Erections Have Consequences
To hear it told in the European press (well really, to hear it told just about everywhere), the horror of "austerity" presently looms over Europe like some dark specter that draws energy from the state, sucking the color right out of its flagging host as it mercilessly exsanguinates cash, growth and hope from an otherwise chaste, vulnerable and pious body politic. (Fiscal vampires prefer catholic virgins, you understand). Even The Telegraph's normally moderate and sage International Business Editor Ambrose Evans-Pritchard seems to have been taken in by the methodical, decades-long campaign to conflate state spending and growth- a premise as manifestly absurd as it is widely accepted. To wit, Evans-Pritchard's May 15th piece on Italy bears the sub-header:
As Greece erupts, Italy is moving into the eye of the storm. Its economy is contracting at speeds not seen since the depths of the slump in 2009 as draconian austerity bites, greatly increasing the risk of social revolt and a banking crisis. (Emphasis added).1
Of course, it is entirely possible that Evans-Pritchard's editor was responsible for that little edition, given that the tone of the article's body treads with a much lighter foot. Even so, the tenor of the piece follows a regular, and regrettable, pattern:
Rising anger has led to a spate of violent attacks by terrorist groups over recent weeks, all too like the traumatic 'years of lead' in the late 1970s. The government is mulling use of troops to protect targets after anarchists shot the head of Ansaldo Nucleare last week and hurled petrol bombs at tax offices.2
Read: "If the Germans don't pay us, there will be revolution. The Germans better damn well pay us."
Angelo Drusiani from Banca Albertini said the only way to avert catstrophe is to convert the European Central Bank into a lender of last resort. Otherwise Italy faces "massive devaluation, three to five years of hyperinflation, and unbearable unemployment."3
Read: "If the Germans don't pay us, there will be revolution. The Germans better damn well pay us."
The Italian Banking Association ABI accused Moody's of an "irresponsible, incomprehensible, and unjustifiable" smear. "Moody's decision is an attack on Italy, its companies, its families and its citizens," it said, calling on the EU authorities to clamp down "severely" on rating agencies.4
Read: "'Shut up,' they explained."
Lest loyal readers be inclined to credit the accusations of heartlessness that often float in this general direction, now seems an opportune time to assure them that finem respice is deeply concerned- but also entirely unsympathetic.
For over a decade the voters and policy makers of many of Europe's sovereigns have demonstrated a rank financial illiteracy of such scope and prowess so as to defy conventional description, much less understanding. Under most normal circumstances the resulting economic policies of these sovereigns would be unsustainable for more than a few years before the patience of the international bond markets wore dangerously thin. But in this case, enter Europe's drunkard uncle enabler: The monetary union in the absence of fiscal union. In other words: The Euro.
"C'mon, it's 5 o'clock somewhere."
In typically outstanding form, MEP for South East England Daniel John Hannan sketches out a piece of this dynamic in his column (also in The Telegraph) from this last Monday. Hannan's jumping off point is a piece by Matthew Parris in The Times that opines in part:
It is to the credit of a politician if he breaks his promise when the promise was stupid and made under duress. It is the braver thing to do. So François Hollande will probably break his promises now he’s elected, and Ed Miliband and Ed Balls would probably break their promises if elected, and Nick Clegg broke his promises once elected — because they are all honourable men.5
Hannan, adroitly in finem respice's view, continues:
Keith Joseph used to argue that, when you give people responsibility, they become responsible. Treat the electorate like children and that's how they'll act: demanding goodies with no thought of who pays, having tantrums when a privilege is removed. As we grow up, we become independent; and part of that independence takes the form of having to pay for ourselves. Might not the same be true of whole countries?
[...]
At every step since the present crisis began, policy-makers have responded by seeking to dodge the verdict of their peoples. They avoid referendums; they form all-party coalitions; they surrender, in extremis, to Brussels-backed civilian juntas. It has served only to make the electorates angrier and their representatives more frightened. Maybe it's time to try the opposite. Let the people decide.6
Alas, here finem respice must part with Hannan. Voters will not suddenly transform themselves into sage and dutiful stewards of the public treasuries of their sovereigns simply because they have more occasion to vote. Hannan may be correct (and finem respice is quite certain that he is) that voters may reject membership in the European Union if ever given the opportunity to pencil in a simple "up/down" on a paper ballot one day. But the result of this particular poll is a small piece of a larger, undiscussed and much decayed whole: for decades voters have been shielded from those consequences that naturally flow from their votes. To correct the prose of a much celebrated contemporary political figure who seems to have gotten it very, very wrong:
"Elections have no consequences."
In every important way, the European Union permitted sovereigns like Spain, Italy and Greece to implement growth destroying, employment stifling, entrepreneur discouraging, innovation quashing, command and control economies even while they lied, cheated and stole their way into the clubhouse and pocketed the monogramed silver. It enabled them to trade in a currency wildly overvalued relative to their local economies, and borrow at rates that today almost surely look negative on a risk adjusted basis.
A friend of finem respice suggested that the total sum of acreage claimed by Greek farmers for European Union agricultural subsidies exceeded the arable land in Greece by a significant factor. It is difficult to verify this claim, but easy to notice that, year in and year out, Greece is either the first or the second largest recipient of the European Union's Common Agricultural Policy subsidies on a per capita basis. It is also worth noting, perhaps obviously, that those subsidies are paid in Euro.
The farm subsidies along with blatantly undisguised price controls, were originally sold as a "temporary" means to ease national agricultural sectors, markets that for decades had been methodically shielded from competition by overly protective national governments, into the shocking cold water of the free market. Unsurprisingly, they quickly devolved into nearly overt pillage and looting schemes and have, in the meantime, proved anything but "temporary."
Of late the European Union has resorted to satellite imagery, aircraft surveillance and aerial drones to attempt to return some semblance of law and order to the giveaways, as if a program to protect farmers from market prices and that at one time or another consumed nearly 50% of the European Union's budget could be made sustainable if only the theft could be stopped. This is impossible, of course, because it is all theft.
This is a critical element to understand. National politicians who supported the European Union derived their mandate not from deceiving voters, but something else entirely. When one examines the record closely it is plain to see that, from the very beginning, proponents of European union promised not the free movement of goods and capital, not a true unified currency, but "Free Markets Lite." Voters were decidedly supportive. All the benefits and none of the costs? Where do I sign? This point, perhaps, bears some reflection.
The technical fact that no tariffs on, say, olives exist between the member states looks decidedly less impressive when one recognizes that massive subsidies for Greek, Spanish and Italian olive growers serve almost an identical function: the reallocation of additional funds to these producers in excess of the clearing price of their goods. Just as obviously, to the extent the payments are disproportionately allocated to, say, Greece, such subsidies have a tariff-like protectionist effect with respect to, for example, Greek olive growers vis-a-vis Portuguese growers. Woe to the Portuguese grower who tries to out-price her much subsidized Greek competitors in the vibrant "free market" for olive oil in the European Union (and around the world).
As a matter of record, Spain, Italy and Greece are the major olive and olive oil producers in the world, accounting for something like three quarters of global production. This statistic tends to suggest that the utility of protectionist schemes, even if the always sharp readers of finem respice were to stipulate to their efficacy, is questionable at best. This is, however, a point that is rarely discussed in polite company. It is rarely discussed because to broach the subject would be to lay bare the fact that these schemes are about, have always been about, rank wealth redistribution.
In what must surely be a remarkable coincidence, it turns out that it is much easier for farmers and (in particular) agricultural cooperatives to mount massive fraud schemes against a system of subsidies than it would be to game a tariff system.
This is but one example of the pure impurity of the "free market" "free trade" "harmonized" promise presented by the organizers and administrators of the European Union. A full accounting of the shortcuts, cheats and technicalities that tend to make the European Union resemble nothing more than an overgrown collective scheme with free market lipstick applied is an endeavor that could occupy several scholars for the duration of their careers. Nevertheless, a brief listing would seem to be in order:
- Monetary union in the absence of fiscal union.
- Fiscal rules without fiscal rule enforcement.
- Customs union in the presence of highly unbalanced subsidies.
- Free movement of goods subject to "harmonization payments."
Viewed at this angle in this light, it should be plain to the always astute finem respice reader that what was designed, marketed, and eventually erected as a great liberalization was in fact a bloated scheme to transfer large stimulus payments (in forms ranging from outright payments to subsidizing low interest borrowing via the Euro) to the PIIGS without mandating that those economies actually liberalize in any significant way. Indeed, even the fatuous effort to sketch out ceilings on government spending and the like were scuttled almost immediately when either they were blithely disregarded or when blatant and pervasive fraud in the national statistical reporting appendages was studiously ignored.
It is impossible to continue without a brief moment to reflect on the seriousness of this point:
National statistical reporting appendages committed blatant fraud.
Under different guises "Capitalism Lite" (now with half the pricing signals!) schemes are a regular feature of finem respice's prose. The common theme appears to be the erection of a collectivist or redistributionist system replete with price controls and other mechanisms to protect consumers or producers (or both) from the ravages of un-impeded pricing signals, the eventual and inevitable collapse of this edifice, and the hurling of blame on the "free market" or "capitalism." So common are these efforts to create a "closed system" that the subject has provided finem respice with much fodder for prose.
But the voters who continue to empower "leaders" to enact these schemes rarely feel the sting of their own lash. Indeed, the consequences of erecting "Capitalism Lite" in the case of the California Independent System Operator, the Government Sponsored Entities of the mortgage markets in the United States, the market for insurance in Florida, student loan subsidization in the United States, green power subsidies in Europe, and the market for health care... well almost everywhere, have resulted in the California power crisis, the present "great recession," the higher education bubble (now bursting), the solar and biofuel bubble and global food price spikes and health care systems on the verge of implosion, respectively. And yet, voters never learn. They are not, in fact, ever taught. At every turn they are bequeathed treasure from the public treasury and fingers pointed at a nameless, nefarious enemy: the invisibile hand.
Who can rid us of this monstrous foe? Oh, of course. How silly of us.
Nice work, "Captain Capitalism Lite"! "All in a days work."
It's fortunate they trademarked "Captain Euro." (Think the redhead is Italian or Irish?)
Once one begins to look, the common features of these structures become quite plain to see. After all, what difference is there really between the "not a guarantee" guarantee that prompted Fannie and Freddie investors to treat those firms like arms of the United States government and the "no bailouts" provisions of the European Union and the Constitution of the Federal Republic of Germany?
But lest finem respice be accused of offering nothing but critique and creating nothing but dissent, a rather more descriptive substitute is put forth:
"Erections have consequences."
And truly, these erections have left behind a white frothy wake littered with a seemingly endless series of marxist policy bastards clinging desperately to a towering and tumescent superstructure of increasingly delinquent alimony and child support payments, even as it has finally begun to sink beneath the dark waters of fiscal oblivion.
Of course, it is about to become quite obvious to the world the panicked lengths that a drowning public employees' union or group of government administrators will go to keep sucking overvalued currency from the veins of the rest of the world. They will, in fact, drag down into the murky depths anyone at all that they can lay hands on, before standing on their shoulders to keep drawing (German) taxpayer air (or just to avoid the "shrinkage" of the chill capitalist markets).
Of course, the current state of affairs seems to have the effect of prompting many otherwise sane commentators into suggesting that Europe (or California, or the United States) is suddenly "ungovernable." This has alarming overtones- as it should. Really, the word "Germany" and this phrase should never be allowed to co-exist on the same sheet of A4 paper. But Hannan is right here, though perhaps for different reasons than his excellent article articulates. More democracy would be good. But voters will only learn to stop erecting engorged Capitalism Lite structures if they are finally exposed to their consequences. That means bank failures (smaller and sooner rather than bigger and later), and displacements and an end to defined benefit plans. It means the return of the drachma and probably the Lira and the Peseta (and maybe even the French Franc).
Let them vote in far leftists or socialists in Greece and France if they like. Let them vote for a suicidal spending pact. But then give it to them. The rest of the world is not responsible for sheltering the aberrant voters of the retirement community sovereigns from their fiscal illiteracy. Nor will they learn until it stops.
Time has finally run out for Captain Euro and the Stable Disequlibrium Team(tm). A bit of poetic license applied to a quote attributed to John Maynard Keynes makes it obvious why:
"Markets can get rational faster than sovereigns can get solvent."
- 1. Evans-Pritchard, Ambrose, "Italy's Banks Shaken as Economic Slump Deepens," The Telegraph (May 15, 2012).
- 2. Ibid.
- 3. Ibid.
- 4. Ibid.
- 5. Hannan, Daniel John, "Europe's Voters are in Denial About the need for Austerity; the Solution is MORE Democracy," The Telegraph (May 14, 2012).
- 6. Ibid.
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