Fiction In the Washington Post
by Robert Waldmann
(lifted from Stochastic Thoughts)
Fiction In the Washington Post
I don’t want to make this a daily feature but Anthony Faiola and Michael Birnbaum made it hard for me to get past The Washington Post (my home page) without an angry blog post. In what is supposed to be a news article, they make a false claim of fact. They do not point to any supporting evidence (nor could they as their claim is plainly false) nor do they quote even a self appointed expert.
Their claim that “Europe’s crisis now is as much political as economic. It stems from a legacy of overspending and overborrowing, but …” is false. Spain and Ireland were running budget surpluses and had a debt to GDP ratio lower than Germany’s. Italy had a primary surplus and declining debt to GDP ratio. Germany happens to be the one and only country allowed to adopt the Euro in spite of not meeting the Maastricht conditions (which shows how stupid those rules were).
Now, I suppose that the claim is vague enough to be not proven false — they didn’t write public “overspending and over borrowing.” Indeed the root cause of most of the crisis, here in Europe as well as in the USA, ws a combination of banking deregulation and banker’s errors.
Here I think the problem is that they consider the sentence which I truncated to be a claim that the problem isn’t just over public spending and under taxing by Greece and Portugal. They go on to criticize Germany “but … it also reflects a lack of investor faith in the will of financially solid nations such as Germany to unite behind their troubled neighbors to shore up the currency union.” so they can’t say that the German position is total nonsense. That would be unBallancelicht.
But the German claims are false.
“It stems from a legacy of overspending and overborrowing, but …” is false”
Not necessarily false, it depends on the assumptions used to support the borrowing. Governmnet borrwoing over the past 10 years was based on a bubble in real estate around the world. It worked great, bountiful tax revenues, and surpluses in some cases. But, the bubble has burst and the past assumptions are/may no longer valid, thus budgets are strained.
Japan can borrow like nuts, so long as interest rates stay low. If their rates double or triple, then the printing presses will need to go full tilt, which could drive rates higher.
The U.S. can borrow like nuts too, unless interest rates climb, then we have a problem and the printing presses go full tilt. There is no longer much budget margin for error in a declining to flat economy, and printing money can cause other large problems down the road.
If you cannot print money, then you have fewer options – raise taxes or cut spending (and default). There is no guarantee those work – Illinois and Greece will serve as examples.
“Government borrowing over the past 10 years was based on a bubble in real estate around the world.”
No it was mortgagees that borrowed for that reason.
Government borrowed because they wanted to provide safe havens for their 1%ers’ excessive share of the national income. Rather than taxing them for the circular flow of war profits, bail outs and corporate welfare.
Possibly an effort from the Neo Nazi austrian lovers to kill the New Deal.
Yes, mortgagees caused the bubble, and governmnets (especially State) based their budgets on that resulting bubble. They had lots of property and transfer tax revenues to spend. Also incomes from related industries were inflated. Now, the revenues derived from that are declining, making the prior budget assumptions of future revenue growth prove false.
Mcwop
nevertheless, somebody made a lot of money during the bubble. and taxes were cut creating the deficit. and the bubble burst and bad bank practices led to a continuing recession.
seems to me there is room to raise taxes on those that have the money.
the story I heard about Greece was “massive tax evasion.” we have the same thing in the U.S., only it’s done legally and with tears all around “o-pressed so hard they cannot stand. Let my people go.”
Room to raise yes, but not enough for the liabilities that will amass if the economy stays stagnated, especially at the state level. We have had two tax hikes in maryland, and its not enough. We are in way better shape than places like IL.
Why is there evasion in Greece?
mcwop
“if” i guess. if the economy does not respond to honest “stimulus” we will have to reevaluate. but the nice thing about taxing those that have the money… instead of borrowing more… is that at least we won’t be adding to the deficit. and since the first part of the deficit at least was created by not taxing the people to pay for what we bought, there is no injustice in that.
beyond the normal howling about paying taxes. (listen, and you can hear my voice in the howling).
and of course that’s why there is evasion in Greece. no one wants to pay taxes. I do not know how the evasion works in Greece. Here we do it by electing Republicans. Or, since they want to win too, Democrats who say they want to tax the rich, while giving tax breaks to all those poor people who only make a 100k a year.
And of course tax breaks by giving the working people their retirement savings back and telling them to go out and spend .
hope they keep all that stuff they bought with their tax savings. then they can fund their retirement with garage sales.
People don’t mind paying taxes for perceived value for those dollars. In Greece, the money is usurped to enrich government, creating a different sort of inequality. Governmnet has, and the rest have not.
Similar story here in Baltimore. Government took tax dollars only spent on the have-nots, and provided crummy service to the people paying the taxes. If there is no balance there, you will have problems. Now the federal goverbnmnet spends 40 cents of every discretionary diollar on the military. While that can trickle down to some it is still falling into a narrow bucket, and not spread across the broad voting populace thus creating inequality between those connected to governmnet and those that are not.
More on Greece:
I mean the example that I love, was an example that was figured out by a former finance minister named Stefanos Manos. And Manos sat down and showed me that the Greek National Railroad generates a mere $100 million euro in revenues a year, and pays out $400 million euro in salaries to the employees of the Greek National Railroad. He’d actually made a calculation that it would be cheaper to put the Greeks who took the trains into taxi cabs than to keep this railroad running.
But every aspect of the Greek government is run this way. It’s run for the employees.
http://www.npr.org/2011/11/17/142437694/lack-of-trust-underlies-greeces-societal-problems
I am not opposed to paying taxes, but I feel I also recognize the situations where it does not always work as intended. And in Maryland they raised it on the rich, and when that was not enough hit the rest of everyone else. They are now preparing a second round of regressive taxes.
People don’t mind paying taxes for perceived value for those dollars. In Greece, the money is usurped to enrich government, creating a different sort of inequality. Governmnet has, and the rest have not.
Similar story here in Baltimore. Government took tax dollars and provided crummy service to the people paying the taxes – those people left the city. If there is no balance there, you will have problems. Now the federal goverbnmnet spends 40 cents of every discretionary diollar on the military. While that can trickle down to some it is still falling into a narrow bucket, and not spread across the broad voting populace thus creating inequality between those connected to governmnet and those that are not.
More on Greece:
I mean the example that I love, was an example that was figured out by a former finance minister named Stefanos Manos. And Manos sat down and showed me that the Greek National Railroad generates a mere $100 million euro in revenues a year, and pays out $400 million euro in salaries to the employees of the Greek National Railroad. He’d actually made a calculation that it would be cheaper to put the Greeks who took the trains into taxi cabs than to keep this railroad running.
But every aspect of the Greek government is run this way. It’s run for the employees.
http://www.npr.org/2011/11/17/142437694/lack-of-trust-underlies-greeces-societal-problems
I am not opposed to paying taxes, but I feel I also recognize the situations where it does not always work as intended. And in Maryland they raised it on the rich, and when that was not enough hit the rest of everyone else. They are now preparing a second round of regressive taxes.
McWop the post was about Europe. The problem is that some governments were not borrowing. Spain was saving (running a budget surplus). This is simply a fact. You seem to have decided that facts don’t matter. You don’t contest my claim, you decide to discuss another continent.
Mcwop
everybody thinks their taxes are mispent. and there is a good chance they are right. what seems to be happening is we are reaching a point where no one will pay taxes, and government cannot work without money.
so we are headed back to the good old days before government… or at least to the good old days when the government WAS the rich. i’m afraid our libertarian friends will never realize where things went to hell for them… it being a general rule of human behavior that once you “believe in” something you keep on believing it no matter what experience would teach you if you could still learn.
Robert, you ignore the point I am making. The surplus was during good times. When the good times end, then the debt becomes the problem – as we can see now. Europe and the states in the US both have the same problem. Many states here ran surpluses during the real estate bubble.
I feel we are headed toward a situation where governments are going to be forced to spend it wisely.
This comment from a post at Den Baker’s blog sums my point up nicely:
It seems to odd to me to commend eurozone governments for running budget surpluses during the pre-crash years. Clearly, the budget surpluses were a mirage–based, as they were, on tax revenues from the property bubbles which their respective governments helped inflate.
The budget surpluses were not the result of fiscal prudence; rather, they were the warning signs that the economies of these eurozone countries had become badly distorted by obviously unsustainable property bubbles.
I agree that misrepresenting the finances of these countries in order to push for the dismantling of the welfare state is irresponsible and wrong, but we shouldn’t over-correct and defend the judgement of the governments that drove their countries into economic ruin.
http://www.cepr.net/index.php/blogs/beat-the-press/the-myth-of-profligate-euro-zone-countries