What Cues Can South America Take From Europe?

Over the past few years Greece has probably made the news more than ever before. Whether it be protesters in the streets, election results, or the announcement of some new government policy, whatever happens in Greece seems to be written about in all corners of the world. Just recently the fierce rhetoric of a relatively obscure populist left-wing party made international headlines and fueled new speculations about the future of one of the world’s major currencies, if not the world economy and financial markets. The eventual ascent of that same party, Syriza, to Parliament has all eyes both on the Old Continent and across the world focused on its plan of action. Mind you, we are talking here about a country whose GDP represents less than 0.4% of the world economy.

In the meantime, incessant government intervention into the economy has caused major upheaval in several countries in South America. Venezuela is currently experiencing the worst depression in decades, Argentina’s economy is in shambles once again on the heels of its most recent default, and since the World Cup bubble popped Brazil has equally dipped into recession. These countries dwarf Greece in terms of population as well as contribution to world GDP, and some of their resources make them important players in global commodity markets. Yet aside from some news outlets’ reporting on Venezuelans having to stand in line for hours for even the most rudimentary items or the mysterious death of a federal prosecutor in Argentina, major media are hardly paying attention.

The latter, far from being the result of a massive media cover-up, reflects a general sentiment in South America. Here in Chile, for instance, nobody in their right mind would dream up some theory about the aforementioned woes causing a spillover effect that might bring the entire continent to its economic knees. Unlike in Europe, xenophobia has not been on the rise here, nor have there been any incidences of heads of state being compared to blood-thirsty dictators. As much as some populist leaders like to speak of a “Latin American brotherhood”, in truth the misery even in neighboring countries is hardly discussed except in case of any personal ties.

While it would clearly not be a fair comparison to put the South American economy on equal footing with that of Europe, the events that have unfolded in recent decades can certainly serve as valuable lessonsEurope-SouthAmerica for the continent. The mere suggestion that one day, Europe’s economic fate would seemingly come to hinge on the outcome of Greek elections would have seemed outright preposterous as recent as the nineties or even in the early 2000s. Indeed it would be like predicting that two decades from now, all of South America would be trembling at the prospect of a severe recession in Guyana.

Still, a lot more can be drawn from European history than simply a long list of don’ts. Going further back just a few centuries can literally provide a blueprint for sustainable growth and pave the way for prosperity on a continent too long haunted by the destructive and backward forces of socialism. Historians and other scholars have written extensively on “the European miracle” and its foundations. As it turns out, the terminology belies an astonishingly simple recipe; defense of property rights and decentralized power structures limited by competing jurisdictions in their ability to intervene in and expropriate resources out of the market.

Whilst academia and politicians would have us believe economics is an incredibly complex field of study that should be left safely and exclusively in the hands of the “experts”, historical evidence proves them utterly wrong. In fact, the more power is centralized into the hands of these conmen, the lower the odds of the kind of sustainable economic growth that has permanently lifted millions out of poverty, and continues to do so to this day.

Political leaders and their outdated and misplaced allegations of imperialism cannot be allowed to stand in the way of free people and free markets in South America. In the words of Ron Paul: “An idea whose time has come cannot be stopped by any army or any government”!


Big Government and Big Business: Two Wings of the Same Bird

“If government has nothing to sell, bribery is useless.”
Ron Paul

Common sense dictates that whenever two or more parties can reach an agreement that benefits all parties involved, the deal will be made, barring any moral or ethical objections – though those objections affect different people’s decision-making differently. In our daily lives we constantly barter and trade goods and services voluntarily based on their perceived (subjective) value; you show up at work in the morning because your employer pays what you perceive to be a fair price for your labor, some of the income you receive as a result is exchanged for food at the grocery store, another part goes to pay for rent, electricity and other things to sustain you.

Big Govt, Big Business Two Wings of the Same BirdThe above, of course, is not rocket science given that these are all win-win situations where all parties benefit from the transaction. After all, people voluntarily forego the perceived benefits of, say, having a lot of savings for the greater benefit of being well-fed, clothed and having a roof over their heads. As long as this is the case, there is no reason why a transaction should not or would not take place. If circumstances do change consumer behavior will respond accordingly, perhaps opting to drive less to save money on gas or to buy a cheaper tablet instead of an iPad after a price hike – as some in Japan might currently consider doing. In other words, human beings continually seek to reach agreements that they personally expect to benefit from; otherwise there is no reason to give up (part of) his or her material possessions, time or effort.

It can be argued that this applies even to charitable donations, as people select certain charities according to what is important to them. Some might give money to help feed malnourished children in the developing world while others donate to a local homeless shelter. These charities may be church-affiliated, NGOs, supported by businesses or taxpayer-funded. Whatever the case, donations are made based on people’s personal beliefs and values to causes they believe in and therefore want to support. In that sense the donation fulfills the psychological or moral wish to do good, thereby providing a benefit to the giver as well as the receiver: again a win-win situation.

Yet, an exception to this rule seems to exist in the minds of many. The exception is called “government officials”: from politicians to judges to police officers to paper pushers working for a government agency. Even though practically anyone can run for office and work for this institution “of the people, by the people and for the people”, somehow government workers are believed to be special, in that they respond differently, if at all, to the very same incentives us common folk are exposed to. When given the chance to accept money or some other benefit from a corporation, special interest group or other organization in return for a (political) favor – a win-win situation for both parties – government workers are relied upon to kindly reject the offer in furtherance of justice and the common good. Though rarely bluntly stated in these words, this is the underlying, implicit assumption regarding corruption and misconduct in government.

Upon further examination, though, the absurdity of this assumption is hard to miss. As far as I can tell, the people that work in government buildings are regular human beings. Just like in general society they are of both genders and of all colors, races and creeds; they look the same. They have families and friends. Sometimes they feel happy, sometimes they feel sad. They drive cars, play sports, go to the movies, eat out in restaurants, use the bathroom, sleep at night and breathe in and out just like the rest of us.

In fact, chances are you wouldn’t recognize one if you saw one. In short, they are just regular people with their own vices and virtues, not mythical creatures or angels that selflessly sacrifice their knowledge and skills for the betterment of society. They are not uniquely equipped to resist temptation or make the right decisions despite perverse incentives. The only difference is that they are more frequently exposed to such temptations and perverse incentives and are far more likely to be able to successfully evade the consequences of their actions at the expense of others.

Given that chance many find it hard to let morality guide them and rather easy to rationalize an ethically objectionable course of action. Just consider the cases of U.S. government researchers knowingly infecting unwitting Guatemalan subjects with STDs, the Food and Drug Administration’s ties to the pharmaceutical industry, insider trading scandals, the cover-up of a NATO-led clandestine operation in Europe killing hundreds of innocent people including children, government-sponsored coup d’états against elected foreign governments, “regulators” reluctance to prosecute major banks dealing with drug traffickers and terrorists, Japanese authorities covering up the true extent of the radiation spewing from the Fukushima Daiichi nuclear plant, the secret deal Obama made with the pharmaceutical company lobbyists, or the NSA spying program, to name but a few.

Scandal upon scandal shows that Big Government and Big Business are bed fellows. Just piling on more regulations to “solve” the problem has been an utter failure for the simple reason that human beings respond to incentives. This is basic human psychology and should surprise no one.

Realistically, the only solution is to eliminate the government’s ability to dole out benefits to corporations and let the market separate the wheat from the chaff.

If Not Budget Cuts, What Is Troubling Europe?

My previous blog post concluded that the widely reported budget cuts as part of  “austerity measures” that are supposedly being implemented across Europe are really not all they are being trumped up to be. Nonetheless, it seems we keep hearing about how times are tough for many Europeans. Rising crime rates and sharp increases in (youth) unemployment are just some of the problems facing several nations on the Old Continent as we speak.

TaxBut one might wonder: if governments are still running huge budget deficits (which are detrimental in the long run, of course, but keep the alleged “economy recovery” going for now) because spending is not going down much or at all, why do we see so many reports of people suffering? If it is not the slashing of government budgets, what is hampering a return to prosperity in Europe?

The answer is plain and simple: higher taxes. Francois Hollande, president of France, implemented a now infamous 75% tax on the highest tax bracket while also raising corporate tax and sales tax. On the other side of the Canal, the British government has raised taxes to record levels, with the amount of tax paid in Britain projected to soar by 15 percent in real terms by 2015-16.  “Kabinett Merkel II”, the second coalition government under Chancellor Angela Merkel, has brought German citizens the largest increase in taxes and social security contributions of the last 17 years. In The Netherlands tax hikes were introduced in the form of a redistributive overhaul of the income tax system and VAT going from 19 percent to 21 percent, among other things. In Ireland taxes (such as VAT and property taxes) already began to go up in 2010, when the country suffered a major blow as a result of the global financial crisis.

Spain introduced its set of tax hikes last year when Prime Minister Mariano Rajoy came to power; VAT went up by three percentage points to 21 percent while Spanish income tax rates were elevated to the point where they got to be among the highest in Europe. Italians face a similar fate with the sales tax now at 21 percent, a newly introduced housing tax (yes, you read that right) and an additional 3 percent levy on high incomes. Greece and Portugal were forced to jack up taxes in order to qualify for the EU-IMF bailouts. .

It doesn’t take an economist to figure out that such measures will wreak havoc and cause serious economic and societal upheaval. So next time somebody raises the argument that cutting government spending is bad for economic growth – because “look at what’s going on in Europe right now!” – you might want to kindly advise him or her to stop parroting the talking heads on TV and do some old-fashioned research before bothering you with such nonsense.

The European Union: Bailing Out Banks, Politicians While Sticking It to the People

– May 2010: Greece receives an initial €110 billion bailoutEuropean Soviet Union
– November 2010: European governments bail out Ireland to the tune of €85 billion
– January 2012: Second €145 billion Greek bailout deal announced
– November 2012: Spain borrows €37 billion to restructure four of its weakest banks
– March 2013: Cyprus narrowly avoids exiting the euro, securing a €10 billion loan

Who’s next? That question seems to be on everyone’s mind as the fundamentals under the eurozone appear weaker and weaker with every new bailout; what country will the European Financial Stability Fund provide “stability” to next?

Meanwhile youth unemployment in Greece is over 60 percent, with Spain not far behind at 55 percent. Nearly 4 out of every 10 young Italians and Portuguese are unable to find a job, as well as 3 out of every 10 Irish. Young jobseekers in France are struggling too, with 1 in 4 being unemployed. Slovenia and Cyprus are in the same boat – or should we say life raft?

The old continent is facing a crisis on multiple levels and much of it can be traced back to the behemoth known as the European Union – or, as I like to call it, the European Soviet Union (see here). I won’t go over the catastrophe of the single currency again as I don’t want to repeat myself. Still, much more remains to be said about the ongoing crisis in Europe, the central question being: where do we go from here? Needless to say, the power-hungry EU bureaucrats’ solution is more “harmonization” i.e. more power in their hands to exercise still further control over the people. Never mind that the incessant centralization of power in Europe is at the very heart of the problem.

The European Union was supposed to bring “peace, prosperity, education, justice” and whatever other rosy buzzwords politicians and EU advocates could dream up. Today it is obvious that it has done a lousy job at that. From Athens to Madrid, people are taking to the streets to voice their discontent with the EU overlords that want to control every aspect of their lives while dodging taxes and receiving generous pay and benefits.

Considering the growing hatred of and intolerance towards immigrants, the flaring up of anti-Semitism in countries like Hungary and German Chancellor Angela Merkel recently being portrayed as Hitler by Greek protesters; to claim that Europe has become more peaceful since the inception of the EU would be quite a stretch. Much of this, it can be argued, is due to the economic misery evidenced by the aforementioned statistics. The initial increase in (fake) prosperity artificially created by the policies devised in Brussels came to an abrupt halt years ago.

As far as education goes, let’s hope the current crisis will stimulate young people to educate themselves in an effort to better understand why they are struggling to find a job and make a living. This kind of education might well turn out to be more important than anything they could ever hope to learn in college. The word justice is unlikely to come up in any scrutiny of the workings of this tyrannical system we call the European Union.

Martin Schulz, member of the European Parliament, was quoted by Reuters as saying: “If we have €700 billion to stabilize the banking system, we must have at least as much money to stabilize the young generation in such countries [referring to Spain]”. Well guess what Mr. Schulz? We don’t have that money. In fact we never even had the first €700 billion to begin with! The last thing we need to remedy this problem is for the European Union to step in and “solve” the issue. All we need the government – whether national or supranational – to do is to get out the economy and get out of our lives. Doing more of the same while expecting different results is what Einstein rightly defined as insanity.

“Union” is not exactly the first word that comes to mind in describing current events in Europe.  The EU is the brainchild of a small elite and has never enjoyed the widespread support of the European people. More recent events must lead even the staunchest supporters of European integration to have serious reservations as to the feasibility of this grand European experiment. The fate of that experiment will be sealed by the people deciding whether or not to put up with playing the role of guinea pigs.

Alternatives to the Crumbling Welfare State

“A government big enough to give you everything you want is a government big enough to take from you everything you have.”
Gerald R. Ford, 38th President of the United States

The welfare state is a phenomenon we have become so accustomed to, it seems unthinkable to most people that one day it might not be here. As I briefly explained in my previous blog post, though, those people are in for a shock. The welfare state is a deception; it is a completely unsustainable, broken-beyond-repair system and it is on its way out.

But all is not lost. We can (re)build a system that is comprehensive, sustainable and just. Moreover, it will be based on voluntary association and cooperation rather than State coercion. The unemployed and disabled will not have to rely solely on charity for their survival, as history shows. Needless to say, prior to the welfare state there were charities and relatives and neighbors offered their help whenever needed. Yet, other private initiatives went far beyond that.

Alternatives to the Crumbling Welfare StateIn fact, the “friendly societies” set up in Germany before the dawn of the welfare state were so successful in providing “mutual aid” to working people that the concept spread to other European nations, including Britain. In the nineteenth century friendly societies abounded and had more members than trade unions or socialist movements while using far superior systems of delivering social services and securing dignity for both the employed and the unemployed[1].

Mutual aid simply meant putting money aside in a common fund (i.e. in the form of a contribution) and helping each other when the need arose. The solidarity thus created was that of individuals who had given something towards the common good. It was clear to the members who was paying[2] and the financial condition of the friendly societies was a direct concern to the members themselves. Leading offices were rotated and all members were expected to seek to occupy these positions, so that many manual workers had opportunities to develop talents and skills which they could not acquire elsewhere[3]. Consequently, mutual aid was administered and commissioned from one poor person to another rather than from a distant bureaucrat to a welfare recipient dependent for his or her survival on the goodwill of this bureaucrat and compliance with the complex rules of the welfare state bureaucracy. The friendly societies were based on empowering workers with the skills and talents required to compete on the (global) jobs market rather than imposing obligations on employers. They appealed to the best in people and attended to more than just the material dimension[4] instead of merely doling out welfare payments that do nothing to help people get back on their feet.

Across the pond, Americans had their own version of friendly societies called fraternal societies. In addition to mutual aid, some of them provided formal insurance policies such as a sickness or accident benefit as well as a death benefit[5]. Though the latter was not an old-age pension as we know it today, a 1930 study by the New York Commission on Old-Age Security estimated that less than 4 percent of the aged depended on charity (whether private or public)[6].

Immigrants also benefited from fraternal and other mutual aid institutions. In fact, each immigrant group could turn to at least one aid society – and usually many more – for housing, English classes and information on employment[7]. Among African Americans, fraternal societies were even more popular. In 1919, the Illinois Health Insurance Commission estimated that 93.5 percent of African American families in Chicago had at least one member with life insurance, making them the most highly insured ethnic group in the city[8]. Statistics of life insurance coverage among African Americans in the state of Pennsylvania were very similar, explaining sociologist Howard W. Odum’s claim that fraternal societies were “a vital part” of African American “community life, often its center”[9].

Among women, participation rates in fraternal societies also were high, as many fraternal societies had women’s auxiliaries[10] – remember this is the nineteenth and early twentieth century, largely before the passing of the nineteenth amendment that introduced women suffrage. Another virtue of this system of fraternal societies that sets it apart from the modern welfare state is that it cultivated such qualities as independence, self-reliance and foresight[11]. We can only imagine the praise president Obama would receive if his social welfare policies even came close to the success of the pre-welfare state fraternal societies.

Unfortunately such policies have been an epic failure, both in the United States and in Europe. The crumbling modern welfare state will eventually come crashing down. Consequently, we had better think of alternatives sooner rather than later. With that in mind, it is comforting to know that not only will there be alternatives; we will actually have the opportunity to revive a fair and sustainable system based on true solidarity and voluntary institutions that far outperforms the welfare state and does not involve a humongous, impersonal and arbitrary bureaucracy. Our ancestors have proven this to be true. All we need to do is learn from them.

[1] Students for Liberty, After the Welfare State, p. 49.

[2] David Gladstone et al.Before Beveridge: Welfare Before the Welfare State. (London: Civitas, 1999). p. 22.

[3] David Gladstone et al.Before Beveridge: Welfare Before the Welfare State. (London: Civitas, 1999). p. 23.

[4] David Gladstone et al.Before Beveridge: Welfare Before the Welfare State. (London: Civitas, 1999). p. 23.

[5] Walter Basye, History and Operation of Fraternal Insurance, pp.15-16; and US Department of Commerce, Historical Statistics of the United States: Colonial Times to 1970, pt.1, p. 168.

[6] New York Commission on Old-Age Security, Report of the New York State Commission (Albany: J.B. Lyons, 1930), pp. 312-313.

[7] Samuel P. Hays, The Response to Industrialization: 1885-1914 (Chicago: University of Chicago Press 1957), p. 95.

[8] Report of the Illinois Health Insurance Commission of the State of Illinois, p. 222.

[9] Howard W. Odum, Social and Mental Traits of the Negro: Research into the Conditions of the Negro Race in Southern Towns (New York: Colombia University Press, 1910), pp. 102-3, 109, 99.

[10] US Department of Labor, Bureau of Labor Statistics, Monthly Labor Review28 (March 1929), pp. 421, 424; Charles W. Ferguson, Fifty Million Brothers: A Panorama of American Lodges and Clubs (New York: Farrar and Rinehart, 1937) p. 144.

[11] Peter Roberts, Anthracite Coal Communities, pp. 263-64.

EU Tyranny Awareness Month: Environmental Tyranny

European Soviet UnionOne of the areas in which EU legislation is the most far-reaching is environmental policy, However, as this legislation pertains mostly to businesses and national governments, the majority of the people are unaware of the overreaching bureaucracy behind the green mask (to quote the title of a very interesting book on such legislation[1]). The truth of the matter is, though, that it is exactly these kinds of rules that have a very profound impact on the EU economy and therefore its citizens – and for what purpose? That’s what we will get into here.

Environmental “protection” in Europe actually goes back as far as the 1957 Treaty of Rome and has since been expanded by other treaties, most notably the Lisbon Treaty, the de facto constitution that was voted down through referendums in several countries and then forced down the throat of Europeans in the form of a treaty. Besides, the EU took a leading role on a global stage in Kyoto to combat climate change. Which, by the way, was still popularly termed “global warming” at the time but later renamed “climate change” when it turned out global warming had stopped in 1997. Funnily enough it was in that exact same year that the UN Conference took place. Apparently the fact that all of the world leaders flew out to Japan literally left Mother Earth cold. Nonetheless, it became clear very early on that the European Union was serious about imposing as many environmental regulations as it could get away with.

This was further evidenced by the Emissions Trading System (ETS) that was launched in 2005 as “a cornerstone of the European Union’s policy to combat climate change and its key tool for reducing industrial greenhouse gas emissions cost-effectively”. This type of system is more commonly known as cap-and-trade; i.e. limit the legal amount of certain greenhouse gases allowed and let companies and countries buy and sell emission allowances. We will not get into the climate change debate here but it is clear that the EU will not be bothered to look at the real science on this topic, which suggests that the theory of anthropogenic (man-made) global warming is very questionable at best (see for example “The Great Global Warming Swindle” aired on British television several years ago).

Whereas the perceived benefit of this green bureaucracy is controversial, the economic consequences are inevitable and very real. In fact, it is already happening. A study conducted by the Juan Carlos University in Madrid found that on average, 2.2 regular jobs were lost for every “green job” created in Spain – the country that has given the broadest support to the construction and production of renewable energy. And that number does not even take into account the loss of jobs resulting from businesses moving out of the country or the reduced employment opportunities inside the country due to higher energy prices. Or the loss of purchasing power of the Spanish people because of these prices and its economic effects. When you really think about it the entire economy is affected by higher energy prices, because the production of anything and everything requires energy. Not to mention the transportation. Who knows how much better off Spain would have been today if it wasn’t for all those phony “green jobs”!

The only reason why these jobs ever even came into existence in the first place was because of a grave distortion of the free market through subsidies, which I covered in my last blog post. For now, however, let’s focus our attention on the cap and trade scheme. What proponents like about this plan is that “the polluter pays”; the more greenhouse gases a business or country emits, the more it pays. The naiveté of this assertion is so blatant it could only have been dreamed up by some clueless bureaucrat who has probably never had a real job in his life yet has been assigned the task of dreaming up legislation that would somehow benefit us all. Who are these people kidding? Who in their right mind would think that the increase in energy prices is not ultimately borne by the end user? Just think about it: do business executives take a pay cut to compensate for higher energy prices? Do shareholders accept lower stock prices or dividends for that reason? Of course not! In the end there is only one group of people that’s left holding the bag and it’s the consumer. That means you and me, by the way.

But wait, it gets worse. Not only do we pay in the form of higher energy prices, we are also forced to pay higher taxes to subsidize these “green jobs” into existence in the first place! We are being screwed over twice and these people have the guts to get on TV to proudly pronounce their latest brilliant ideas to “reduce our carbon footprint”. It’s so insane it’s hard to believe we are putting up with it.

The list of other consequences – unintended or otherwise – truly is endless and we will not go into those further here. However I believe this will help anyone with even the slightest bit of common sense to realize how bad EU citizens are being cheated by their bureaucratic overlords.

For those interested to learn more, the answers to your questions are only one Google search away. Or actually, use Startpage.com if you care about your privacy.

[1] Behind the Green Mask: U.N. Agenda 21 by Rosa Koire available through Amazon at http://www.amazon.com/BEHIND-THE-GREEN-MASK-Agenda/dp/0615494544