Austerity, and the failure of the governing elite - Forbes - C. Kadlec

Austerity, And The Failure Of The Governing Elite

No organization can possibly survive if it needs geniuses or supermen to manage it. It must be organized in such a way as to be able to get along under a leadership composed of average human beings. Peter Drucker

European austerity has failed — fiscally, economically and politically. Even more, austerity is a failure of the governing elite who continue to flail about, believing in their self-anointed right to “manage the economy” and plunder the private sector to keep their power and their government-centric world alive.
The implications for the U.S. are clear: the so-called “balanced-approach” to reducing the federal budget deficit with a combination of tax increases and spending cuts advocated by the Obama Administration, its supporters, and a handful of conservative Republicans –would reduce growth and do little to reduce America’s chronic fiscal imbalance.
The combination of tax increases and spending cuts has been a disaster throughout Europe. The poster child is Greece, which under the auspices of the elites in Europe and the IMF, imposed a series of austerity measures in exchange for additional loans from other European governments and the IMF. After three years of such measures, Greece defaulted on 200 billion euros of outstanding debt through a debt restructuring in which bond holders in present value terms lost more than an estimated 70% of the value of their bonds.
Yet, the Greek budget remains as imbalanced as ever. Here are the grisly details, as reported by Antonis Samaras, the leader of Greece’s New Democracy Party in a Wall Street Journal op-ed. A combination of spending cuts and big tax increases, which cumulatively should have cut the country’s deficit by about 20% of GDP, have been implemented since 2009. At the beginning of the process, the deficit was 15% of GDP. Currently, the government’s deficit is running near 10% of GDP. Why hasn’t the budget returned to surplus? Because austerity has produced a 16% contraction in GDP since 2009. Wrote Samaras:
“It took 30 years of frivolous public spending to bring the country to a debt-to-GDP ratio of 120%. Two years of severe austerity brought debt to 168% of GDP. Obviously the medicine didn’t work.”
Greece is not alone. Austerity by governments of the left and right in Italy, Spain, Portugal and Britain have led to higher unemployment and shortfalls in revenues. For example, Spain’s conservative party won a landslide victory last November by opposing the socialist government’s austerity policies which had driven the unemployment rate up to 21.5%. But, in the face of a higher than expected deficit, it reneged on its pledge not to raise taxes, and pushed through higher personal income and property tax rates to narrow the deficit. But now Spain’s unemployment rate has jumped to a Depression level 24.4%. As a consequence, the government still has almost no chance of meeting its deficit targets. Last week, Standard and Poor’s lowered Spain’s bond rating two notches to BBB+.
The austerity conceit also holds sway over a significant portion of America’s governing elite. President Obama continues to call for tax increases that would total $100 billion next year, completely ignoring the scholarly research of Christina Romer, the first Chair of his Council of Economic Advisors, which indicates such a policy would kill the recovery and cost more than 800,000 jobs. For further evidence, look no further than the President’s home state of Illinois, which in January of last year, raised the flat personal income tax rate to 5% from 3%, and the corporate tax rate to 7% from 4.8%. The $6.8 billion in projected revenue was suppose to eliminate the state’s chronic budget deficit and pay down a backlog of unpaid bills. Instead, the state’s fiscal condition has gotten worse, with its deficit expected to increase by $400 million and total $5 billion.
What all of this makes clear is austerity’s so-called shared sacrifice is a loser. The solution lies in restoring the balance between an over-sized public sector and the private sector.
The first signs – and limits — of such a movement are evident. Last week, European Central Bank President Mario Draghi called for a European “growth pact” without any relaxation of fiscal discipline, suggesting structural reforms such as the relaxation of laws that interfere with employers’ ability to fire or lay-off workers. Draghi’s focus on structural reforms to spur growth was endorsed by Germany Chancellor Angela Merkel.
However, Socialist French Presidential Candidate Francois Hollande embraced the call for more growth by proposing increased government spending on industrial and infrastructure projects financed by newly issued euro-zone bonds, as well as a new tax on financial transactions. Mr. Hollande also advocates raising France’s top personal income tax rate to 75% on incomes above 1 million euros, ignoring evidence of the past three years that increasing the size of government at the expense of the private sector leads to the dead end of increased debt and a shrinking tax base.
The new reality is only an increase in economic freedom can restore fiscal balance in Europe and the United States. That means a restoration of sound money, the repeal of overly burdensome and unnecessary regulations, and tax reform that broadens the tax base while lowering marginal tax rates. Each of these initiatives would reduce the government-imposed barriers to private sector employment and production, and by so doing, permit economic activity now blocked by failed government policies to flourish.

With economic growth restored, government spending needs to be cut, easing the burden of government while freeing resources that can be better utilized by a rapidly expanding private economy.
This means the governing elite will have to abandon the notion the world revolves around them, that government is the center of – if not the universe – then certainly the economy. The hard lesson of the fiscal crisis from Europe to Washington to Illinois is job of top- down government management of the economy exceeds the ability of average human beings and leads to policies that destroy, rather than enhance, the human capacity to flourish.

As Friedrich von Hayek concluded in his 1974 Nobel lecture:
If man is not to do more harm than good in his efforts to improve the social order, he will have to learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants.

The time has arrived to curtail the power of the governing elite. They have demonstrated yet again their claim to power is based on the false premise of being superior beings fit to rule their fellow citizens. The moment has arrived to favor the voluntary actions of free men and women to build a better future for themselves, their families and their communities through the free market and to begin the hard work so tragically delegated to government of extending a helping hand to those in need.

1.) please cite where you copypasta'd that from and give proper credence to the author. No one likes a plagarist.
2.)"At the beginning of the process, the deficit was 15% of GDP. Currently, the government’s deficit is running near 10% of GDP. Why hasn’t the budget returned to surplus? Because austerity has produced a 16% contraction in GDP since 2009." I love how they point out austerity doesnt work and then the article runs towards we need for smaller government. Either, they dont really understand austerity or they are willfully attempting to muddy the waters by claiming that raising taxes on the top earners and cutting spending affect the economy in the same way. They also confuse correlation with causality. It could be argued that the cause of the greek GDP falling is because of the cuts, not the taxes. This article does nothing to address that.
3.) The premise of this article is flawed. It operates from the standpoint that if we simply let the wealthy keep more money that they would magically create jobs and improve our economic situation. This is flawed for two reasons. a.) The top 1% already controls 90% of the wealth in our country. This is higher than at any point in the last 100 years. If the logic that the wealthy are job creators was true then we should have the lowest unemployment in the last 100 years. This is not the case and therefore logic dictates that wealth does not create jobs. Q.E.D b.) simple laws of supply and demand are what create jobs. If people want products and they will purchase them, creating a need for more products to be made. However, if the people do not have the funds to purchase then no products will be purchased, creating a lack of demand and a lack of need for new goods to be made. It can be argued that since there are more consumers in the middle class than there are in the upper class then that is true engine of job creation. For evidence I simply urge you to look at the number of ford focus's that are sold in comparison to the number of Bentley's. The sheer volume of fords sold creates a need for more employees than Bentley has. The difference is that one is purchased by middle class individuals and one is purchased by upper class individuals. Now understanding that key economic law it becomes easier to understand the greek crisis. Some of the cuts to the middle class and lower class incomes were
-a 7% cut in the salaries of public and private employees
-a further 3% pay cut for DEKO (public sector utilities) employees.
-Lower pension payments ranging from 6% to 14%
-22% cut in minimum wage from the current €750 per month.
-150,000 jobs cut from state sector by 2015

These cuts cross the broadest swath of the population. The middle and lower classes, which have been established previously as the true job creation engine. When you nearly decimate your economic engine it makes sense that your GDP is going to take a hit.

It's in the title of the thread?

LOL slam dunk.

oops.

Okay. That addressed 1 minor point (not even a point of contention, I just prefer to read primary sources is all). Now what about the meat of the argument?

We all make those type of mistakes sometimes, well not all of us maybe.

It's kind of funny as well because sometimes people get ribbed about reading too much into titles....

All in good fun Krali.

The premise of the article is that you need to do everything you can do to spur private sector growth (read comprehensive tax reform) and then once back on it's feet....take a knife to governmental spending.

Again, we need government to act like the grown-up in the room rather than be Santa Claus.

Sorry for the confusion on giving credit where credit is do. Maybe I'll use bigger font and colors next time?

If you want to spur private sector growth start removing restrictive laws, rules and regulations meant to insure that only the largest companies and corporations can afford to meet the governments standards.

Funny. I never figured you as a keynesian. Welcome to liberalism. *btw the article was advocating cutting now and cutting later... not cutting after growth occurs. It was quite critical of people who wanted to use governmental spending to help spur growth.

Such as? Which particular rules and regulations are you talking about? What are some examples of where small businesses are being crushed out of business?

There are more than enough.

Successful job creators like Dallas Mavericks owner Mark Cuban and Staples founder Tom Stemberg tell me there are so many new rules and taxes today that it would be difficult, if not impossible, for them to create the thousands of jobs they once made.

Read more: http://www.foxnews.com/opinion/2012/03/28/too-many-rules-are-killing-america/#ixzz1tjNBTlqb

Maybe you would like to take the discussion up with those two?

And the waste! Americans will spend $46 billion a year to obey just the new regulations the Obama administration imposed. Think of the money diverted to lawyers, accountants and “compliance officers” -- money that might have created jobs and financed products that could make our lives better

Read more: http://www.foxnews.com/opinion/2012/03/28/too-many-rules-are-killing-america/#ixzz1tjNcXwPy

In Virginia, Greg Garrett started farming oysters. His neighborhood is zoned for livestock. He could raise buffalo, but local bureaucrats decreed that he could not sell oysters. Why not? My staff talked to the zoning official, and we still have no clue.

Read more: http://www.foxnews.com/opinion/2012/03/28/too-many-rules-are-killing-america/#ixzz1tjO4cr5D

Here's a a few (of thousands) more.

http://www.businessinsider.com/ridiculous-regulations-big-government-2010-11?slop=1#

The state of Texas now requires every new computer repair technician to obtain a private investigator’s license. In order to receive a private investigator’s license, an individual must either have a degree in criminal justice or must complete a three year apprenticeship with a licensed private investigator. If you are a computer repair technician that violates this law, or if you are a regular citizen that has a computer repaired by someone not in compliance with the law, you can be fined up to $4,000 and you can be put in jail for a year.

The city of Philadelphia now requires all bloggers to purchase a $300 business privilege license. The city even went after one poor woman who had earned only $11 from her blog over the past two years.

A U.S. District Court judge slapped a $500 fine on Massachusetts fisherman Robert J. Eldridge for untangling a giant whale from his nets and setting it free. So what was his crime? Well, according to the court, Eldridge was supposed to call state authorities and wait for them do it.

Deeply hidden in the 2,409-page health reform bill passed by Congress was a new regulation that will require U.S. businesses to file millions more 1099s each year. In fact, it is estimated that the average small business will now have to file 200 additional 1099s every single year. Talk about a nightmare of red tape! But don't try to avoid this rule - it is being reported that the IRS has hired approximately 2,000 new auditors to audit as many of these 1099s as possible.

The U.S. Food and Drug Administration is projecting that the food service industry will have to spend an additional 14 million hours every single year just to comply with new federal regulations that mandate that all vending machine operators and chain restaurants must label all products that they sell with a calorie count in a location visible to the consumer.

Americans spend 7.6 billion hours each year doing their taxes

We spend $27.7 billion a year preparing taxes

Based on your track record, I'd say your reading/comprehension is a bit more in doubt than mine.

The author rightly chastises the government elite as building a bloated empire that has served to put the country deep into debt.
You, like Obama, wish to move the conversation to side issues that take the white hot spotlight off of a failed presidency.