make anything they import more expensive.  As Scotland exports and imports a lot of stuff they won’t get a clear advantage in devaluing their new currency.  So they may peg their new currency to sterling.  The next best thing to keeping sterling.  Which will tie them closely to the UK.  Something many Scots no doubt will consider before voting in the referendum.  Perhaps choosing to stay in the UK.  As Quebec chose to stay in Canada in their past referendum.  Who had less in common with the rest of Canada than the Scots have with the UK.  For they don’t even speak the same language.

They could join the Eurozone.  But recent events in the Eurozone does not make that option as appealing as setting up a new currency.  Or staying a part of the UK.  It would probably be best for the rest of the world if Scotland remained part of the UK.  For the world will need at least one strong reserve currency.  As the Euro is making itself less attractive by the day.  The U.S. dollar may hit the wall soon with the amount of debt the Americans are racking up.  And the Chinese are likely to go the way of Japan before the decade is out.  And have their own Lost Decade with all their malinvestments.  The ultimate cause in the fall of state-capitalism.

Now the UK has its problems.  But their decision to stay out of the Eurozone was clearly sound as a pound.  And pound sterling may grow even more attractive as a reserve currency as these other countries continue to rely on easy credit and debt to pay for their burgeoning welfare states.  And/or their malinvestments.  But one thing the UK is doing that none of these other bloated states are doing is making real cuts in spending.  Even in their venerated NHS.  Giving the UK the edge in responsible governing these days.  And really making a strong argument against Scottish independence at this time.  Even for those who hate England.  For it is better to deal with the devil you know than the devil you don’t.  Especially during uncertain times.

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Welfare State, Tax Revenue, Tax Base, Abortion, Population Gains, Keynesian Policies, Communism and Capitalism

Posted by PITHOCRATES - January 22nd, 2013

Week in Review

Their Welfare Programs continued to Expand even while their Tax Revenue was Falling

Many of the world’s mature economies are having financial issues.  Including chronic deficits, growing debt and skyrocketing spending obligations.  The Eurozone has been mired in a sovereign debt crisis for years.  The UK is trying to slash billions from their costliest entitlement.  The National Health Service.  France tried to raise the top marginal tax rate to 75%.  Japan is spending twice their GDP and their aging population will require even more spending.  And in the United States Democrats and Republicans are getting ready for another round of debt ceiling debates.  To raise the debt ceiling once again.  To yet another record high.

What causes these problems?  A couple of things.  A growing welfare state.  And falling tax revenue.  Not because tax rates are too low.  But because they are too high.  Creating a business-unfriendly environment.  Reducing economic activity.  Which reduces tax revenue.  They further compound their problems with Keynesian economic policies.  Which include massive borrowings to pay for deficit spending.  And expanding the money supply.  Which devalues the currency.  This creates inflation.  Further reducing economic activity.

These countries have a spending problem.  Their welfare programs continued to expand even while their tax revenue was falling.  Often introducing new programs based on the best of economic times with the rosiest projections of continued economic good times.  But once a recession hits, and they always do when using Keynesian economic policies, these governments run massive deficits.  That said there is a revenue component to their financial problems.  Abortion.

An Expanding Welfare State needs an Expanding Population Growth Rate

To increase tax revenue you need to expand the tax base.  To get more taxpayers paying taxes.  And where do taxpayers come from?  Babies.  There is no other way to get a taxpayer.  Even with immigration.  Because those immigrants first have to be born.  So the more babies you have the more taxpayers there will be paying taxes.  The more abortions you have, though, the fewer taxpayers there will be paying taxes.  The following table summarizes population gains and abortions for the years 1970 through 1990 for 12 countries.

Sources: Historic, current and future population of Europe; Abortion statistics and other data;

These dates are important for had these abortions not happened they all would be in the workforce today.  Just to get an idea of what that means to tax revenue consider the United States.  During these 20 years there were 26.7 million abortions.  Assuming a median salary of $50,000 and 33.3% in federal taxes (18% effective federal income tax rate, 12.4% for Social Security taxes and 2.9% for Medicare) that comes to $444 billion in one year.  Or $4.44 trillion over ten years.  It may not have been enough to pay for the massive new spending of President Obama.  But it would have prevented the credit downgrade from S&P.  Who were looking for $4 trillion in spending cuts over ten years.

It’s these aborted taxpayers that are pressuring these welfare states.  For an expanding welfare state needs an expanding population growth rate.  And abortion doesn’t help populations grow.  And if the population doesn’t grow then tax revenue doesn’t grow.  In fact, if you divide the population gain by the number of abortions you can get a feel of a country’s financial health.  And their future health.

A Command Economy cannot Provide for the People like Laissez Faire Capitalism Can

Abortions reduce population gains.  So when you divide population gains by the number of abortions the higher the resulting number the better.  For higher population gains and fewer abortions mean more tax revenue.  The lower the number indicates a high level of abortions that reduces tax revenue.

Spain is one of the countries in trouble in the Eurozone.  With a rich Catholic history that frowns on abortion.  So it is no surprise to see such a large number when dividing population gains by abortions.  But their debt crisis is.  For this number indicates a lot of taxpayers.  Which Spain has.  Yet they have some serious financial problems.  Why?  Because they also have very high unemployment.  Their economic woes began with Keynesian policies keeping interest rates artificially low.  Creating a housing bubble.  And when it burst it created a very bad recession.  So having taxpayers is important.  But they also have to have jobs.  With some good economic policies (i.e., non-Keynesian policies) Spain should be able to rebound into an economic juggernaut.  For if all those taxpayers find employment they can reduce tax rates to very low levels.  Which will explode economic activity.

Greece went on a spending binge.  Including lavish spending for the 2004 Olympic games.  Their problem is a bloated public sector.  And a large welfare state.  That their private sector can no longer fund.  Like Spain Greece may be able to rebound with some sound economic policies (i.e., non-Keynesian policies).  A little privatization.  And a little weaning from the public teat.

At the other end you have the United Kingdom.  Whose abortions exceeded their population gain.  Which wasn’t much for 20 years.  They are currently going through a baby boom.  But it’s this baby dearth from 20-40 years earlier that is depressing tax revenue today.  Requiring those spending cuts in the NHS.  And higher tax rates on the fewer remaining taxpayers in the workforce.  Which, of course, leaves people with less spending money.  Further depressing the economy.

China’s economic miracle is not as miraculous as it once was.  And their Keynesian policies will catch up to them.  As they have with every other country using them.  Their authoritarian regime has been able to keep wages down to help their export economy.  And they have no social safety net despite a rapidly aging population.  Which they will have to take care of.  Eventually.  Either by expanding the money supply so the government can spend more money.  Which will create inflation and hurt economic activity.  Or they will have to raise taxes.  Which will also hurt economic activity.

China has had 171 million abortions from 1970 to 1990.  Which even exceeds the number of deaths in the Great Chinese Famine.  Not uncommon in a communist regime.  Survival.  As their command economy cannot feed or provide for the people like laissez-faire capitalism can.  In a command economy those abortions are seen as a good thing.  A kind thing.  For that’s fewer mouths to feed.  Hence China’s one-child policy.  While in laissez faire capitalist countries their children have obesity problems.  And look at these abortions and see loss tax revenue.

While China is enjoying prosperity in their eastern cities thanks to their export economy fueled by low wages little has changed for the hundreds of millions of peasants in the rural interior spaces.  Where famine is still a real concern.  Some will cite China as an example of out of control population growth.  Like locusts the people will consume all of the available resources.  And leave behind a scorched earth.  Of course what these people don’t understand is the power of laissez faire capitalism.  For across the water from China is Hong Kong.  An Island with no natural resources.  A barren rock.  Yet they were part of the British Empire.  They embraced-laissez faire capitalism.  And flourished while mainland China suffered under communism.  Hong Kong is one of the world’s strongest economies.  With some of the greatest population gains.  During these 20 years their population grew by 43.67%.  The greatest of these 12 countries.  While having the lowest number of abortions.  Yet despite having this massive population gain and few resources this crowded special administrative region (SAR) of the People’s Republic of China (since 1997) prospers.  Suffers no famine.  And is one of the best places in the world to live.

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Government Regulatory Policies make Greek Milk the most Expensive Milk in the European Union

Posted by PITHOCRATES - November 24th, 2012

Week in Review

Greeks are furious over the high price of milk.  Some cannot even afford it anymore.  While others are calling for government to do something about the high price of milk.  Which is rather ironic as the government is responsible in large part for those high prices (see Price of milk makes Greeks’ blood boil by Karolina Tagaris and Alan Wheatley posted 11/22/2012 on Reuters).

Aravanis reserves his harshest criticism for government bureaucrats, who he says make it hard for farmers to obtain land permits to expand and reap economies of scale. “It’s not as if cows are going to be grazing in their living room,” he said.

George Kefalas, who produces milk on a family farm near the northern city of Thessaloniki, said it can take two or three years to get an operating license…

Attempting direct comparisons with prices elsewhere in Europe is treacherous because so many variables are in play, such as transport costs, rents and consumer preferences.

But Eurostat says the price in Greece of dairy produce -milk, cheese and eggs – was 31.5 percent above the EU average in 2011, the highest in Europe…

Skordas said milk was expensive because of farmers’ high production costs, expensive packaging and the cost of transporting milk to remote islands and villages.

Moreover, fresh milk is sold in Greece with a shelf life of just five days, which means more trips to collect it from farms.

Dairy farmers oppose a long-standing proposal to extend the shelf life of milk to 10 days, as is common elsewhere in Europe.

This could be done relatively simply in the pasteurisation process, but Skordas said cattle breeders feared – unnecessarily, in his opinion – that this would open the door to increased competition from imported milk.

Small farms.  Government restrictions.  High regulatory and compliance costs.  If the Greeks don’t want economies of scales (like they have in the US) and want only fresh milk (unpasteurized milk less than 6 days old) legally sold then milk is going to be expensive.  Especially when dairy farmers lobby government to keep their costly regulations in place to keep out less pricy imported milk.

Only government can keep out less pricy milk.  And only government can keep the cost of milk production high by mandating a short shelf life.  As the Greek milk market is a captive market Greeks have little recourse but to pay high milk prices.  Or demand that government stop raising the price of milk with their regulatory policies.

Milk is like oil in a way.  There is little difference between batches when it comes from the source.  But once it enters the regulated market governments start adding costs.  Making some milk (or oil products) more expensive than other milk (or oil products).  The reason why gasoline prices are different in the US than in Europe is that government taxes and regulations are different.  They’re more costly in the Europe so gasoline is more costly in Europe.  Just as milk is more costly in Greece than elsewhere in the EU.

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The British Press slams President Obama following his Reelection

Posted by PITHOCRATES - November 11th, 2012

Week in Review

One of the harshest printed criticisms of President Obama doesn’t come from the US.  It comes from the UK.  From our friends in Britain.  Who have long been willing to tell kings that they aren’t wearing any clothes (see Under Barack Obama the US superpower faces four more years of decline by Nile Gardiner posted 11/8/2012 on The Telegraph).

The world needs powerful American leadership, the bedrock of which rest upon a sound economy, limited government and free enterprise, as well as a strong national defence. But it certainly won’t be provided by Obama’s imperial presidency. In his first term of office, an administration that worshipped bailouts and big government built up staggering levels of debt that threaten to saddle future generations with the profligate spending of their forefathers. Instead of hope, President Obama offered only the heavy fist of government intervention, rising taxes, increasing poverty and welfare dependency, and an increasingly bitter, angry and insular White House.

There is no reason to expect a different approach in Obama’s second term. His re-election will only embolden his deep-seated left-wing instincts, which are to “transform” the United States into a European-style social democracy. There is good reason why the Obama administration has been a wholehearted backer of the European Project – because it sees its ideals as a role model for America, not a warning.

Under the Obama administration, the very foundations of the world’s only superpower are being undermined by a $16 trillion national debt that has increased by 50 percent under President Obama – a staggering debt per taxpayer of $111,414. Incredibly, US per person debt is now 35 percent higher than that of Greece, according to a chart produced by the Republican side of the Senate Budget Committee. As The Weekly Standard reported earlier this week…

At the same time, economic freedom has declined dramatically, with the United States falling to 10th place in the world rankings, with government spending now exceeding one third of total domestic output. Adding further to the $1 trillion federal budget deficit, the White House has pushed through a vastly expensive health care reform package that harkened back to the failed European social model rather than the American dream.

You’d be hard-pressed to read something like this in a major US paper.  Which explains why print media is going the way of the dodo bird.  In a nation that has conservatives outnumbering liberals 42% to 23% the masses aren’t going to read a paper that is nothing more than an extension of the liberal Democrat Party.  The fact that per capita debt in the US is greater than in Greece is BIG news.  For Greece is falling apart from the weight of a European-style social democracy.  The kind of thing President Obama wants to build in the US.  So that bit of news would have been useful for the people to form an informed opinion on the direction of a second Obama term.  But doing so would have been harmful to the liberal agenda.  So the liberal-leaning press didn’t report this.  And it wasn’t a factor in the 2012 election.

To get any news critical of Obama administration you have to go to FOX News, talk radio or our friends in Britain.  Where they will tear apart any politician.  Including Americans.  Such as George W. Bush.  So even if they endorse European-style social democracy and state institutions like the National Health Service they can still be critical of them.  It would be nice to have a little of that in the US.  A little of Bernstein-Woodward investigative journalism that investigates all politicians.  Not just the ones with an ‘R’ next to their name.

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The Greek Crisis is Now Threatening the Credit Rating of the Stronger Eurozone Members

Posted by PITHOCRATES - July 29th, 2012

Week in Review

Since 2009 we’ve been hearing about the European sovereign debt crisis.  Also known as the Eurozone crisis.  And here we are in 2012.  Despite numerous rescue packages and recovery plans the crisis continues on.  Greece can’t borrow money in the credit markets because no one believes Greece will ever be able to pay them back.  For Greece has been running some pretty big deficits.  Which has accumulated an enormous pile of debt.  Resulting from their large spending obligations for public sector wages and pensions.  They don’t have the money.  They can’t borrow the money.  So a massive Greek default is likely.  Which because of the common currency will be felt throughout the Eurozone (see Germany’s AAA rating under threat after Moody’s cuts outlook by Jamie Dunkley posted 7/24/2012 on The Telegraph).

Moody’s warned the outlook for the ratings of Germany, Luxembourg and the Netherlands is negative because the threat of a Greek exit from the eurozone and the need for greater financial support for struggling eurozone countries from the strongest members of the bloc.

In a statement, issued after the close of the US markets, it added: “The level of uncertainty about the outlook for the area and the potential impact of plausible scenarios on member states, are no longer consistent with stable outlooks.”

Not some pleasant choices.  Have a Greek default damage your credit rating.  Or make your taxpayers pay for another nation’s debt.  Which begs the obvious question.  Or should.  How is having other people pay for spending you can’t afford going to solve your problem of spending more than you have?  If Greece doesn’t cut their spending nothing will change in the long run.  They will need another emergency bailout following this emergency bailout.  Because this emergency bailout doesn’t address the source of their trouble.  Excessive government spending.

Keynesians encourage excessive government spending because they think it’s stimulative.  That it creates economic activity.  In fact the Keynesian solution to the Greek crisis is more government spending to stimulate the economy.  Which begs the obvious question.  Or should.  If government spending does all of this why after all of their government spending is Greece on the precipice of bankruptcy?  Huh?  Answer that one smart Keynesian person.

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The Ruins of Past Greek Overspending join the Ruins of their Glorious Past

Posted by PITHOCRATES - July 22nd, 2012

Week in Review

Greece is at the heart of the Eurozone crisis.  Or, as some would say, the cause of the Eurozone crisis.  Their deficit spending threatens to bring an end to the Euro itself.  For the only way to save the Euro appears for other Eurozone members to assume Greece’s debt.  And make their taxpayers pay for it.  Something their taxpayers understandably don’t want to do.  But the Keynesians urge such a plan.  Along with some debt forgiveness.  So the Greeks can start spending some more.  To stimulate their economy to recovery.  As if their overspending ways of the past had never happened (see Greek athletes strive for London as Athens legacy fades by Mark Lowen posted 7/22/2012 on BBC News Europe).

Outside lie many of the venues from the Athens games, others dotted around the city. Most are idle, locked up and empty, simply rusting under a baking summer sun.

They mirror the decay now felt across the country – but also stand as monuments to Greece’s mistakes: the massive overspend of the past, without any plan for later use.

They’re seen as representative of the short-term vision that got Greece into its financial mess in the first place. The hoped-for privatisation of many of the sites has been thwarted by a mix of bureaucracy and mismanagement…

They came at the height of Greece’s borrowing boom: three years after the country joined the Euro, Athens was investing in grand infrastructure projects that it simply couldn’t afford: among them, the Olympics.

What the Keynesians fail to explain (at least with a straight face) is how more such spending will not saddle Greece with more debt that they will also not be able to service.  Putting them back exactly where they are now.  Or even in a worse financial position.

During the 20th century the European countries became social democracies.  Promising a cradle to the grave welfare state.  And large public sectors.  With large public spending.  All paid for by large tax rates on the taxpayers.  Only one problem.  All of Europe’s population is aging.  People are having fewer children.  Meaning there are fewer people entering the workforce to become new taxpayers.  While a greater number of people are leaving the workforce to go into retirement.  While enjoying their pensions and health care.  Paid for by a shrinking workforce.  Add that to grand infrastructure spending and you get unsustainable government spending obligations.  Ever more government borrowing.  And a Eurozone debt crisis.  Or in other words, Greece.

The Greek government did a great disservice to their people.  They spent so much that cutting back will be incredibly painful for their people.  But it’s the spending that’s the problem.  They have to cut it.  And if they don’t do it now it will only become more painful in the future.

Greece.  Home of Athens.  The cradle of Western Civilization.  Once the greatest place in the civilized world.  The nation that pushed back the mighty Persian Empire.  Now adds new ruins to their landscape among those of their glorious past.  But they can once again restore their glory.  If they just abandon Keynesian economics.

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