Faced with Unpleasant Austerity Spain follows Greece’s Lead and Riots in the Streets

Posted by PITHOCRATES - March 31st, 2012

Week in Review

The Eurozone is suffering the consequences of their social democracies.  Their cradle-to-the-grave welfare state.  And huge governments full of government jobs.  Paying nice salaries and benefits.  Greece is on the brink of bankruptcy because of their out of control spending.  And when they try to rein in that spending the people take to the streets in violent protest.  Making it very hard for the government to take back some of the free stuff they’ve been giving out to buy their votes.  And making it ever harder to avoid bankruptcy.  Now it’s Spain’s turn (see Spain Unions On Strike Over Austerity Plans by Robert Nisbet posted 3/30/2012 on Sky News).

Scores of Spanish workers have been arrested after protesting on a day of anger over a swingeing austerity drive and changes to labour laws…

In scenes reminiscent of anti-austerity demonstrations in Greece, tens of thousands held protest marches in Madrid and other cities…

There is widespread anger at moves by Prime Minister Mariano Rajoy’s conservative government – which is not yet 100 days old – to slash Spain’s debt and boost the economy.

Spain’s biggest unions called the 24-hour strike over labour reforms which make it cheaper and easier for companies to lay people off and cut wages without consultation.

The government claims they are needed to tackle the 22.85% jobless rate, which is predicted to rise to almost 24.3% this year…

The government is under pressure to reduce its budget deficit, which last year ballooned to 8.51% of all the goods and services produced by Spain.

The European Union says this must be reduced to 5.3% this year and 3% in 2013 but economists warn that growth in Spain is so sluggish and debt so high, it will be a tough deadline to meet.

There is good reason for nervousness in the Eurozone. Unlike Greece and Portugal, Spain is deemed too big to bail and British banks are also heavily exposed to Spanish debt.

With unemployment running at 50% among young Spaniards and, as a member of the Eurozone, no monetary levers to pull, the government in Madrid says it has little choice but to wield the axe once again.

Peak unemployment in the U.S. during the Great Depression was about 25%.  So Spain is enduring Great Depression unemployment.  That’s bad.  What’s worse is that those who can be the most violent in their discontent, the young, suffer from 50% unemployment.  Filling them with discontent.  And a lot of free time on their hands.  Never a good combination.

If Spain has a high budget deficit it can only mean one of two things.  Either their government is spending too much.  Or their economy cannot generate sufficient tax revenue from their tax structure.  Either taxes aren’t high enough.  Or taxes are too high and they dampen economic activity thus reducing tax revenue.  With those high unemployment numbers, though, the smart money is on ‘they’re spending too much’.  Both the government.  And the employers.  Where the unions are holding the cost of labor (wages and benefits) so high that it’s too costly to hire more employees.  Whereas if the market set wages and benefits these costs would come down to reflect that large surplus of labor out there.  And the people who want jobs could get jobs.

The problem with these social democracies is that they are anti-business.  They favor the public sector over the private sector.  But you can’t keep beating up on the private sector.  Because they pay the taxes that fund the public sector.  A lot of that unemployment no doubt are government workers they let go to meet their Eurozone requirements.  And there are probably a lot more to follow.  If they reduce the cost of labor in the private sector the private sector will be able to absorb these people.  And as the private sector grows and becomes more productive more people will be paying taxes.  And they will be able to bring down those massive budget deficits. 

But if they don’t bring down labor costs or cut government spending, hello Greece.  Which they are currently experiencing in the streets of Spain.  Which, incidentally, is the path the U.S. is currently on.

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The Greeks give their Answer to the Latest Bailout Package – Violent Protest

Posted by PITHOCRATES - February 12th, 2012

Week in Review

And the saga continues.  The ever elusive solution to the Greek debt crisis grows ever more elusive (see Greece reels after leaders agree to harsh spending cuts by Michael Birnbaum posted 2/10/2012 on The Washington Post).

Greeks clashed on the streets of Athens and in the halls of government Friday, as protesters grew violent and one after another cabinet minister resigned, a day after the nation’s leaders accepted foreign lenders’ demands for tough austerity cuts to try to stave off bankruptcy.

By late evening, six cabinet members had resigned and Prime Minister Lucas Papademos went on state television to threaten members of his shaky coalition government with expulsion if they opposed making sweeping spending cuts in exchange for a bailout that would keep Greece from defaulting on its debts by mid-March. A Greek bankruptcy could shake the euro zone and potentially wreak havoc throughout the global financial system…

But protests over the austerity plans were already paralyzing the capital, as thousands marched during a demonstration led by the country’s two largest unions. The new mandates will reduce the minimum wage to $780 a month from $1,000 a month, slash social entitlements, freeze salaries for years and cut 150,000 workers from government payrolls by the end of 2015. Greek unemployment already stands at 20.9 percent.

Some protesters threw gasoline bombs and stones at riot police, who responded with tear gas, the Associated Press reported. Police said that eight officers and two protesters were injured. The unions called for a 48-hour general strike, the second this week, and much of Athens was shut down…

“Of course we do not want to be outside the E.U., but we can get by without being under the German jackboot,” Karatzaferis [head of a junior partner in Greece’s coalition government] said at a news conference. “I would rather starve.”

This is the problem with the Eurozone.  There’s a currency union.  But no political union.  While the Germans were being responsible (for they have a history of hyperinflation they don’t want to repeat seeing that it gave the world Adolf Hitler) the Greeks were spending beyond their means.  And may have fudged their numbers to join the monetary union.  And now the Greeks are broke.  And they need someone to bail them out.  And guess who is the richest in the Eurozone?  That’s right.  Those responsible Germans.  And what do some Greeks call the only people who can bail them out?  Jackboots.  A not so veiled Nazi slur.  With love like that they’ll never be a political union in the Eurozone.  And perhaps no Eurozone when countries start going bankrupt.  Starting with Greece this March.

The Greeks are well on their way on the Road to Serfdom.  The public sector has grown so large that those left in the private sector can no longer pay for them.  Which gives them a very unfortunate choice.  Either shrink the public sector by slashing costs.  Or kill the private sector entirely.  And make all Greeks serfs in a new state economy of subsistence.  Where everyone will be equal in their suffering.  Except, of course, those in the ruling class.  Who will be more equal than others.  And will be able to enjoy their lives.  Much like in North Korea.  Where Kim Jong il carried a few extra pounds while his people suffered famines.  Of course, before that happens there will be a great exodus as Greeks flee their country.  Which will inundate other countries with refugees.  And cheap labor.  As refugees typically are.  Throwing their economies into turmoil.  Spreading the Greek contagion throughout Europe.

There is no easy way out for Greece.  And it’s going to get worse before it gets better.  This should be a lesson in the growth of state spending.  But will anyone learn?  Let’s hope so.  Because if Germany or the United Kingdom or the United States goes down this Road to Serfdom the Greek problem will pale in comparison.

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FT93: “Those who don’t want to pay more taxes are greedy yet those who want more free benefits are not.” -Old Pithy

Posted by PITHOCRATES - November 25th, 2011

Fundamental Truth

Income Gaps are a Bad Thing when our Own Income is at the Low End of the Gap

Greed is a tricky word.  A lot of people say it’s bad to be greedy.  And a lot of people believe that it is.  There is a level of wealth out there.  If you’re below it and you want more it’s okay.  You’re not greedy.  If you’re above it and you want more then shame on you.  Because you’re greedy.  But can you name that line of wealth?  Probably not.  Why?  Because it isn’t a fixed amount.  It moves.  And it’s relative.

You see, we judge wealth by comparing another’s wealth to our own.  Anyone wealthier than we are already has enough and should not object to paying more income taxes.  So these taxes can buy more free government benefits for those not as wealthy.  Namely ourselves.  So we can have more without having to work any harder to get it.  For we believe income gaps are a bad thing.  At least when our own income is at the low end of the gap.  And we believe the government should level the playing field.  Make things fairer.  By redistributing the income of those who already have enough.  To those of us who don’t.

At least that’s the mentality.  Because few people in the world would ever believe that they already have too much.  Even rock stars and professional athletes who have more wealth than most could ever imagine believe this.  Because neither continues to play for free after earning ‘enough’ wealth.  And neither would ever consider themselves greedy.

Wanting a Free College Education somehow isn’t Greedy

No one illustrates this better than the college student.  Fresh out of our public school system.  Where they’ve learned the evils of capitalism.  The fairness of socialism.  And the benevolence of Big Government.  These kids are all about equality.  Egalitarianism.  And sticking it to Big Business and corporate America.  All while enjoying their products.  Cell phones.  Cars.  Clothes.  iPods.  Air conditioning.  Heat.  The Internet.  Reality television.  To name but a few.

But life isn’t fair.  And favors the rich unfairly.  So they become politically active.  Vote the anti-capitalistic ticket.  And participate in the occasional protest.  Making it ever harder for Mom and Dad to foot the bill for their carefree life of self-discovery.  By voting for the party that raises their taxes.  But these kids don’t care.  Mostly because they don’t have a clue about the things they’re protesting.  But protesting is fun.  So they protest.  And, of course, because greed is bad.

But greed is relative.  And somehow their greed isn’t greed.  First of all, they’re going to college.  Why?  To make a lot of money.  Because they’re greedy and want the latest cell phone, car, style, iPod, etc.  They want all the best toys.  And party at all the best clubs.  But having that kind of money often requires a college education.  Which isn’t cheap.  And requires some sizeable student loans.  That they don’t want to repay.  Because it isn’t fair to burden new college graduates with the cost of their education.  And yet somehow this greed (wanting a free college education) isn’t greedy.

It’s Easy to Think of the Righteousness of Egalitarianism when you’re not Paying the Bills

College kids may think their parents are greedy for not wanting to pay more taxes.  For not believing in the righteousness of egalitarianism.  Like they do.  Then again, it’s easy to think that way when you’re not paying the bills.  It’s a whole different story when your bills don’t go to Mom and Dad anymore.

And if you got a high-paying job with that college degree you may lose even more of your brotherly love.  When you start paying your own bills.  You discover you can’t have everything you ever wanted simply by having a college degree.  And you make an even more startling discovery.  The more you earn the more the government takes in taxes.  And that just isn’t fair.  Now that you’re on the other side of that income gap.

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