June 15, 2012

A Global Plan B

What superstate was in Europe, had 15 member countries, shared a single currency and yet within two years found nearly all it’s members withdrawn from the single currency?
Answer: the Soviet Union [1].
It was a currency union of 15 states in 1992. Two years later, as budget deficits spiraled out of control, hyperinflation reigned and economies shriveled, just two members of the Soviet Union’s ruble zone were left.
The Soviet experience tells us “an exit like this is messy and leads to loss of income and inflation, and people are right to be scared of it,” said Harold James, a professor of history at Princeton University whose books include “The End of Globalization: Lessons From the Great Depression.” “It isn’t an attractive analogy at all because the Soviet Union states all had serious troubles for the whole of the 1990s.”
Unless Europe is careful, it may find that it is not really “too big to fail” any more than the USSR was.  The Telegraph [2] reports that London has now become the preferred destination of European squatters who are fleeing the wreck of southern Europe for free digs in Old Blighty. When you’ve got squatters in London, and not just in Rio or Tondo, then there’s trouble afoot.
How did this happen? Maybe because the idea of something for nothing and your chicks for free got taken seriously. But not everybody thinks the world works that way. The Spanish Chinese, among whomunemployment is about 3 percent [3], may even be looking forward to more closures, licking their chops at all the opportunities they can service that Europeans can’t fill.
“I can’t think of one Chinese person who is unemployed,” Jin Jing says as she surveys the commotion outside her warehouse crammed with women’s clothing. “There are jobs to be found in this crisis if you are willing to work. The Chinese are clearly willing to work.”
The activity in Cobo Calleja reveals a surprising source of strength for the troubled Spanish economy: immigrants from China. Virtually all of the shopkeepers and wholesalers in the park are Chinese. Only 2.9 percent of Chinese registered for social security received unemployment benefits in 2010, vs. 16.5 percent of Spanish nationals and 24.5 percent of all foreigners, government data show. And though they account for less than 3 percent of Spain’s 5.7 million immigrants, Chinese make up nearly 23 percent of the country’s foreign-born entrepreneurs, labor ministry data show.
So how come the Spanish Chinese can make lemons out of lemonade? Maybe because they never expected to find free lemonade in the first place and are still laboring under the powerful illusion that money comes from personal earning. It’s a radical idea, according to John Hinderaker at Powerline [4] who argues that what is failing the Western world is the collapse of the old paradigm of growth by government. “President Obama’s seemingly-bizarre claim that “the private sector is doing fine” is echoing across the country. When I first saw the quote, I thought it must be a momentary gaffe, or perhaps taken out of context. But no: Obama really did say, at some length, that the private sector is prospering and we need to spend more money on government”.
I think the belief that the private sector is rich and the public sector is poor, so that transfers of wealth from private sector to public sector are endlessly justified, is embedded deeply in Obama’s ideology.
The classic formulation of this proposition goes back to John Kenneth Galbraith’s The Affluent Society, published in 1958. Galbraith contrasted the worlds of “private opulence and public squalor” in the course of arguing for massive government spending programs. Galbraith’s book was epically wrong-headed, but the idea that the private sector is rich and the public sector is underfunded lives on as one of the pillars of liberal ideology.
Jay Cost [5] argues that the free lemonade theory became popular because there was such a big Design Margin back in the day. He thinks that postwar American economic growth made it possible for both the Republicans and the Democrats to engage in reckless special interest pandering behavior. While the pie was growing everybody could be paid off. So they were. Everybody ‘won’.
Writing in the aftermath of the 1968 presidential campaign, journalist Theodore White borrowed Lasswell’s concept to define the core philosophy of the New Deal Democratic Party as the “share-out,” by which he meant “that any Democratic administration would increase or stretch the wealth so that everyone would get his fair share of money, goods and comfort, and thus be content.” White observed:
These concepts are repeatedly articulated by President Obama. He talks about sharing the wealth; creating a middle class by taxing the one percent. In other words, he really believes that paying out money creates demand growth. Not long ago Nancy Pelosi argued that if you paid people more unemployment insurance it would create jobs. They would buy more thingamajigs. The problem is, they would probably buy them from the Chinese.
When the economic pie stopped growing the same behavior became what Cost calls the “politics of loss”. Anything you gave away came at somebody else’s expense; anyone’s gain was somebody else’s loss. Hence the term the politics of loss. That is what is bedeviling President Obama today and why his “doing fine” video bombed.
Cost thinks the main problem facing both parties is to start growing the pie. Just shrinking government won’t be enough. Society is fed up with transferring money around. What it wants, in his estimation, isn’t redistribution but a growing prosperity. More pie.
If Republicans do succeed in retaking the government in 2012, they must tread very carefully, because they cannot afford to be seen as merely the party of budget cuts. As noted above, this same failure contributed to the undoing of the Republican campaign in 1948, as it produced an easy opening for Truman to rail against Republican plutocracy. In today’s environment, proposed cuts to the budget must instead be placed alongside concrete, effective policies to generate economic growth. This approach will allow the GOP to rebut the argument that it is simply destroying the welfare state, and to show that Republicans are instead replacing the welfare state with something immeasurably better: a growing and dynamic economy that will benefit all citizens.
Such growth is essential to more than the health of our economy. If it fails to materialize, not only public finances but also free enterprise and the republican character of our regime will be imperiled. In this year’s elections, Republicans would do well to remember what is at stake — and to advance an economic agenda that rises to the challenge.
The idea that government spending — and necessarily taxation — contributes to growth is widespread. If spending is equivalent to growth, then why not more the money from “immoral” private hands to altruistic public ones? What could be more moral than the United Nations. CNET reports [6] that the United Nations is mulling a global Internet tax.
The United Nations is considering a new Internet tax targeting the largest Web content providers, including Google, Facebook, Apple, and Netflix, that could cripple their ability to reach users in developing nations.
The European proposal, offered for debate at a December meeting of a U.N. agency called the International Telecommunication Union, would amend an existing telecommunications treaty by imposing heavy costs on popular Web sites and their network providers for the privilege of serving non-U.S. users, according to newly leaked documents.
And why not? The UN is broke. Google and Apple, though are “doing fine”. If the New Deal principle is correct, then what objection could there be in spreading the wealth from the greedy private sector to the international civil service? There can be none, unless the principle itself is wrong.

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