Greek unemployment has now surged to 16.5 percent as it struggles to implement a half-baked austerity program. Greek's austerity program is an example of policy gone berserk. The austerity program that Greek politicians have pursued (with the support of the EU) is too little to have any impact on their spiraling debt problems and too much to permit the economy to avoid collapse. Why do this?
The Portuguese have rejected austerity. Others will follow. Austerity without at least a partial debt default is a foolish and unsustainable policy. The best historical precedent for the madness going on in the European union today is the reparations payments program foisted onto Germany by the Treaty of Versailles. We know how that experiment ended. Enough.
There is no reason to insulate bondholders from the folly of their investments. They should bear the brunt of bad decisions. Portugal, Greece, Ireland, Italy, and Spain should default, at least in part, on their sovereign debt. "Should" will eventually turn to "will" anyway. There is no way that these austerity programs are bearable.
None of the European economies are truly competitive any more. Europe has been carried along by the American economic engine for the past two generations. But, the US can't be the engine that pulls the EU anymore. The US has problems of its own that increasingly mirror the problems of the European zone.
The economic future is with countries that have competitive economies fostered by governments that see economic growth, not economic pie redistribution, as the number one goal of economic policy. This means Asia. This means parts of Eastern Europe. It means one or two isolated situations in Latin America. Everywhere else, the number one goal is to divide up the economic pie. That never leads to good things for the average person who finds, inevitably, his/her share of the diminishing pie diminishing as well.
The rich do not necessarily get richer. Sometimes the rich get preoccupied with implementing policies that stifle economic growth. Hubris breeds incompetence. That is what has happened to Europe and the United States.
Friday, March 25, 2011
Thursday, March 24, 2011
The Beat Goes On
Jose Socrates, Prime Minister of Portugal, failed this week to get his country to complete the fiscal austerity program designed to save Portugal from defaulting on their sovereign debt. The truth is that no one cares about Portugal. The big concern is Spain. Portugal is a relatively small economy and EU bailout fund could easily accommodate Portugal's needs (and probably will do so soon). But, that leaves Spain. Spain's problems are so immense that the EU has no serious way of dealing with it.
Thoughts of Portugal lead to the contemplation of Spain, in true domino-theory progression. It is hard to see what the EU will do when Spain is the headline. That could be game over (and we haven't even begun to speak of Italy).
All of this is a policy of wishful thinking by the EU, of course. It is simply a matter of time until all the PIIGS countries (Portugal, Ireland, Italy, Greece, Spain) default on their sovereign debt and are forced to nationalize their largest banks. Why they think putting this off is a good idea is something of a mystery. It only gets worse with time.
The US is not far behind.
Thoughts of Portugal lead to the contemplation of Spain, in true domino-theory progression. It is hard to see what the EU will do when Spain is the headline. That could be game over (and we haven't even begun to speak of Italy).
All of this is a policy of wishful thinking by the EU, of course. It is simply a matter of time until all the PIIGS countries (Portugal, Ireland, Italy, Greece, Spain) default on their sovereign debt and are forced to nationalize their largest banks. Why they think putting this off is a good idea is something of a mystery. It only gets worse with time.
The US is not far behind.
Monday, March 21, 2011
Check out Matthew Klein's Piece in NYTime Today
Matthew Klein's article dubbed "Educated, Unemployed, and Frustrated," describes the plight of American young people looking for a job and a future. He notes that 21 percent of workers between ages 16 to 24 are unemployed. These, of course, are mostly not college graduates, although Klein strongly suggests that they are in a typical NYTimes manner. The truth is that college grads have a very low unemployment rate, less than 5 percent in the aggregate, while non college grads have five times that number. Klein doesn't bother to ask why?
Klein does note the burden of entitlements which systematically favor age over youth, but that doesn't explain why young folks are struggling so in the job market, especially those without a college degree. Perhaps, he should look at some of the other editorials that grace the NY Times -- the ones that support employer mandates, the ones that suggest that all business folks are crooks, the ones that support higher taxes for employers, the ones that support Obamacare and other back breaking mandates on business, the ones that encourage frivolous lawsuits aimed at deep-pocket business when business is not really the offender, and on and on.
The answer is simple. We have priced these young folks out of the market. Who can afford to hire them. Not American business. The rest of the world, fortunately for them, unfortunately for us, does not load up employees with goodies that need to be financed by those who hire them (except in Europe, where young people face the same dismal future as our own). If you increase the price of something, people want less of it. Employees are no different than anything else.
Klein does note the burden of entitlements which systematically favor age over youth, but that doesn't explain why young folks are struggling so in the job market, especially those without a college degree. Perhaps, he should look at some of the other editorials that grace the NY Times -- the ones that support employer mandates, the ones that suggest that all business folks are crooks, the ones that support higher taxes for employers, the ones that support Obamacare and other back breaking mandates on business, the ones that encourage frivolous lawsuits aimed at deep-pocket business when business is not really the offender, and on and on.
The answer is simple. We have priced these young folks out of the market. Who can afford to hire them. Not American business. The rest of the world, fortunately for them, unfortunately for us, does not load up employees with goodies that need to be financed by those who hire them (except in Europe, where young people face the same dismal future as our own). If you increase the price of something, people want less of it. Employees are no different than anything else.
Sunday, March 20, 2011
Smokescreens
Whatever your source of the news, you must feel bombarded by the headlines from Japan, from Libya, and from other troublespots around the globe. These headlines and news stories are obscuring the underlying facts about what is going on.
Oil is not going to spike to $ 200 -- no matter what happens in the Middle East. There is not going to be a nuclear conflagration in Asia or even in Japan resulting from the damage to Japan's nuclear facilities. And, yes, there is no one to blame for the earthquake and tsunami.
The news media is so preoccupied with finding people to blame about every possible difficulty that the world faces that it obscures the real facts about what is taking place. The real facts remain: the western economies are mired in one of the slowest economic recoveries in the history of the world, while Asian economies and some Latin American economies and Eastern European economies are booming.
Western economies have mortgaged their futures by massive transfer payments to current citizens, mostly the older half of the population, financed by younger citizens and citizens yet to be born. The method, debt financing, is now seen as unsupportable. This is true of Greece as it is true of the United States (and Japan). There is no real answer other than some form of bankruptcy. Whether these steps are taken now or in the future just depends upon the outcome of political jockeying. But, it will take place. The numbers do not permit any easy fix, short of some form of bankruptcy.
The slow pace of economic recovery in the Western economies is mainly a result of their governmental policies toward labor, health care, the environment, and the regulatory regime. The attempt to shower private and public employees with benefits has made labor much more expensive to (all) employers -- hence a dramatic and permanent drop in hiring. This has been a deliberate policy in the United States and in Western Europe. If you increase a price, the demand for the product falls. If you increase the cost of employees, the demand for them will decline and has declined in the Western world (and will continue to decline).
Economic growth, which will continue in the West, will eventually lead to more jobs and, two or three years from now, to lower unemployment rates. But, we will never regain the vigor of the past unless the rules governing employees change in the Western world, which is unlikely. Slow growth and decadence are the future for the US and Western Europe. This is the new normal. Only a move toward free markets can change this and a move in that direction seems politically unlikely. Politicians of all stripes in the US and Western Europe support the legislative agenda that has lead to the current morass. That's not likely to change.
Meanwhile, Asia marches on, Japan aside. Asian nations have not mortgaged the future of their young and unborn to the current older generation. Thus, they have a real future. Economic progress is not shackled by a host of walls built by good intentions. You can't eat "good intentions."
Rich folks everywhere support making employees more expensive and increasing the stranglehold of regulations on businesses. Bill Gates and Warren Buffett certainly support this program, but so do most rich folks, because it is not going to change their lifestyle.
Many college students, dreaming of working for non-profits and basking in the glow of self-congratulatory adulation, have been sheltered from the harsher side of the economy for most of their lives. They have little or no sympathy for the plight of the average citizen, struggling to find work, but finding themselves priced out of the market by government rules and regulations.
The elites, as Tom Sowell calls them, are mainly about looking in the mirror and talking about what "good people" they are. Katie Couric is the poster child for this kind of self image. But, others, like the NPR folks, are pretty stong candidates for runner-up poster children. If it feels good and sounds good, who cares how many people get hurt in the process. That seems to be the position of the elite of the news media.
That lower incomes are battered by these policies is not the concern of the elite who push these regulations. If you were to ask a college senior if he/she would support a law making it against the law to hire someone at a salary less than $ 100,000 per year, they would instantly recoil. But that same college student supports minimum wage increases, living wage proposals and other things that damage the future prospects of the poorest among us. Bill Gates and Warren Buffet will never suffer from an increase in the minimum wage, but countless millions of Americans have already suffered from this type of punitive legislation and untold millions will be similarly penalized in the future.
So, don't get lost in the hysterical headlines about Japan and Libya. The real facts on the grounds are that government policies in the Western economies are hastening their declining share of real economic output. Other parts of the world, that have not put such policies in place, are growing rapidly and will, within a generation, surpass the Western world economically. This is the real story.
Oil is not going to spike to $ 200 -- no matter what happens in the Middle East. There is not going to be a nuclear conflagration in Asia or even in Japan resulting from the damage to Japan's nuclear facilities. And, yes, there is no one to blame for the earthquake and tsunami.
The news media is so preoccupied with finding people to blame about every possible difficulty that the world faces that it obscures the real facts about what is taking place. The real facts remain: the western economies are mired in one of the slowest economic recoveries in the history of the world, while Asian economies and some Latin American economies and Eastern European economies are booming.
Western economies have mortgaged their futures by massive transfer payments to current citizens, mostly the older half of the population, financed by younger citizens and citizens yet to be born. The method, debt financing, is now seen as unsupportable. This is true of Greece as it is true of the United States (and Japan). There is no real answer other than some form of bankruptcy. Whether these steps are taken now or in the future just depends upon the outcome of political jockeying. But, it will take place. The numbers do not permit any easy fix, short of some form of bankruptcy.
The slow pace of economic recovery in the Western economies is mainly a result of their governmental policies toward labor, health care, the environment, and the regulatory regime. The attempt to shower private and public employees with benefits has made labor much more expensive to (all) employers -- hence a dramatic and permanent drop in hiring. This has been a deliberate policy in the United States and in Western Europe. If you increase a price, the demand for the product falls. If you increase the cost of employees, the demand for them will decline and has declined in the Western world (and will continue to decline).
Economic growth, which will continue in the West, will eventually lead to more jobs and, two or three years from now, to lower unemployment rates. But, we will never regain the vigor of the past unless the rules governing employees change in the Western world, which is unlikely. Slow growth and decadence are the future for the US and Western Europe. This is the new normal. Only a move toward free markets can change this and a move in that direction seems politically unlikely. Politicians of all stripes in the US and Western Europe support the legislative agenda that has lead to the current morass. That's not likely to change.
Meanwhile, Asia marches on, Japan aside. Asian nations have not mortgaged the future of their young and unborn to the current older generation. Thus, they have a real future. Economic progress is not shackled by a host of walls built by good intentions. You can't eat "good intentions."
Rich folks everywhere support making employees more expensive and increasing the stranglehold of regulations on businesses. Bill Gates and Warren Buffett certainly support this program, but so do most rich folks, because it is not going to change their lifestyle.
Many college students, dreaming of working for non-profits and basking in the glow of self-congratulatory adulation, have been sheltered from the harsher side of the economy for most of their lives. They have little or no sympathy for the plight of the average citizen, struggling to find work, but finding themselves priced out of the market by government rules and regulations.
The elites, as Tom Sowell calls them, are mainly about looking in the mirror and talking about what "good people" they are. Katie Couric is the poster child for this kind of self image. But, others, like the NPR folks, are pretty stong candidates for runner-up poster children. If it feels good and sounds good, who cares how many people get hurt in the process. That seems to be the position of the elite of the news media.
That lower incomes are battered by these policies is not the concern of the elite who push these regulations. If you were to ask a college senior if he/she would support a law making it against the law to hire someone at a salary less than $ 100,000 per year, they would instantly recoil. But that same college student supports minimum wage increases, living wage proposals and other things that damage the future prospects of the poorest among us. Bill Gates and Warren Buffet will never suffer from an increase in the minimum wage, but countless millions of Americans have already suffered from this type of punitive legislation and untold millions will be similarly penalized in the future.
So, don't get lost in the hysterical headlines about Japan and Libya. The real facts on the grounds are that government policies in the Western economies are hastening their declining share of real economic output. Other parts of the world, that have not put such policies in place, are growing rapidly and will, within a generation, surpass the Western world economically. This is the real story.
Tuesday, March 15, 2011
Japan Will Get Through This
Don't count out the Japanese. They will get through this current crisis and find a way to deal with their difficulties.
The radiation leakage will likely be localized. The lingering problem will be energy shortages for the Japanese economy and for the needs of Japanese families. The market reaction in Tokyo is much overdone. The real financial problem in Japan is Japan's sovereign debt and Japan's unreasonable commitments to old age pensions and medical care. Sound familiar? The demographics are not helpful -- Japan is an aging and declining population -- but that is a problem that most of the developed world faces.
The earthquake is not good news, but it is by no means as catastrophic for Japan as much of the media assumes. The sell-off in American stocks, more muted, is more reasonable than the 15 percent decline in the Japanese market during the first two days of this week.
The media is not helpful in this crisis, which is usually the case in crises of any description.
The radiation leakage will likely be localized. The lingering problem will be energy shortages for the Japanese economy and for the needs of Japanese families. The market reaction in Tokyo is much overdone. The real financial problem in Japan is Japan's sovereign debt and Japan's unreasonable commitments to old age pensions and medical care. Sound familiar? The demographics are not helpful -- Japan is an aging and declining population -- but that is a problem that most of the developed world faces.
The earthquake is not good news, but it is by no means as catastrophic for Japan as much of the media assumes. The sell-off in American stocks, more muted, is more reasonable than the 15 percent decline in the Japanese market during the first two days of this week.
The media is not helpful in this crisis, which is usually the case in crises of any description.
Wednesday, March 9, 2011
A New Beginning in Wisconsin
No one objects to the freedom of assembly. Workers anywhere should have the right to form a union. The issue is: what is the union permitted to do? That is the central concern in Wisconsin.
The idea behind collective bargaining is that workers need protection against a potentially rapacious employer -- so what is the applicability of this notion to public employees? There is no application at all, unless what is being said is that the taxpayer at large is a rapacious employer. Public employee unions should not have the power to engage in collective bargaining.
Not only does collective bargaining lead to absurdities (seniority, tenure, etc.), but there is no profit pie to divide up -- just unsuspecting taxpayers (typically unborn ones) footing an absurd system of benefits.
Lets face it, unions have busted every industry where they have organized workers. Is there an exception? Now, unions are busting state and local governments.
Should a public employee union have the right to bankrupt the taxpayers of Wisconsin and burden future unborn taxpayers? The voters in Wisconsin elected Scott Walker governor on his promise to eliminate union collective bargaining for public employees. Walker and his legislative allies have fulfilled that campaign promise. This is good news for Wisoonsin and a harbinger of more to come.
The idea behind collective bargaining is that workers need protection against a potentially rapacious employer -- so what is the applicability of this notion to public employees? There is no application at all, unless what is being said is that the taxpayer at large is a rapacious employer. Public employee unions should not have the power to engage in collective bargaining.
Not only does collective bargaining lead to absurdities (seniority, tenure, etc.), but there is no profit pie to divide up -- just unsuspecting taxpayers (typically unborn ones) footing an absurd system of benefits.
Lets face it, unions have busted every industry where they have organized workers. Is there an exception? Now, unions are busting state and local governments.
Should a public employee union have the right to bankrupt the taxpayers of Wisconsin and burden future unborn taxpayers? The voters in Wisconsin elected Scott Walker governor on his promise to eliminate union collective bargaining for public employees. Walker and his legislative allies have fulfilled that campaign promise. This is good news for Wisoonsin and a harbinger of more to come.
Monday, March 7, 2011
It Can't Be Oil
The stock market went from up to down today and it really hasn't done much for several weeks. The Dow Jones got above 12,000 sometime back and it is barely above that level now with a lot of huffing and puffing.
The pundits point to oil and to events taking place in Libya. Don't believe it. There's plenty of oil and even if the bad guys get a hold of some oil, the first thing they will do is sell it to the highest bidder. So what else is new? Chavez sells to us. I rest my case.
The more serious problem is what is (not) going on politically. Except for some valiant souls in selected state governor mansions, there is no serious discussion afoot to tackle the US's entitlement nightmare. Europe is no better. Greece was quietly downgraded again by Moodys over the weekend without a comment from the US or European press.
It is not surprising that the press isn't noticing what the problem is here. The press seems to think that fighting to boost the income and benefits of folks making triple the average income in Wisconsin is somehow a great cause. They should start campaigning to pay baseball players and movie stars more money. That would fit their "activist" credo. They have completely lost sight of the people who are struggling in the US (and in Wisconsin). I'll give you a hint...it's not tenured school teachers in Wisconsin.
Oil is not the real problem here except in its manifestation of inflation. The real problem is debt, debt, and more debt. Until the President and the Congress acknowledge what the real issues are and begin to advance policy positions that move the needle in the right direction, markets are going to be sluggish. This is isn't much of a recovery after all and Obamacare is standing right in the way.
The pundits point to oil and to events taking place in Libya. Don't believe it. There's plenty of oil and even if the bad guys get a hold of some oil, the first thing they will do is sell it to the highest bidder. So what else is new? Chavez sells to us. I rest my case.
The more serious problem is what is (not) going on politically. Except for some valiant souls in selected state governor mansions, there is no serious discussion afoot to tackle the US's entitlement nightmare. Europe is no better. Greece was quietly downgraded again by Moodys over the weekend without a comment from the US or European press.
It is not surprising that the press isn't noticing what the problem is here. The press seems to think that fighting to boost the income and benefits of folks making triple the average income in Wisconsin is somehow a great cause. They should start campaigning to pay baseball players and movie stars more money. That would fit their "activist" credo. They have completely lost sight of the people who are struggling in the US (and in Wisconsin). I'll give you a hint...it's not tenured school teachers in Wisconsin.
Oil is not the real problem here except in its manifestation of inflation. The real problem is debt, debt, and more debt. Until the President and the Congress acknowledge what the real issues are and begin to advance policy positions that move the needle in the right direction, markets are going to be sluggish. This is isn't much of a recovery after all and Obamacare is standing right in the way.
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