The Many Faces of a Meltdown
Pensions: When the Union initially came together in the 1950s, each retiree in member nations was supported by taxes from seven workers, a ratio of 7:1. By 2050, or sooner, that ratio is expected to evaporate to 1.3 workers for every 1 retiree.
Politically Correct Medicine: In 1999, multiple sclerosis patients in Belgium seeking money to pay for a new drug were abruptly ignored, even after widespread public protests. Meanwhile, AIDS patients making similar demands for their highly expensive medical treatment were given immediate attention. In Europe, the “politically correct sick” are more equal than others.
Ever-rising Costs: Nationalized health care is the norm among EU nations. However, the confederation has not successfully controlled escalating costs. In Germany, for example, a person was taxed 13.1 percent in 2000 for health care. By 2010, it was 15.4 percent, and by 2040, it will reach a conservatively estimated 23.1 percent.
Frozen Currency: When Greece, Italy, Spain, and other EU members fell into hard economic times, they couldn’t bring in extra cash because they were tied to the euro. A way to bring in more cash is to make things cheaper for foreigners to buy. If a $1,000 new car was suddenly only $500, more cars would be exported, and more cash would flow into the country. The mechanism to achieve that is devaluing the currency—make more of Greece’s drachma (Greece’s currency) available for the same number of dollars. But, being committed to the inflexible euro, Greece was stuck with no way to increase its income from exports.
Bankrupt: By 2011, the EU’s money ran out, all the treasuries were being raided, no more easy credit was available, and the alliance was in general economic collapse. As a side note, the rules said that no EU nation could settle the debt of another with loans, but everyone knew it happened all the time anyway.
Consolidating Power: The U.S. Constitution was structured to dilute political power over the greatest number of people. The EU did just the opposite by concentrating political power into one body of 27 un-elected commissioners thought to be experts in economic affairs. They weren’t. In 2012, Germany’s Angela Merkel called for the creation of a European political union with member nations ceding more national powers to a central EU government, a strengthened bicameral European parliament, and creation of a European supreme court—Merkel’s version of a new world order.683
Not Ready: The utopian dream of a united Europe, a forerunner to how one-world government might be established, crumbled in 2005. An effort to bind EU member states under a constitution collapsed when France and the Netherlands rejected it. The EU’s massive document had 448 articles (the U.S. constitution has 7), and it tried in vain to cover every contingency and make everyone happy. Two years after the failure, the Treaty of Lisbon in 2007 achieved many of the same desired goals.
Outlaw Keynes: A positive outcome of the EU debt crisis was the choice to abandon Keynesian economics. From 2012 onward, there was to be no more “borrowing to spend” to kick start economies. Austerity was the new demand—cut expenses, control taxes, issue limited bailouts, pay them back, set debt ceilings, control budgets, and punish future fiscal sinners.684 It highlights the ages-old and common-sense approach of pay for what you get, and avoid debt like the plague—the black plague, something Europe is already familiar with.
Bailout: In 2011, a one-trillion euro loan was secured to bail out failing banks in Ireland, Spain, Portugal, Italy, and Greece. The cost for that loan was placed on the taxpayers in those same countries, plus the rest of the EU. The result was puzzling. The people who were guaranteeing that the loans would be paid back were those same people receiving the loans from which they would pay back the guaranteed loans. There was no new money coming in—the classical Ponzi scheme at work—the hungry snake getting satisfaction from eating its own tail, and accepting the pain as part of the new deal.Same Thing All Over Again
In 2010, an economics student in Athens was quoted in the New York Times expressing his resentment that he had to pay higher taxes for his government’s extravagance. “They sit there for years,” Aris Iordanidis, 25, said, “drinking coffee and chatting on the telephone and then retire at 50 with nice fat pensions. As for us, the way things are going we’ll have to work until we’re 70.”685
Iordanidis’ comment echoed the same complaints from Plymouth, Jamestown, Harmony, and a thousand other failed socialist experiments: “Why do I have to work and pay for someone else’s luxury? Why don’t they work and pay for their own?”
Such is the nature of socialism in Europe and around the globe. People come to expect certain services from their governments. And when taxes and borrowing don’t cover the costs, economic reality forces governments to take a few steps back and reduce health coverage, pension plans, insurances, support for assorted projects, etc. And how do the people respond? With riots in the streets. It takes very little time for the entitlement mentality to grow oblivious to the basic economic realities of life; they think welfare is their God-given right.
The French Illness
In 1977, the French scholar and politician Alain Peyrefitte (1925-1999), identified a characteristic of hampered markets that always leads them to eventual collapse. He called it “the French Illness.”
“The state wants to assure the happiness of its citizens in spite of themselves,” Peyrefitte said. “Everything is decided at the top, far from those areas where the decisions will be imposed. Economies based on such authoritarian practices have always found it difficult to move forward. Our administration ... prefers to set prices, fix quotas, create new establishments rather than to make sure that the laws of competition are faithfully followed.”686
Peyrefitte saw in his day the eternal constant that when it comes to national economies, top-down manipulation never works. Decision makers removed from the realities of the day-to-day market activities are in no position to factor in everything necessary to make things work. He said, in short, distance makes the smart go wander.
Keynes Lays The Trap
John Maynard Keynes (1883-1946) gave “the French illness” some economic authority when he convinced most of the industrialized nations that spending money is what makes the world go ‘round. When one person spends, Keynes pointed out, another person earns. That person spends, and another person earns. This is supposed to produce prosperity for everyone. But when one person decides to stop spending and save the money, this theoretically prevents others from earning, and the whole cycle slows to a halt ... he said.
Keynes theorized that in hard economic times, going into debt was the best way to keep this cycle going. By spending for things using credit cards (even if the credit limits are in the trillions of dollars), Keynes’ idea was that more money would continue circulating, creating more opportunity for earning, spending, earning, spending, and so forth.
But that’s not what happened. Those who indulged in that philosophy spent too much and everyone went bankrupt.
The free market handles life with greater efficiency. Grandma’s traditional and time-proven principles of austerity, living within one’s means, pay-as-you-go, and working to pay off frugally-enacted loans creates healthier markets and nations. This lesson is obvious to any household or business owner, but for some reason, that clarity of prosperity becomes lost to politicians worldwide.
Managing the conflicting ideas of Keynes and the free market gave birth to decades of top-down control, central banks, and fully embracing the seven pillars of socialism—all of these working to control the markets for maximum production. Billions of people have been seduced to endure, embrace, and encourage those failed ideas.
Ruler’s Law Is Easier
There is not a purely socialist state in the world today. Every nation has a degree of free-market activity taking place, some clearly more free than others. Even in places like China, Vietnam, North Korea, Cuba, Africa, and some eastern European countries where freedom has been ground to dust, there remain some open market or black market activitie
s that keep the government-controlled economies propped up and limping along.
Ever Promising, Never Delivering
The world’s descent into socialism is a loss of efficiency. Heavier tax burdens are placed on the populations. Dissatisfaction increases, crime rates rise, clashes with the government increase, and in some instances, full-scale rebellion breaks out and rulers are toppled. While the Middle East underwent regime changes after the first decade of 2000, most nations have continued to absorb the tyranny, giving validity to Jefferson’s observation that “Mankind are more disposed to suffer, while Evils are sufferable, than to right themselves by abolishing the Forms to which they are accustomed.”687
What are some of these forms people would rather suffer through than abolish? How have the people fared under the “Forms to which they are accustomed”?
* * *
680 The CIA World Factbook, European Union, 2011.
681 Montreal Gazette, Euro under siege as now Portugal hits panic button, Nov. 15, 2010.
682 Ibid.
683 The Guardian, Angela Merkel Casts Doubt on Saving Greece From Financial Meltdown, January 25, 2012.
684 The Guardian, ibid..
685 Steven Erlanger, Europeans Fear Crisis Threatens Liberal Benefits, The New York Times, May 22, 2010.
686 International Herald Tribune, Happiness Decreed From on High—’The French Illness’, Paris, May 1977.
687 Thomas Jefferson, The Declaration of Independence, July 4, 1776.
Chapter 87: A Snapshot of World Socialism
—Australia, Argentina, Canada, China, Cuba—
In bad economic times, nothing is more easily rationalized than a welfare check from the government.
Star Parker is a black American woman who fought her way out of her crippling addictions to drugs and welfare. For much of her adult life she cheated the welfare system to receive food stamps, a couple of welfare checks each month, free public housing, rent, and medical treatment. And then one day, she woke up hating the life she was living. She loathed what the free handouts were doing to her, and decided that welfare was as much an addiction as were her drugs. She said her life, her happiness, and her sense of satisfaction were “spiraling into a little dark hole.”
As a result, Parker got herself clean. She fought to rid herself from drugs, got a job, and started paying her own way. And then one day, finally, life started to have meaning, she said. She decided others were in a similar circumstances, and she wanted to help. That’s when she founded CURE (Coalition of Urban Renewal) to pull black families out of the entitlement trap she was in, a trap she blames on President Lyndon B. Johnson’s massive entitlement program:
“After the war on poverty in the ‘60s,” Parker said in 2011, “we began to see the unraveling of the entire black community because the family collapsed. During the ‘60s, the black family was pretty healthy. Seventy-eight percent of husbands were in their homes with their wives raising their children. But after this lure to government that said ‘you don’t have to work, you don’t have to save, you don’t have to get married,’ over time marriage stopped occurring to where now 7 out of 10 black children are born outside of marriage—and what happens when you don’t have that intact family is your values change. So your culture changes. So your community changes.”688
Parker said welfare can be blamed for:
More than 600,000 blacks in American jails or prisons
60 percent of black children growing up in fatherless homes
More than 300,000 black babies aborted annually
50 percent of all new AIDS cases sprouting in the black community
Almost 50 percent of black men in America neither working nor attending school. In addition to the terrible toll on families that welfare exacts, the ugly truth that compulsory care doesn’t work hits hardest in the national wallet. Reining in the enormous costs is an exercise in painful reconciliation that is hard on every economy. In most countries, the political party stuck with the dirty work to bring entitlement spending under control nearly always gets booed out of office, or killed. The entitlement mentality is a viciously vengeful vassal that can rise up against its masters, even those attempting to fix problems, and exact its displeasure at a moment’s notice.
Nose Dive
The modern welfare state is in a death spiral. It has created an expectation among the populous that it can’t fulfill. The result has been varying degrees of enormous national debt, complicated by aging populations, low birth rates, huge budget deficits, and national demands for more government intervention to solve the mess. That’s what socialists do.
The only viable answer for these economic plagues and the associated pillars of socialism is to emulate the example of people like Star Parker. She knows how to restart the dead engines of personal incentive and escape to freedom.
“Incentive to work”
Shrinking the welfare rolls in any nation begins with pushing the unemployed back to work. The term “incentive to work” was often used during the world debt crisis as code for “It’s time for the government to cut your monthly check—in half ... so get off the couch and get a job.”
Such calls to labor created a great hue and cry across the many nations as appeals were made to show mercy and compassion for the sick, young, elderly, disabled, and under-qualified—but those were not the people targeted by the various austerity plans. It was the able but non-working people who needed to be encouraged, re-trained, and enticed off the dole into real jobs. The world can simply no longer afford the costly welfare state.
Reining in run-away entitlement spending has a familiar ring to it, almost as if the ghost of Henry VIII and his Poor Laws of 1530 had returned to go after “...vagabonds and beggars [who] have of long time increased, and daily do increase ... being whole and mighty in body, and able to labour ... there to put himself to labour, like as a true man oweth to do.”689
Here are some samples of socialism’s ruinous impact on nations,690 and the pains of “compulsory care withdrawal” (as of 2012):
Country: Argentina (41 million people)
BELOW POVERTY LINE: 12 million (30 percent)
WELFARE COSTS: Not available
NATIONAL DEBT: $136 billion (#36 in world)
STORY: As of 2012, Argentina remains steeped in corruption and heavy-handed political intrusions that have plagued the country for years. The election of Nestor Kirchner to the presidency in 2003, and later his wife in 2007, continued the problems that have since grown worse. The country’s appearance of a booming economy was created in part by government intervention in the free market, nationalizing various industries, and data manipulation. Popular support continues despite the continued corruption at the highest levels and violations of personal rights that further entrench the ruling powers.691
Samples of tyrannical control include Mrs. Kirchner’s takeover of the country’s statistics bureau and replacing its director to stop the reporting of bad economic news. She also had the top staff fired. The manipulation of data became evident when some time later the government reported 7 percent inflation. Outsiders laughed it off, saying it had to be more like 22 percent and on its way to 30 percent in 2012.692
To balance the budget in 2008, Mrs. Kirchner seized private savings, similar to America’s 401(k) programs, to the tune of $30 billion, nationalizing the private savings industry at the same time. The move sent the Buenos Aires stock-exchange index plummeting by 24 percent in two days. Despite this and other interventions by Mrs. Kirchner, the country’s economic growth nevertheless continued to slow and inflation continued to climb.
To keep food, oil, and gas from being exported, she imposed a 35 percent tax on food and a 100 percent tax on oil sold above $45 a barrel. She limited how much farmland could be held by foreigners, heavily taxed beef exports to keep it in county, and put a cap on all utility prices—this latter intervention
drove the U.K. and French energy companies out of the country. In 2012, Mrs. Kirchner seized YPF Gas, part of Spain’s energy giant Reposol Butano SA, making it an Argentina-owned public utility. In 1999, Spain invested $15 billion to buy YPF to help the then-struggling Argentina privatize its economy and get back on its financial feet. The 2012 takeover sent Spain’s YPF stock prices plummeting more than 70 percent.693
When the Central Bank president wouldn’t give Mrs. Kirchner the $6.6 billion held in the bank’s reserves so she could pay off foreign debt to keep confidence with lenders, she fired the president to make things easier. The president resisted, saying only Congress could fire him. It went to court and the judge ruled in favor of the bank president. A few days later the judge found the police standing on her doorstep with questions. She was watched and followed for weeks. Eventually, Mrs. Kirchner got her way—and a new bank president.694
To silence the press, she shut down the main Internet provider and nationalized the newsprint providers, forcing newspapers critical of her to pay higher fees for the paper.695
Do Argentinians love socialism? They’re evidently too afraid to think otherwise—Mrs. Kirchner was re-elected in 2011.
The Kirchner’s ruined Argentina’s budding marketplace, causing it to fall from the 19th freest economy in 1998, just prior to them taking power, to 135th in 2010.696
Country: Australia (21.8 million people)
BELOW POVERTY LINE: Not available
WELFARE COSTS: 18 percent of GDP (#22 in world)
NATIONAL DEBT: $1.4 trillion (#13 in world)
STORY: In 2011, Prime Minister Gillard prepared to slash spending on social welfare, which is her country’s largest single-ticket item. She estimated that at least 2 million would be encouraged back to work from the ranks of: 800,000 part-time workers who wanted longer hours; 800,000 who were unemployed and discouraged, but took no welfare; and 620,000 unemployed who were officially on welfare at a cost of $11 billion every year.697 Gillard was castigated by the press and politicians. Had there been enough pitchforks, her capital gates would have been stormed. The Australians love socialism.
The Naked Socialist Page 53