Saturday, May 12, 2012

THE PRAIRIE EDITOR: France And West Virginia

     "Sensational" breaking news recently included datelines from France
and West Virginia. The former was the defeat of incumbent French President
Sarkozy by his socialist opponent in France's presidential election, and the
latter was the news that a criminal felon residing in a U.S. penitentiary had
received 41% of the vote in the West Virginia Democratic primary against
President Obama.

How are these events related?

They are part of a general political trend these days in which voters are
demonstrating how unhappy they are with current economic conditions AND
how current politicians are dealing with the problems arising from these
worldwide and local political crises.

These two events perhaps got more headlines than other similar events, but it
can also be noted that Greek voters rejected their current leadership and Indiana
voter rejected long-time U.S. Senator Lugar, a fixture in Washington, DC for
decades. in his attempt for re-election. There are numerous other similar
examples occurring at all levels of government here and abroad.

Of course, not all of these events are of equal importance and validity. The
narrow loss by M. Sarkozy and a more one-sided loss by the Greek government
have been written off as voter rejection of recent government attempts at
"austerity" as an approach to solve European debt crisis problems. But what
will be the result of turning away from even the modest "austerity"that was
attempted by the French and Greek governments now thrown out by their voters?

Virtually all of Western culture, in Europe and North America, has been
indoctrinated with the notion that citizens are entitled beyond "life, liberty and
the pursuit of happiness" to certain material benefits, including healthcare and
old age pensions. Many Western societies also guarantee post-secondary
school education. Each of these "entitlements" is very expensive, and requires
government revenues to pay for them. In the past, the notion was promulgated
that the cost of these entitlements could be paid for by charging them to future
generations in the form of accumulating government debt.

In prosperous times, and while these entitlement programs were in their initial
phases, this seemed to be a workable system. It did not take long, however, for
outflows to dramatically exceed inflows, and periodic "repairs" to entitlement
systems took place. These "repairs" have not fixed their systems, however. They
have, in most cases, only put off the time when draconian actions will have to
take place to "save" the entitlement (if they can be saved at all).

In Europe, more than the U.S., perhaps, the belief that entitlements did not have
to be paid for took greater hold. Many government entitlement programs were
created in Europe long before they were initiated in the U.S. Instead of applying
measures to limit the accumulating debt (that paid for current entitlement
payments), the Europeans did the opposite. They shortened the work week,
increased benefits, cut the retirement age, and universalized healthcare.

There are laws of financial gravity, however, and it was only a matter of time
before the financial system, which is based on the principle that what is
borrowed will be paid back, would be able to bear no more debt. That is
exactly where most of the nations on Europe and North Ameria have come to
in the present crisis. The solution to this ongoing crisis in Europe has been
essentially to use government funds to bail out the banks and other
institutions which hold this debt. But in order to have the government funds
to do this, the governments have to raise their revenues through taxes. Raising
taxes, however, discourages businesses from expanding and hiring new
workers. In fact, in an economic decline, businesses reduce their operations
and lay off workers. Individuals facing higher taxes reduce their spending,
which in turn, reduces demand and cause production to go down. These are
fairly universal economic truths.

Spain today has almost one-quarter of its working age population unemployed.
Other member of the European Union have varying amounts of very high
unemployment. The obvious solution to these conditions is for the member
governments to reduce the amounts of the entitlements they have been paying
out, and to reduce government spending. Being Europeans, however, the natural
impulse of EU politicians is also to raise taxes. With such high levels of
unemployment, and European taxes already prohibitive, increasing tax revenue
is not a fruitful path to restoring economic health.

That will not stop the politicians, however. It certainly will not inhibit M.
Hollande, the new French socialist president. You can count on the European
crisis, therefore to continue (and get worse).

As for Richard Lugar, at 80 years of age, he ran one race too many.

Copyright (c) 2012 by Barry Casselman.  All rights reserved.

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