From Greece to Italy to France, the welfare state is in crisis
In the European economic crisis, all roads lead through Rome. The markets have raised the price of financing Italy's mammoth debt to new highs, and on Tuesday Silvio Berlusconi became the second euro-zone prime minister, after Greece's George Papandreou, to resign this week. His departure may keep the world's eighth largest economy solvent for the time being, but it hardly addresses the root of the problem.
In Italy, as in Greece, Spain and Portugal and eventually France, the welfare-entitlement state has hit a wall. Successive governments on the Continent, right and left, have financed generous entitlements with high taxes and towering piles of debt. Their economies have failed to grow fast enough to keep up, and last year the money started to run out. The reckoning has arrived.
If the first step in curing an addiction is to acknowledge it, there is little sign of that in Europe. The solutions on offer are to spend still more money, to have the Germans bail out everybody else, or to ditch the euro so bankrupt countries can again devalue their own currencies. France's latest debt solution includes raising corporate, capitals gains and sales taxes.
Editorial board member Matt Kaminski discusses Italy's economic and political problems as Berlusconi fights to stay in power.
Yet Europe's problem isn't the euro. If it were, Hungary, Iceland and Latvia—none of which use the euro—would have been spared their painful days of reckoning. The same applies for Britain. Europe is in a debt spiral brought about by spendthrift, overweening and inefficient governments.
This is a crisis of the welfare state, and Italy is a model basket case. Mario Monti, who is tipped to lead a new government of technocrats, once described the Italian economy as a case of "self-inflicted strangulation." Government debt is 120% of GDP, making Italy the world's third largest borrower after the U.S. and Japan. Its economy last grew at more than 2% a year in 2000.
An aging and shrinking population is a symptom, but not a leading cause, of the eurosclerosis. A fifth of Italy's 60 million people are 65 or older and make increasingly expensive claims on state-paid pensions and other benefits. In fast-growing Turkey, only 6.3% fit that demographic. Italian women have on average 1.2 children, putting the country's birth rate at 207th out of 221 countries.
But the bulk of the responsibility lies with politicians. Mr. Berlusconi, Italy's richest man, promised a shake up each time he ran for office (in 1994, 1996, 2001, 2006 and 2008). He was the longest serving premier in post-war Italy, from 2001 to 2006, controlled parliament and could have pushed through reforms. He didn't. Promises to lower taxes and hack away at regulations and protections for Italy's powerful guilds—from taxi drivers to pharmacists to journalists—were broken.
"It is not difficult to rule Italy," Benito Mussolini once said, "it is useless." The so-called concertazione, or concert, of Italian coalition politics that brings together numerous parties in the Parliament makes for unstable and indecisive governments. So does the fear prominent in many European countries that any serious reform will provoke street protests. An unhappy byproduct of a welfare state is that it creates powerful interests that will fight to the last to preserve their free lunch, no matter the cost to the country.
But now hard choices can no longer be postponed. And the solution to Europe's debt crisis must begin with reforming, if not dismantling, the welfare state. Europe rose from the economic grave in the 1960s, it rode the Reagan-Thatcher reform wave to more modest growth in the 1980s-'90s, and it can grow again. A decade ago, Germany was called the "sick man of Europe," bedeviled by Italian-like economic problems. But a center-left coalition, supported by trade unions and German society, overhauled labor and welfare codes and set the stage for the current (if still modest) export-led revival in Germany.
The road from Rome may now lead to Paris, Madrid and other debt-ridden European countries. But this is no cause for U.S. chortling, because that same road also leads to Sacramento, Albany and Washington. America's federal debt was 35.7% of GDP in 2007, but it was 61.3% last year and is rising on an Italian trajectory. The lesson of Italy, and most of the rest of Europe, is never to become a high-tax, slow-growth entitlement state, because the inevitable reckoning is nasty, brutish and not short.
More on Small Business And Regulation
When Labor Secretary Hilda Solis, said in 2009, “Make no mistake about it: The Department of Labor is back in the enforcement business,” it wasn’t entirely clear what she meant. Small businesses have since found out.
IBD interviewed Monty Friebel who runs Cooper Enterprises for the first part in this series on small businesses that struggle with government regulation. During that interview Friebel said:
When I first got involved, the (Occupational Safety and Health Administration) would come in and point out things that were not correct. They’d issue citations but there were no fines associated with it. They’d give you time to take corrective action and if it met their satisfaction that was the end of it. Today they come out and they fine you first. You still correct it, you demonstrate to their satisfaction that it is corrected and you still get to pay the fine.
“That’s the feedback I’m getting from our customers,” said Ty Baker-Baumann, who runs Rebsco, Inc. in Greenville, Ohio. “We belong to some different business associations and when I talk to the directors of those associations that’s what they’re hearing from their members pretty consistently.”
Baker-Baumann is a second-generation owner of Rebsco, which provides design, engineering, fabrication and installation services to businesses such as agriculture, asphalt and aggregate (stone and gravel used in construction). Rebsco has about 20 employees.
She relayed two stories about regulations that harmed two businesses she worked with. The first was an aggregate business that had closed down temporarily. The owner posted a sign out front that explicitly said that the business was closed temporarily.
But an inspector from the Mine Safety and Health Administration fined the business for closing down permanently without notifying MSHA.
“Now they have to go through all the hoops with the regulators and dealing with the fine and trying to appeal it,” said Baker-Baumann. “That costs a lot of time and energy at a time when this business owner should really put his energy into selling product, not dealing with a regulator.”
In the other instance, a small feed and grain facility in the area was visited by an OSHA inspector in August.
“The owner’s comment to me was, ‘If I can get through an OSHA inspection with $10,000 in fines or less, I feel lucky,’” she said. “He could be using more productively to make an improvement or pay for health insurance. Instead, he’s paying a fine, but for what useful purpose?”
She states that this more adversarial relationship between regulators and business began with the current administration. “It’s a very anti-business climate. When you see all the new regulations coming out of the Department of Labor, it doesn’t give you the sense that business is highly valued.”
She thinks that most small-business owners want reasonable regulations that promote safety and are cost-effective. Nevertheless, she said:
From a small business owner’s perspective, the proliferation of regulations and enforcement hit small businesses more heavily than a larger corporation. Your fines tend to be a bigger part of your profit margin, and if you really can’t see the cost-benefit in it, it’s a struggle. Further, small business owners wear many different hats. They do sales, human resources, marketing, operations, accounting and so on. The burden of regulatory compliance also falls on those same shoulders. I can’t go out and hire someone to go through all the information out there and help me figure out what new regulations are coming down the pike that I have to tend to. No small business owner can do that. So we would greatly benefit, as would our employees and our communities, with a regulatory environment that is more thoughtful, more supportive, and more conducive to a partnership.
Republican Senator Calls on Obama to Cancel Fannie Mae, Freddie Mac Bonuses
A Republican senator is calling on President Obama to cancel the $12.8 million in bonuses that were approved for 10 executives at the government-seized mortgage giants Fannie Mae and Freddie Mac that received a $170 billion taxpayer-funded bailout.
“I am calling on the president of the United States to cancel those bonuses and explain to the American people, the taxpayers who bailed out Freddie and Fannie, why he continues to reward failure,” Sen. John Barrasso, R-Wyo., said at a news conference Tuesday.
The two housing giants have received about $141 billion in taxpayer funds since the government took them over in 2008 during the financial crisis. Sen. Spencer Bachus, R-Ala., is pushing a bill to suspend pay packages at Fannie and Freddie and require executives and employees of government-sponsored enterprises to be paid according to the federal pay scale.
Politico first reported the $6.46 million in bonuses for the top five officers at Freddie Mac -- including $2.3 million for CEO Charles E. Haldeman Jr., who is stepping down next year -- and $6.33 million for Fannie Mae officials, including $2.37 million for CEO Michael Williams, for meeting modest goals.
A second bonus installment for Freddie executives in 2010 has yet to be reported to the Securities and Exchange Commission, Politico reported.
White House aides say the president took a lead on cleaning up excessive compensation on Wall Street with the Dodd-Frank bill, but those provisions do not apply to Fannie and Freddie.
“The White House was not involved and nor should it be,” White House Press Secretary Jay Carney said Tuesday.
But during the 2008 presidential campaign, Obama had a slightly more aggressive view.
“I’ve always said that any action with respect to Fannie Mae and Freddie Mac needs to put taxpayers first and can’t under any circumstances bail out shareholders or senior management of that company,” Obama said.
The Left's Many Double Standards
Today's liberals would have you believe they occupy the moral high ground on every political and cultural issue. But have you ever taken inventory of their double standards?
The left's inconsistency in applying their principles based on the party affiliation of those they're judging, gives fuller meaning to the concept of moral relativism. The only thing that's consistent is their reliable inconsistency, whether in the area of economic, social or national defense issues.
Let's consider just a few examples:
-- When "bimbo eruptions" threatened to derail Bill Clinton's campaign, his hit squad, the commander in chief of which was Hillary Clinton, eviscerated every accuser, inventing tales to destroy their character and distorting the facts of what occurred. When Ken Starr accused Bill Clinton of lying under oath, liberals turned their venom on him, accusing him of sexual perversion just for delving into the subject.
When Republicans argued that Clinton's serial sexual exploits, some of which had then occurred quite recently, demonstrated poor character, Democrats defiantly dismissed his actions as irrelevant to the performance of his presidential duties. These guardians of the fairer sex -- watchdogs of government corruption -- didn't care that Clinton's taking advantage of an intern in the Oval Office was a quintessential case of sexual harassment, given the power disparities between his station and that of Monica Lewinsky's. They even defended Clinton's perjury concerning the matter. Some argued that it was almost virtuous that he chose to lie under oath and protect his family rather than take the easy way out and come clean.
Today, liberals are in high dudgeon and probably higher conspiracy over sexual harassment allegations against Republican presidential candidate Herman Cain that supposedly occurred 14 years ago. CNBC's GOP presidential debate moderators pointedly asked Cain and one of his rivals Mitt Romney, whether a man guilty of such conduct had the requisite character to be president of the United States.
-- Democrats maligned former President George W. Bush's economy for the better part of his two terms, despite the robust growth, unemployment below 5 percent and a 2007 deficit less than 10 percent of what it is today. They tell us that President Obama's horrendous economy, on the other hand, is not even his fault.
-- Frustrated with their inability to succeed in talk radio and the resulting loss of their decades long national media monopoly, liberals have resorted to demonizing conservative talk radio and Fox News Channel, saying they habitually engage in hate speech of a sort that gives rise to violence. Following the Oklahoma City bombing, Bill Clinton himself shamelessly suggested there was a causal connection between that heinous crime and conservative talk. That there was no proof of such a connection didn't deter him and his ideological colleagues even slightly.
Similarly, when Congresswoman Gabrielle Giffords was shot, liberals immediately jumped to the unwarranted conclusion that the shooter had been stirred into violence by conservative hate speech and particularly, a bulls-eye image from Sarah Palin. Discovering that the shooter was anything but right-wing didn't keep President Obama from framing his Tucson speech around the theme of civility in our political discourse. If he'd talked about European demographic trends in Late Antiquity, his speech couldn't have been any less relevant. But it would have been less politically inflammatory and exploitive.
Relevance aside, did Obama follow his own gratuitous admonitions to avoid embittered partisan rhetoric? Obviously not. He has repeatedly demonized Republicans both before and after Tucson, his favorite theme being class warfare. Just last week, he branched out from the politics of greed and envy and preposterously accused Republicans of blocking his recklessly wasteful environmental initiatives because they want dirty air and dirty water.
-- On a related matter, Democrats have slandered genuine grassroots Tea Partiers as lawless, racist, AstroTurf scofflaws who are sometimes even domestic terrorists, despite the Tea Partiers' peaceful, respectful behavior, no evidence of racism and almost no arrests at any of their events. Liberals pejoratively labeled them Tea Baggers and mocked their legitimate protests against the unprecedented spending of the Obama administration. But when leftist Occupy Wall Street protesters have truly been organized from above, have engaged in lawless and violent behavior leading to many arrests and have spewed anti-Semitic bile, liberals, including President Obama himself, have lionized them and identified with their cause.
-- When President Bush attacked Iraq with the Democrats' approval, based on a perceived and possibly actual national security threat, liberals savaged him as a lying warmonger. But when President Obama attacked Libya, let alone Egypt, without any discernible national security interest and without Congress's endorsement, liberals hailed his foreign policy acumen.
-- Democrats vilified Bush for enhanced interrogation techniques and domestic surveillance against terrorists, but now glorify Obama for his literal assassinations of terrorist leaders, and they look the other way as he continues many of the Bush era anti-terrorism strategies.
I'll stop here, even though I'm not yet halfway through my list.
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