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CHRISTOPHER TAYLOR'S BOOKS

Friday, June 15, 2012

THOSE SILLY SPANIARDS

This is all building up to something,
Something that can only be redeemed...
with fire.
-Pete Townshend, "White City"

Spain has a problem. They've been working for years to create a new modern economy and push their nation into the future, and its just not working. The Spanish government has been heavily funding "green" energy, building infrastructure projects, spending billions on "stimulus" and its just not helping any. Stoaty Weasel helps describe the situation:
Speaking of economic tragedy, our neighbors just got back from a week in Spain. I asked if they saw signs of impending doom and they laughed. Not so much the impending doom, but the madness that drove them to it.

They said Spain is lousy with pointless and abandoned infrastructure projects. Like sections of new, modern, multi-lane highway that run parallel to the old, usable road for miles and then just stop. Connecting nothing to nothing, with no access at either end.

Way, WAY out in the middle of the empty countryside, standing in a field slowly grassing over, they saw an enormous concrete bridge. The kind that a big highway would pass over and another big highway pass under, but no road. Or town or anything to go from or to. All funded with loans that are now coming due.
She calls them "little cargo cult shrines to progress," but they don't accomplish anything. Spain did all the "correct" things as the left understands economics and reality and its been not just failure but catastrophic for their economy.

They built wind farms, they constructed bridges to give people jobs, they built housing for immigrant workers, and they threw their doors open to immigration. The population of immigrants in Spain increased by sixfold over the last decade, largely because their immigration standards were much lower than most of Europe. And because of the EU rules, those immigrants then move to other nations and must be accepted.

The idea was cheap labor to drive the economy while everyone in Spain focused on a new economic model built around renewable energy. The government would prop it all up with massive spending borrowed from Germany and France, and things would take off in a new utopia. People need jobs? Well we'll build new highways, even if they aren't needed. They built roundabouts in the middle of the country, they built huge cloverleaf overpasses where there weren't any exits required. It kept people busy, it created jobs, and it was infrastructure!

Spain's unemployment shot to over 24% because the rest of the economy cratered from excessive jobs, massive government debt, regulations, and crushing rules for pollution and business. But the infrastructure! And green jobs are just around the corner! Credit rating agencies downgraded Spain nearly to junk status, and the $117 billion is a loan, meaning the nation is even further in debt.

Part of the problem is that the EU forced Spain, along with other nations, to loan to Greece to bail them out. Those loans were at 3% interest so Greece could theoretically have a chance to pay them back. But Spain has to pay 7% interest on the money they got from other nations just to make those loans.

Nigel Farage, leader of the Independent Party in the UK puts it this way:
I remember being here ten years ago, hearing the launch of the Lisbon Agenda. We were told that with the euro, by 2010 we would have full employment and indeed that Europe would be the competitive and dynamic powerhouse of the world. By any objective criteria the Euro has failed, and in fact there is a looming, impending disaster.

You know, this deal makes things worse not better. A hundred billion [euro] is put up for the Spanish banking system, and 20 per cent of that money has to come from Italy. And under the deal the Italians have to lend to the Spanish banks at 3 per cent but to get that money they have to borrow on the markets at 7 per cent. It's genius isn't it. It really is brilliant.

So what we are doing with this package is we are actually driving countries like Italy towards needing to be bailed out themselves.
Its insane, its unsustainable to use a left's favorite term, and it clearly cannot work. And its what President Obama based his entire economic model for the US on... except there's no one to bail out the United States.

In fact, the US has been trying to follow the Spanish pattern quite closely. President Obama repeatedly praised Spain's "green energy" plans, and in fact part of the "Stimulus" package the Democrats passed went to Spain to help prop up solar energy companies. President Obama predicted that a new renewable energy based economy would transform America and pull it out of the recession. President Obama pushed an stimulus package that would help build America's infrastructure and provide jobs while we transitioned to this new economy.

And like Spain, it was an utter failure. It was an utterly foreseeable failure as well. The failure to produce "green jobs" was already apparent in Spain, the failure of government spending to boost the economy was a failure in Europe. The failure of infrastructure to sustain states economies was a failure. About the only thing the "stimulus" did get right is to help states ignore their bloated budgets one more year.

The failed "stimulus" spending didn't work for three main reasons, as Ed Morrissey lays out in a power point presentation:
  1. The “shovel ready” jobs weren’t shovel ready (as Obama himself has admitted), leading to a delay in the stimulating effect;
  2. The money to save the jobs of “firemen … and policemen … and … teachers” did not just go to firefighters and policemen and teachers. It also went to non-essential bureaucrats (e.g., headquarters paper shufflers, “diversity coordinators”);
  3. The money bailed out states that were paying unsustainable pensions and benefits, enabling them to keep paying those benefits, so that when the federal subsidy ran out the states couldn’t afford to keep workers on the payroll and laid them off.
The point of the stimulus was one part the fantasy of keeping jobs until the green economy took off, one part political paybacks and leftist dream projects, and one part propping up state budgets. It allowed states to not make the cuts they needed to avoid debt and collapse just a little bit longer. And those cuts would have been at the expense of lush public employee union contracts and pension funds, which the left considers untouchable.

So now the United States, like Spain and many other nations, finds its self at the brink of collapse. And unlike Spain, there's no EU to shuffle around money from different nations in loans to stave this off just a little bit longer. The entire world economy is in a situation much like someone who gets credit cards to pay off their previously maxed out cards. There isn't any actual money in the guy's account, he's just finding book keeping tricks to keep living like he wants to and push disaster off just a little bit longer.

And since there's no "green energy" salvation on the horizon to pull us all out, no America out there to bail out the rest of the world like after WW2, no external source of riches to help us, the entire world is facing an economic armageddon that will make the 2007 collapse look like you dropped a penny down the sewer grate.

America is already in terrible shape economically, we just don't get the reporting on it like we did back in the Carter years, for example. Back then, "if it bleeds it leads" trumped "but that hurts our political allies." So the horrible economy and misery among people got front page, first-story news and was shown every day. These days the legacy media knows that hurts their hopes for an Obama second term and Democrats in congress, so they are keeping it under control.

But things are terrible. Inflation on food and gas continues to head upward, hurting individual families exactly where they can least avoid it. Since 2007, the average American's wealth has plunged by 40%, roughly equaling what it was almost two decades ago. Real income has dropped by almost 8%, with inflation eating away at it year after year (even if the federal government pretends that inflation doesn't exist by not counting it). Overall, 80% of America became poorer, with the bottom 20% increasing very slightly.

And people know this. They feel it even if they don't have the exact numbers in front of them. Its why consumer confidence has dropped to just over 60 (no president has won reelection with the consumer confidence index under 100, incidentally).


That's pretty low, but let me put it into perspective. Here's the long-term chart, starting in 1969 when they started keeping track of consumer confidence:
See those years where Carter was president, roughly in the middle? Yeah, its around 60%. This was termed "malaise" by the press when Ford was running for reelection, and the term hung around Carter's neck like a millstone. People know things are really bad, that's why nobody believes the left when they claim we're out of a recession or that things have gotten much better. Its why when President Obama says the private sector is "doing fine" it becomes a joke online and would be a running gag on Saturday Night Live and with late night comedians for years, were he a Republican - or the entertainment community more honest and even handed.

When almost 13 million of the population is officially out of work and millions more so unofficially, people know something is very wrong. When unemployment hovers over 8% for three years, people know something is very wrong. When housing defaults and foreclosures continue at record paces quarter after quarter, people know something is very wrong.

And while there are jobs being created, there aren't enough. People die, retire, lose work, or become hurt and cannot work every day. Every one of those people is someone who leaves work, and a job that goes away. If they are not replaced at at least the same rate they leave, that means overall jobs are lost. That's why last month unemployment went up despite almost 100,000 jobs a month being added for the last three months, because there aren't enough jobs for people who need them.

That's why when the left claims jobs were added, they're technically correct, but also quite wrong. Overall we lost jobs. Its like saying you made money when you earned 90 bucks, but have $100 in bills. Did you earn that money? Yes, but you instantly lost it all to bills and went into debt further. You didn't really make any money at all.

The sad thing is, the federal government is doing quite fine. Take a look at another chart, this one jobs over the last few years:


As you can see, hiring plummeted and has started to weakly rise again. State and local government jobs have dropped largely because states are cutting back on their budgets, but overall have fared much, much better than private jobs. But look at that federal government line, the greenish one at the top. Like that? That even leaves out the census hiring, which spiked federal employment around 2010.

If you work for the federal government, things are great! You've even been getting regular raises and benefits. You have a secure job, and more people are being hired! The rest of the economy, especially the non-government parts? Not so much. And all that government hiring is by policy. The theory was, as I noted, that government stimulus would create jobs.

And when President Obama took office, one of the first things he did was to sign a $410,000,000,000 omnibus spending bill that the Democrats in congress handed President Bush. Bush refused to sign it as he left office, but Obama whipped out the pen. Government spending is, under President Obama, consuming about 24% of the economy (under Bush it was 20%, still too high).

Under President Clinton (with the Contract With America Republican congress), federal spending started to go down, as the economy got better. This makes sense in a lot of ways, since the better the economy in general is, the less people need public assistance. But there's another way this makes sense: the less money the federal government takes out of the economy to hand to people, the more people have to invest, hire, and expand with - and the more they spend. Its pretty simple economics. If you have more money in your wallet after your paycheck, you can and will tend to spend more. That gives more to businesses, who can hire more, pay more, and so on.

The Lund University - Department of Economics and Research Institute of Industrial Economics did a study comparing government spending to growth in a nation's economy. What they discovered is unsurprising: An increase in government size by 10 percentage points is associated with a 0.5 to 1 percent lower annual growth rate. The more you increase a government, the more damage that does to a nation's economy. By contrast, the reverse happens: smaller government = better economy. There is a limit, of course, but the trend is there and again is unsurprising.

So what happens when a government doubles its debt load to 16 trillion dollars (that's $16,000,000,000,000) in ten years? Economic ruin. Spain is in terrible shape, and its government is expected to spend over $65,000 per citizen of the nation over the next five years. America is expected to spend almost double that: $106,000.

Those silly Spaniards.

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