Friday, May 21, 2010

Austerity: From Greece to Grand Rapids

Most Americans probably haven't heard of the term austerity until recently. If you lived in Europe, it would be a daily topic of discussion. Austerity essentially means being forced to live with less, particularly as it relates to government benefits. As Greece has essentially entered a period of national bankruptcy, the government is finally being forced to spend less money. That's the ultimate end game of governments who cannot stop themselves. They are eventually forced to stop by external economic forces.

Greece, as well as many other European countries, has lived for a long time on soft socialism. As time went by, more and more "worker protections" were passed making it hard to fire people, giving away bigger and bigger government pensions, more and more civil servants on the payroll, more "bonuses" to those civil servants, and even lying to the rest of the world about how much money was actually being spent by governments. But, as anyone who can do a little math would conclude, this can't go on forever. You can't go on forever spending more money than you take in. I know, I know, many politicians and other apologist buffoons will tell you that we can indeed go on spending forever, but they are either stupid or lying.

I'd like to re-post some items from a blog I regularly visit, Mish's Global Economic Trend Analysis:

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Social unrest continues to brew in Europe. This time in Romania and Greece. France is on deck as French President Nicolas Sarkozy battles unions who refuse any cuts in pension benefits. French unions have called for a general strike starting May 27.

Let's kick of the discussion with a look at Romania. The BBC reports Thousands protest over Romania austerity measures.
Tens of thousands of public sector workers have gathered in the Romanian capital Bucharest to protest against plans to cut wages and pensions. The gathering was one of the biggest on the streets of Bucharest was one of the biggest since the Romanian Revolution.

"We will not leave until the government quits," said Bogdan Hossu, leader of the Cartel Alfa trade union. Marian Gruia, head of the policemen's union, called on Romanians to unite, "as we did in 1989, when we overthrew the dictatorship" of communist leader Nicolae Ceausescu.

Romania's economy shrunk more than 7% last year and it needed an IMF bail-out in order to meet its wage bill. It says it needs to implement new austerity measures to qualify for the next installment of the 20m-euro ($25bn; £17bn) IMF loan.

The government has proposed wage cuts of 25% and pension cuts of 15% in order to reduce the country's budget deficit.

New Wave of Strikes in Greece Over Painful Austerity Measures

Please consider Greek unions hold new general strike against cuts
Unions plan to protest the painful austerity measures of Greece's cash-strapped government by holding a general strike Thursday that will close much of the country's public sector and shut down the country's ferries, trains and public transport.

Thursday's strike is to shut down schools, tax and local administration offices, ferries, trains and most other public transport options in Athens. State hospitals will have to operate with emergency staff only.

Most flights will be unaffected, as air traffic controllers will stay on the job. However, some regional airports will close, and Greece's Olympic Air carrier said it was canceling 30 domestic flights.

Austerity Woes in France

Inquiring minds are reading Sarkozy Grapples With ‘Politically Unacceptable’ Deficit Cuts.
French President Nicolas Sarkozy’s popularity fell to its lowest since his 2007 election last month. Worse may lie ahead as he cuts spending and raises taxes in the wake of Europe’s financial crisis.

Sarkozy risks increasing voters’ ire two years ahead of presidential elections as he strives to meet promised deficit- reduction targets and pacify investors. The choices include the politically sensitive areas of lifting the top tax rate and tightening pension requirements.

“Austerity is economically necessary but politically unacceptable,” said Laurent Dubois, a professor at Paris’s Institute of Political Studies. “But he has no choice, the debts are too heavy.”

The dilemma facing the French leader, who took office three years ago this week, underscores the bind facing European Union politicians, whose response to the Greek debt crisis prompted them to pledge reductions in their deficits and public debt.

Sarkozy has said he will cut France’s deficit to 3 percent of economic output in 2013 from 8 percent now. His reliance on a spending freeze, economic growth and a pension overhaul will get him only partway there, according to Samuel-Frederic Serviere, a researcher at Ifrap, a Paris-based group that monitors government spending

“With just the measures that have been announced, at best we’ll get the deficit down to 5 percent by 2013, and that’s in the best of cases,” Serviere said. “What they’ve announced so far just isn’t sufficient given our European engagements.”

Union leaders say they won’t accept any change to France’s legal retirement age of 60 and have called a general strike for May 27. The opposition Socialist Party is also defending retirement at 60 and says higher taxes will plug the deficit.

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What does this have to do with Grand Rapids? We see our own microcosm of looming austerity here. As this blog has pointed out over and over, the city's pension plans are unsustainable. Rather than do anything about it, the city's leaders pleaded for, and got, a tax increase that will, at most, kick the problem down the road for 12 months. As I've demonstrated, the city's pension plans are a ticking time bomb that will bankrupt the city. Not might bankrupt the city. The city's pensions will bankrupt the city. The city's politicians don't want to deal with that now, though. They prefer to string the problem out as long as possible. In the mean time, they threaten us with reduced police and fire protection if we don't approve their pension bailout.

Well, it worked. Now the city's taxpayers get to pay more. The increased taxes will not restore or increase city services. In fact, the tax increase has guaranteed that city services will continue to be cut. How? Because we extended their pension failure by one year. All this extension does is guarantee that things will be worse next year by not addressing the root of the problem.

And that brings us back to the beginning of this article. Politicians do not stop overspending until they are forced to. Eventually Grand Rapids' politicians will be forced to fix the issue, but until then, they will do everything in their power to keep the failed pension plans going. This guarantees that more and more money goes to pensions and less and less money goes to doing what a city should actually be doing: police, fire, roads, etc. The citizens will suffer while the politicians cower and fail. The city's bureaucrats will eventually be forced into austerity.

We have tea parties (which were silent in regards to Grand Rapids' tax increase) who claim they want cuts in government, but it's clear people don't actually want any cuts, because so many people are dependent on the government's teat. We all want to live off someone else. That works fine for a while, then suddenly it doesn't.

I'll end this post with another prescient quote:
“Unlovely as they are, the Greek rioters are the logical end point of the advanced social democratic state: not an oppressed underclass, but a pampered overclass, rioting in defence of its privileges and insisting on more subsidy, more benefits, more featherbedding, more government.”

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