Blog author: jcouretas
Friday, February 26, 2010
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No, that’s not the new Bruce Willis movie. That’s the spectacle we’re witnessing now of general strikes in Greece in response to proposed austerity measures designed to keep the country from the fiscal abyss — and maybe dragging down other European Union members with it. But Americans shouldn’t be too smug. Despite some very substantial differences in political culture and economic vitality, the United States is showing early signs of the mass hysteria, the widespread delirium tremens that sets in when the omni-competent welfare state begins to renege on its promises. If the root problems underlying the Greek debacle include reckless spending, a bloated and self serving bureaucracy, a heavy tax burden, and a complete political failure to face up to reality, then how is California any different in this respect?

Writing in the February issue of Reason magazine, Steven Greenhut offers a lengthy and detailed account of the rapid expansion of the California state payroll and how elected officials and public employee unions work hand in glove to make themselves very comfortable at the expense of taxpayers:

People who are supposed to serve the public have become a privileged elite that exploits political power for financial gain and special perks. Because of its political power, this interest group has rigged the game so there are few meaningful checks on its demands. Government employees now receive far higher pay, benefits, and pensions than the vast majority of Americans working in the private sector. Even when they are incompetent or abusive, they can be fired only after a long process and only for the most grievous offenses.

Too strong? Well, look at where it’s led the Golden State. Here’s California Attorney General Jerry Brown earlier this month: “California is deeply in debt. You could say that it’s bankrupt.” Is it one step closer to insolvency with this week’s postponement of a bond sale?

And this from Victor David Hanson:

Here in California we see the symptoms of the same Greek malady as we go from one budget shortfall to the next — dream-like borrowing, raising taxes, and furloughing, in lieu of the tough medicine of cutting government payrolls, changing pension payouts, and freezing the pay of state-workers until their compensation mirror images those in the private sector.

The really difficult task ahead — here and abroad — doesn’t involve anything to do with fiscal discipline, although essential to the solution, but changing a political culture that has raised generations of people to view the state as its primary source of personal security and social cohesion. The Wall Street Journal reports from Spain:

Socialist Prime Minister José Luis Zapatero has drawn criticism from economists for saying he will deal with the crisis without hurting the country’s social programs. “That’s not a plan, but an announcement,” said Lorenzo Bernaldo de Quirós, president of Freemarket International Consulting in Madrid. As a result, he said, Spaniards don’t yet understand that their comfortable way of life, cushioned by the state, is about to change. Spaniards still “think like Cubans and live like Yankees,” he said.

Greece has a socialist head of state, too, the American-born and educated George Papandreou, who also serves as president of something called the Socialist International. In that role, Papandreou has been issuing in the recent past rather bland 21st Century socialist platitudes such as, “There can be no real democracy when multinational corporations challenge the power of democratically elected representatives of the people” and, “We must reconfigure globalisation from the bottom-up, in order to bring in the two thirds of the human race currently excluded from the globalisation process, on terms that reflect the socialist principles of inclusion, cultural diversity, and sustainable development.” It’s not exactly Bolshevist in temper but, still, is this the guy who’s going to rein in the vast network of entitlements that undergirds modern Greek society?

Where were the “Socialist principles” when Greek governments, on both the left and the right, were engaging in fiscal chicanery and deception to keep the Mother’s milk of EU subsidies and support flowing for so many years? Why are the EU bureaucrats now joking about “lies, damned lies and Greek statistics”? And you wonder about the ability of Papandreou’s team to grasp reality when it resorts to playing the Nazi card in response to German demands for reform.

But Greece’s problems have little to do really with the multinational neo-liberal Anglo-Saxon hegemon. In an interview with The Economist newspaper this week, Papandreou located the real source of the dysfunction. “Greece has certain structural problems,” he said. “We have had a high level of corruption, a lot of clientilistic politics. That was sapping a lot of the money and bloating public deficit. When you have clientilism you end up bringing in many more public servants to bring in your voters, to give them appointments.” Greeks, who have eyes to see and ears to hear, watched this corruption and concluded: Why should contribute to this? Papandreou owned up to it, finally. “One of the reasons I believe that we have had higher tax evasion over the last few years is the fact that governance have lacked credibility and people were saying: “Well if that guy up there in government is doing what he is doing, putting his money in tax savings outside of Greece, and he is a Minister, then why should I pay my taxes?” This has gone on for decades, not just the “last few years.”

Add to this a demographic downward spiral (linked to high abortion rates) that brings in fewer and fewer young people to pay into the front end of the welfare state ponzi scheme. Steven Malanga shows that the global financial crisis merely exposed the underlying problem:

… Greece has exactly the wrong labor and retirement policies in place. According to the Organization for Economic Cooperation and Development, Greece has among the most liberal pension systems, with generous payouts to encourage workers to retire early, including whole categories of workers in jobs deemed “arduous.” Incentives matter, of course, so that even while Greece needs to be encouraging more of its citizens to work longer, they are doing the opposite: Only 42 percent of Greece’s population aged 55-to-65 are employed, compared to 52 percent of the OECD on average and 62 percent in the United States.

Greece suffers not only from the lost national productivity of a shrinking workforce, but from the cost of high retirement payouts. Greece spends nearly 12 percent of its gross domestic product on pensions-compared to 6 percent in the United States. To support that burden Greece has among the highest rate of taxes on the average worker in Europe, 42 percent of income earned, compared to 37 percent in the OECD on average and 30 percent in the United States. No wonder so many Greek workers find it more profitable to retire or to evade taxes, another of Greece’s problems.

Europe’s other most troubled countries share many of Greece’s characteristics. Italy and Spain have birth rates that have slipped as low as Greece’s and shrinking labor working age populations. Yet early retirement is the norm. In Italy the average retirement age is 59, among the lowest in industrialized nations, and Spain is ranked only slightly higher. Only one-third of Italy’s population aged 55-to-64 is in the workforce, and the average male worker in Italy will spend more than 25 years in retirement. In fact, with life expectancy increasing, a growing chunk of European adults spend more of their [adult] life retired than working. But the costs are staggering. Italy now spends 15 percent of its GDP on pensions, the highest in the Europe.

Can America resist the same temptations that have now pushed Greece and other tottering entitlement states in Europe into such peril? That is, in part, what the debate over health care is about. What are the upside limits to the American welfare system, what is its proper scope, and how will that impinge on our liberties and affect the moral health of the culture? How will the Obama administration’s nationalization of health care, a plan that would extend insurance to about 30 million Americans at a cost of $950 billion over 10 years, affect our long term fiscal health at a time when budget deficits are soaring? Well, there’s another summit coming up, this one on the deficit. Let’s invite the Chinese.

At the same time, we have a growing constituency of Americans who pay no taxes but receive state benefits:

An astonishing 43.4 percent of Americans now pay zero or negative federal income taxes. The number of single or jointly-filing “taxpayers” – the word must be applied sparingly – who pay no taxes or receive government handouts has reached 65.6 million, out of a total of 151 million. [ ... ] “You’ve got a larger and larger share of people paying less and less for the services provided by the federal government,” says Roberton Williams, a senior fellow at the Tax Policy Center. “The concern is that the majority can say, ‘Let’s have more benefits, spend more,’ if they’re not paying for it. It’s ‘free.’ That’s not a good thing to have.”

And let’s not forget, as Steven Greenhut has demonstrated, that we have a growing public sector to serve this 43.4 percent of Americans who pay no taxes. It all sounds very Greek.

Still, there’s much to be hopeful about. Compared to the sclerotic European welfare state, the United States has a growing population, a more stable and transparent political system — with lots of room for push back — respect for the rule of law, and an economy inviting to entrepreneurship and innovation. And relatively low levels of public corruption. Americans have developed a true culture of grassroots democracy that encourages participation and oversight into a hyper-local political life that ranges from school boards, township zoning decisions, election of judges, and state house races. Along with this comes a vibrant civil society sector involving churches, charities, foundations and other groups that have a strong voice in the public square.

The question then: Will we follow, as St. Irenaeus of Lyons put it, “the ancient law of human liberty” to master our own lives and hold ourselves accountable to God, family and neighbor, or will we surrender that priceless gift for the hollow promise of a fatter state benefit package?