Archive for June, 2012

The Urine Taste Test

June 29, 2012

American health care was a tangled Gordian Knot, needing a bold Alexander to slash it. Instead we got Obamacare, tangling it even more. Tragically, it probably postpones genuine reform for decades.

One of my book groups decided to read T.R. Reid’s The Healing of America: A Global Quest for Better, Cheaper and Fairer Health Care. I wanted to read a whole book on health care policy about as much as eating broken glass. But actually it was pretty good (written pre-Obamacare).

Here are some observations.

Health care debate is full of comparison arguments, but making valid comparisons is dicey. Example: we’re continually told the U.S. spends more on health care than other countries, but gets poorer results. However, health outcomes are dramatically worse for those without insurance, skewing our national averages downward. For the 85% who are “in the system” (and bear its costs, either as patients, insurance payers, or taxpayers) results are probably at least as good as anywhere.

It’s also tricky to determine what a nation “spends” on “health care.” French doctors earn a fraction of American levels. But their medical education is totally paid by government (i.e., taxpayers). Shouldn’t that be counted in France’s “health care” spending?

We’re also constantly told that while administrative costs (this includes profit) are 20% of U.S. health spending, it’s only 2-5% for government-run systems like Medicare or Britain’s NHS. But it’s easy to “forget” many government overheads. For example, a private company incurs costs in billing and collecting its revenues. Government does that through the IRS – a very costly operation – but none of that IRS overhead is allocated to Medicare. More important, a private company has to pre-fund its pension plan. Government does not (though it does pay pensions). Thus its administrative overheads might appear lower.

 The chief reason why nations with universal care spend less than America is that they pay doctors and hospitals way less. Government just sets prices. In Japan, an overnight hospital stay is $11 (including dinner of course). In the U.S., they charge so much because they can. The U.S. system makes shopping around by patients largely both impossible and pointless. Thus we have the worst of both worlds: the profit-seeking aspect of a market system, without a free market’s discipline of competition. In countries where providers and insurers can’t compete on prices (which are fixed), they at least tend to compete vigorously on service. (Click here for an excellent discussion by David Goldhill of how U.S. health care is messed up by not functioning as a market. Our system has all the wrong incentives, and Obamacare does nothing to fix this.)

Other nations also have lower costs because they ration care in ways we don’t. A big chunk of U.S. health spending goes on terminally ill elderly patients whose quality of life doesn’t really benefit; other countries don’t thusly waste resources.

Reid’s book presents health care as a moral issue, with the obligatory horror stories of deaths from non-insurance. Is medical care a universal right? But what does that really mean?

America’s poorest have long been covered, through Medicaid. And prisoners get free care. But if you’re not a criminal, and too “rich” for Medicaid, and too young for Medicare (and if your insurer, after years of taking your payments, tells you to get lost), you can die from a disease whose treatment you can’t afford.

Germans are quoted saying doctor visits should simply be “free.” That may be humane and reasonable for those who can’t afford to pay. But by what moral principle should it be “free” for others? Nobody gets free car mechanic service or lawn care. Yes, health care is different – indeed, probably the most important and valuable product we consume. Why should we not pay for this – handsomely? But resistance to that idea is a key factor screwing up U.S. health care.

Another catch phrase is “treating everyone the same.” As though it’s immoral if the rich get better care. (Canada even tried outlawing any health care outside its national system.) Choosing how to spend your money is a basic freedom; and yes, the rich have more. We shouldn’t let a poor person die of a routinely treatable ailment; nor do we let him starve; but we don’t give him caviar, just because the rich can afford it, on the principle of treating everyone the same. The aim should instead be treating people humanely. What the rich can afford, society as a whole cannot. Remember, there’s no such thing as “free” care. We all, actually, pay.

But how we pay is the problem. We have a perversion of the insurance concept, originally invented to protect against a catastrophic expense, by pooling risk. Like a home burning down. We don’t expect insurance to cover every little home expense. Yet that’s exactly how we treat health care. This is why it doesn’t function as a market, with transparent pricing, and providers competing for the consumer’s dollar.

We evolved into this because employee health insurance is not treated as “income” for tax purposes, making this the cheapest way to pay for all health costs (though not from the standpoint of the nation). (Note that middle class incomes have actually grown dramatically in recent decades if you consider as income the huge cost of health care people don’t directly pay for, which in reality we’ve taken in lieu of higher salaries.)

There are certainly things done elsewhere we should emulate. The French all carry a “carte vitale,” with a computer chip recording their entire medical history, which also processes all billing. (The system was designed by – you guessed it – Americans.) In Britain a doctor gets a fixed annual payment for every patient on his roster, giving him an incentive to keep patients healthy (and out of his hair). In America, doctors and hospitals are paid for every little thing they do, incentivizing lots of doing; indeed, the sicker the patient, the greater the profit.* And U.S. insurers have scant incentive for long-term preventive care because by the time the benefits materialize, the insured person has likely turned 65 and switched to Medicare.

 And what about that urine taste test? Author Reid was told by an Indian doctor that he couldn’t diagnose Reid’s ailment without tasting his urine. I guess American medicine does have a lot to learn.

* Goldhill’s father was made sicker, and eventually killed, by the hospital; but that enabled the hospital to rack up a gigantic bill – paid by Medicare.

Egypt: Bullets or Ballots?

June 25, 2012

Getting rid of Mubarak was the easy part. He was thrown overboard by the army. Of course, the Tahrir Square protests had something to do with it. They made Mubarak a liability to the army as the real power in Egypt, the “deep state.”

Now, how to get rid of the army?

Perhaps some in the high command were sincere about transitioning to democracy. But others were not, targeting instead a transition to renewed military rule, old wine in new bottles.

The Economist’s latest cover

In siding with the protesters against Mubarak, it posed as “the people’s army.” But if it wanted to disguise its contempt for democracy and human rights, it did a rum job of that, with legions of civic activists subsequently hauled before military tribunals and handed ferocious sentences for what amounts to the crime of lese-majeste toward the army. Its attitude was exemplified by the prosecution of American NGO workers, and locals, for the heinous offense of teaching about democracy. The army soon realized how dumb it was to shove this finger in America’s eye, so our citizens were let go; but not the Egyptians who worked with them.

Then they (deliberately?) screwed up the presidential election by disqualifying several leading candidates on asinine pretexts – including the Islamist Brotherhood’s front-runner, thrown off the ballot because of a criminal record – he’d been a political prisoner under Mubarak! Actually a sterling qualification for office now, one might think.

Mohammed Morsi

So among a crowd of second-string candidates, Egypt wound up with a Hobson’s choice run-off between the Brotherhood’s back-up guy, Morsi, and Shafiq, who was briefly Mubarak’s last prime minister. Together they had less than half the vote; too many liberal/secular candidates divided the rest. However, it seemed a moral impossibility that after all that had gone down, the elderly former Air Force General Mubarak would be succeeded by elderly former Air Force General Shafiq. Morsi did appear to have won, but the army was cagily slow about officially announcing it (perhaps trying to make a deal with either candidate).

In the meantime it connived a court ruling, belatedly invoking some nonsensical technicality to throw out the whole recent parliamentary election, which Islamists had also won. A naked power grab: pending (eventual?) new elections, the army will exercise all legislative powers – including, crucially, the drafting of a new constitution which, no doubt, will securely enshrine the army’s power, perquisites, and unaccountability.

Morsi has now finally been declared president. The army apparently lacked the will to sneak Shafiq in, knowing how badly such ploys have gone elsewhere. (The world has changed.) But without a constitution, the new president’s authority is limited, so letting Morsi have the job is a small concession, to pacify the “mob,” while the military continues to run the show and even consolidate its power. Will Egyptians let it? The battle will be very hard – much harder than seeing off one man, Mubarak.*

 Let us be clear: the army is not a legitimate institution. In theory it exists to defend the nation; in reality, in Egypt and many other countries, that function has to all intents and purposes disappeared, leaving instead an army that actually functions for its own purposes and interests, inimical to those of the population it notionally serves. Armies can do this for one simple reason: they have guns. Same as criminal mafias.

Countries like Egypt cannot truly join the modern world until their affairs are governed by ballots, not bullets. Slowly, inch by inch, we see progress. A good model is Turkey, whose own “deep state” is being tamed, its army gotten out of the nation’s face and defanged. A few countries have abolished their armies altogether.

 Through all Egypt’s turmoil, the Obama administration has been typically, sleepily inert, as though we are mere bystanders. But Egypt matters greatly to our interests – as evidenced by our $2 billion (mostly military) annual aid. Shouldn’t that buy us some clout? We should be saying – no, thundering – that we back the Egyptian people, and their elected president, against the army. To prove it, we should stop the military aid, and redirect the money to things like schools and health clinics, which the Egyptian people desperately need. They don’t need military aid (strengthening the army even more). Much less does Egypt’s army deserve it.

We’re told Morsi and the Brotherhood are not our friends. Maybe they have reasons. All the more reason to go out of our way to show the enmity is not reciprocated, and can be overcome.

Wake up, Mr. President; let’s please get on the right side of history.

* My last post about Egypt (2/11/11) may have been overly euphoric. Forgive me that. Life’s path is never simple. It’s two steps forward and one step back – often ten steps forward and nine back. But Egypt’s 2/11 step forward was a big one, worthy of celebration.

Rats and the Law of Unintended Consequences

June 21, 2012

In 1900 Sydney, Australia, experienced an outbreak of plague. Knowing that rats bore the disease-carrying fleas, a bounty was enacted to encourage killing rats. Surely a public policy no-brainer.

Result: residents, seeking to profit from the bounty, began breeding rats.

This was noted in an “Edge” essay by psychologist Robert Kurzban, responding to the question, “What is your favorite, deep, elegant, or beautiful explanation?” His was the Law of Unintended Consequences – which is indeed beautifully illustrated by the rat story.

When it comes to any law-making, the most important law of all is the Law of Unintended Consequences. It decrees that whenever you mess about with a complex system (and an advanced modern economy is exceedingly complex), there will be unforeseen and downright unforeseeable results. Nobody can ever be smart enough to avoid this.

Chicago’s Cabrini-Green housing project

And this is the deep problem afflicting the politics of relying on government to right wrongs and improve things. It’s not merely the impossibility of ever foreseeing the real results of a government initiative. Given that the population of affected individuals vastly outnumbers those crafting the policy, it is axiomatic that some of those affected individuals will be more clever or creative than the officials, and will figure out ways to pervert the policy to their own private ends. Like those Aussie rat breeders.

The development of welfare policies is another pertinent case in point. Nobly conceived to help poor families, government policy actually helped to destroy them by penalizing work, marriage, and responsibility, while encouraging social pathologies and a lamentable culture of dependency (especially in  the high-rise developments intended to give “beneficiaries” decent affordable housing, which became hell-holes). Somehow no one foresaw any of this when the programs were created. They weren’t stupid. Merely non-omniscient. 

Cabrini-Green, after

Similar things can be said about the recent financial crisis and mortgage bust – one can argue till doomsday about the causes, but surely part of it was government policies that (as ever) seemed like a good idea at the time – whether you want to blame the policy of encouraging home ownership by less affluent buyers, or the policy of loosening regulation.

And if you believe the remedy for loose regulation is tighter regulation, what makes you think we can actually get it right this time? I have written about the Dodd-Frank disaster. Here, in fact, the bad consequences were foreseeable from the start. The unforeseeable consequences we’ll have to wait a bit for.

In contrast, for all the mistrust and outright loathing it attracts, the free market at least has a crucial safety valve: if you screw up, you go out of business. That includes screwing customers. Nobody stays in business that way very long. Government, of course, stays in business forever, and its dysfunctional policies are very hard to change because they always create beneficiaries who will fight that change. Revising the Australian rat policy would have been fiercely opposed by the rat breeder lobby (I wouldn’t be surprised if it’s still in effect). Another good reason for great caution before creating any new policy.

Dodd-Frank regulating the economy

None of this is to say that we should just throw up our hands and never do anything or try anything. But it does mean that any proposed government tinkering with the economy should be viewed with a skeptic’s gimlet eye – if it sounds good, there’s probably something you haven’t thought of.

The Spirituality of Reality

June 16, 2012

“Spirituality” is not my favorite word; it’s mushy, and connotes antithesis to rationality. But lacking a better word, it does capture something people experience, and seem to desire. We want to feed not just the mind but the soul (another problematic word; I use it metaphorically). We want to transcend the mundane; to apprehend something greater, something deeper.

Religion scratches this itch, providing a dose of the ineffable. Its ceremonies do this very well –having evolved over centuries to exploit spiritual cravings. However, religion’s informational content has become anachronistic. It may have sufficed in pre-scientific times when we lived quite naively vis-à-vis the natural world, but today we know better.

So, while people won’t likely become cold materialists and give up spirituality, they’re bound to move beyond the fairy tale vessels in which conventional religion carries those feelings. But what will replace religion’s leaky vessels?

Spirituality has often been expressed through “big think” cosmic notions – the most grandiose of grandiosities – like God, the nature of the Universe, the meaning and purpose of it all. But spirituality doesn’t have to entail “big think” which, if you really ponder it, is irrelevant to our actual lives. Grasping (or imagining that you grasp) some deep cosmic truth is entirely beside the point when facing nitty gritty issues of living, how you will interact with your partner in the bedroom, or your boss at work. You don’t have to worry about how creation occurred; only how to get from Point A to Point B in your very tiny corner of it.

That might sound like the mundane stuff spirituality wants to transcend. Yet while “big think” may be one portal to spirituality, it’s not the only one. There is plenty to get spiritual about in the smallest, most quotidian aspects of reality.

Talk about small: what is reality anyway? How it is constructed at the most basic, infinitesimal subatomic level is the subject of quantum mechanics, which we don’t completely understand yet. If you’re looking for deepness, try studying quantum mechanics and contemplating that deepest essence of reality. There’s still profound mystery in a grain of sand.

Many people get spiritual feelings from nature – seeing the transcendant in a fruit fly or flower petal. Though some religionists resist evolution as breaking the magic of godly creation, it actually has its own magic. If you want to feel part of something larger than yourself, evolution tells us we are literally related to every other living thing. Your several-million-times-great-grandfather was a fish. That fact is more awesome than biblical creation because it is a fact.


Then there’s yourself. Forget God and eternity. What matters is who you are, not who or what God is. If you want an ineffable mystery to get spiritual about, try wrapping your mind around your own conscious existence. What does it really mean to be who you are? Is it like having a captain inside your head, manning the controls? But wouldn’t he need a captain of his own, in his head? And so on. This has bedeviled philosophers forever. Surely spirituality can be accessed not only by looking outward to the cosmos, but also by looking inward. And while trying to understand God is a waste of time, to understand yourself has, in principle at least, greater promise and is certainly worth pursuing.

These are just some suggestions for alternative spiritual vessels. In my own case, I am about as materialist, philosophically, as one can get; but it’s not cold materialism. I feel what Eric Hoffer called The Passionate State of Mind. There is plenty about life, the actual life we live here on Earth, that profoundly stirs my “soul.”

Like when I recently read about experiments enabling a quadriplegic to lift a cup to her lips, with an arm controlled by her brain waves. That gave me a profound jolt of feeling – indeed, a rich complex of feelings, of being part of a vast sublime enterprise called humanity. Or when I see in the sky a straight white line. We are transcending our fleshly limitations, not by anything supernatural, but our own collective, indefatigable and titanic efforts. That’s what I get spiritual about.

Some other guy might be unmoved by such things, while being sent over the moon by the Dolphins winning the Whatever Bowl. That’s fine. Different strokes for different folks. So am I suggesting some spiritual equivalence between rooting for the Dolphins and worshipping God? Of course not. There’s a big difference. The Dolphins exist.

But I am not trying to cobble together here a new kind of religion. The last thing we need is to replace old dogmas with new ones, that everyone’s supposed to imbibe. No – not a new universal catechism but, rather, each individual finding his or her own unique vessel for spirituality.

The point is to shift from the leaky vessels of religious faith into ones shaped by what’s real. Faith requires Rube Goldberg mental contortions to wrestle with its absurdities. Many believers, deep down, see this, and hence experience not uplift but disquiet. In contrast, my spiritual response to the quadriplegic experiment was something pure and true. Moving from the one kind of spirituality to the other can only mean living more authentically. We’ll be the better for it.

We don’t need fairy stories to get our fix of spirituality. I am confident that in due time humanity attain the greater maturity I envision.

Read It Anyway

June 13, 2012

This blog has a point of view. You may not like it. Simple answer: don’t read it. But here’s a better answer: read it anyway.

One key reason why our politics is so polarized is because each side mostly doesn’t listen to the other. The right watches Fox and reads righty blogs, the left goes for MSNC and lefty blogs. We read books we already agree with and talk to people we already agree with, telling each other how right we are.

I go to a book discussion group that was considering doing one by David Brooks. Now I happen to think he’s great. But “Jane” (a new member) did not. She trotted out all the left-wing epithets you might imagine, and refused to read Brooks. We wound up picking a different book, but Jane quit the group anyway. I guess she didn’t want to associate with people who would even consider reading Brooks.

Why be like that? Well, you could say it’s pointless to read a book you know is wrong. More important, though, it feels good to be told what you think is correct. You feel smart and righteous. On the other hand, exposure to reasons why you may be wrong makes you feel dumb, uncomfortable, and vulnerable. If you’re wrong on one thing, what else might you be wrong about? Better to just stay in the comfort zone.

Noam Chomsky

That book group has done some authors I myself didn’t agree with. I often read such books (as you may have noticed, from some reviews on this blog). I also listen constantly to a “progressive” local NPR station; they have a program called “Alternative Radio” that boasts of offering what I like to call the “Rogues Gallery” – Arundhati Roy, Howard Zinn, Angela Davis, Michael Moore, and of course Noam Chomsky. Boy, do I hate Noam Chomsky. But I listen.

Why? And why do I read those books? Doesn’t it make me uncomfortable? No – because I’m sufficiently confident in my beliefs, developed through a long process of study and thought, that Noam Chomsky’s speeches just make me laugh. And it’s fun to laugh. Sometimes, admittedly, they also make my blood boil. But that’s good too, it makes me feel more alive.

But there’s a more serious aspect. Part of my lifelong quest to understand the world is knowing how and why people believe things I consider mistaken. How can we overcome error without understanding it?

The philosophy of Noam Chomsky, complete and unabridged

And it also gives me a richer perspective on my own beliefs. It helps to know not just what I think, but what the opposing arguments are. When I hear Chomsky say something absurd, I want to be sure I can parse just exactly what makes it absurd. It’s good mental exercise. By listening to Chomsky, I become a better anti-Chomskyite.

And, sometimes, I actually learn something, and even, occasionally, change my mind.

So expose yourself to viewpoints you hate. And read my blog, if only to become a better anti-Robinsonite. If you disagree with me, post a comment. I may tell you why you’re wrong. Or maybe, just maybe, I’ll change my mind.

Death of the Middle Class?

June 9, 2012

Middleclassicus Americanus

You’ve heard all about this. Well, at worst, U.S. middle class earnings have been pretty flat; though actually that doesn’t mean flat living standards, as technological advancement improves quality of life in ways beyond counting. And indeed, for all the whining, the great majority of Americans still live far better than most people elsewhere, and virtually everyone throughout past history.

Nevertheless, we are not complacently satisfied, and that’s a good thing. So how do we ever boost incomes? Answer: by producing more. Many fail to get this simple point. Rich countries are rich because they produce a lot. A poor country like Haiti is poor because it doesn’t. By producing things people want to buy, the poor can get richer without making the rich any poorer.

So what about us producing more? Well, actually, we do. But David Brooks recently wrote about a bifurcation of the U.S. economy. “Economy I” is the competitive, globalized, dynamic part, where businesses face life-or-death pressure to be fiercely productive. “Economy II” mainly comprises three gigantic industries ­— government, health care, and education—free from this global economic competition. Around half of us live in Economy II. And the key fact, noted by Brooks, is that Economy II is growing in job numbers, but (not surprisingly) lagging in productivity, compared to Economy I.

Indeed, it’s precisely because of Economy I’s increasing productivity that Obama and Democrats are wrong to harp on “manufacturing” as a jobs panacea. Productivity means producing more with less labor. The factory of the future has only two employees: a man and a dog. The man’s job is to feed the dog. The dog’s job is to keep the man away from the machines.

The economic divide is also political. As Brooks observes, Democrats and liberals are basically Economy II people. That’s their comfort zone. They don’t really understand Economy I and often actually hate it – in their eyes, brutal dog-eat-dog capitalism that needs being restrained. Republicans have an opposite perspective: Economy II is suffocating us, and getting in the way of Economy I, where our future prosperity lies (if at all). (Not in old-time manufacturing, but in services and brain work.)

Another revealing economic dichotomy is elucidated in the recent book, Why Nations Fail, by Daron Acemoglu and James Robinson. They distinguish between “extractive” economies, structured for the few to leech off the many, and “inclusive” ones (with dispersed power, rule of law, and free markets) where the many can thrive. It’s the difference between, say, Zimbabwe and America.

Of course, the 99-percenters think the few milk the many in America too – again forgetting most Americans live better than people ever have anywhere. But The Economist has published an interesting essay suggesting that two segments, at least, of Western economies are indeed “extractive” in the sense described by Acemoglu and Robinson. One (the 99-percenters will enjoy hearing) is the banking/financial sector. But the other is government.

(Some recent personal bills, for health care and university tuition (Economy II), seem awfully extractive to me as well.)

The Economist suggests that the banking/financial industry has amassed such economic power that it can extract wealth from the rest of the economy, regardless of the true worth of its “products.” That may be arguable; but the case of government is much more clear. The poster boy is Greece, where a public sector racket soaks up the wealth that society produces (or, worse yet, doesn’t produce). We also saw it in the battle of Wisconsin where, basically, public employee unions had colluded with politicians to milk taxpayers. Gov. Walker broke that up, and his now defeating the union-promoted recall is a tremendous victory for the public over government extractionism.* (See my past post on the scandal of so-called “collective bargaining” by government worker unions.)

I have written about a local pizza joint fined heavily for breaking an obscure government rule. Just recently a nearby family-owned pharmacy was cited for inadvertent paperwork mistakes. The fine? $1.46 million. The local paper’s story makes clear that protecting the public is merely camouflage for the state regulatory agency’s true mission of filling New York’s revenue coffers by draconian application of a byzantine rulebook. This is extraction. This is Economy II sucking the blood of Economy I.

All this is relevant to middle class income stagnation. What can you expect when ever more of us are in Economy II, while Economy I is where the productivity growth, wealth creation, and profits are? Economy II (again, government, health care, and education) tries to subsidize itself by extracting the profits of Economy I. That effort is supported, in effect, by liberals and the 99-percenters. It completely undermines their professed aim of improving middle class prosperity.

And, unfortunately for them, it isn’t really 99% against the rest; it’s more like 50%. A 99-to-1 class war would be mercifully short. But beware a 50-50 conflict.

*Those who say Walker’s victory was “bought” are simply wrong. They forget the amounts spent, and the union manpower mobilized, on the other side (much by outsiders too). It was a pretty even fight.

Sex and the Euro

June 4, 2012

Here it is: everything you want to know about the Euro crisis.

In the beginning, Germans feared being shackled currencywise to spendthrift countries like Italy that would undermine the Euro. So they insisted on a treaty to financially penalize any Euro nation whose deficit exceeded 3% of GDP. Guess who first sailed past 3%? Germany and France. Were the penalties applied? Of course not. First big mistake. (A new deficit limit is part of Europe’s current crisis plan. Will it work any better?)

Second big mistake: letting in a dodgy country like Greece. It was the epitome of progressive thinking (or should I say “thinking”?) – liberality, nondiscrimination, inclusiveness – doing what feels good, not what makes sober sense.

I recently wrote of the French economic ideal: everyone working for government (or should I say “working”?) with short hours, long vacations, early retirement, and fat pensions; paid for by taxing, well, someone else. But Greeks make the French look almost like Spartans. Emblematic of Greconomics is their national railway, with 80 million Euros in annual ticket sales, 500 million in wage costs, and losses around a billion. Average salaries are $78,000. And the trains run almost empty because they run like snails. It’s been calculated that transporting all the passengers by taxi would be cheaper. (Faster, too.)

Greece does have taxes, or should I say “taxes,” because many people don’t pay up. (Or train fares either.) And like the French, Greeks hate the idea that prosperity must come from productiveness, creating saleable goods or services (i.e., capitalism, or real work). However, whereas such la-la attitudes in France are belied by a nevertheless reasonably strong business sector, that’s not true of Greece.

Instead of actually earning income, and seriously taxing anyone, Greece has long financed its profligacy by heavy borrowing, mainly from other countries, which it couldn’t possibly ever repay. Awakening to this reality, the recent bail-out deals allowed Greece to welch on a sizable part of its debt; but conditional on cleaning up its act (somewhat).

Greeks demonstrating for the proposition that the world owes them a living

The Greeks hate it. They seem to imagine life should go on as before: cushy government jobs and pensions and benefits for all, paid for (presumably) by yet more debt — which needn’t be repaid.


The rest of Europe mirrors Greece, if only less outrageously. Italy, Spain, and Portugal too are close to being unable to pay their debts. And the riskier that looks, the higher the interest rates bond buyers naturally demand, squeezing these nations even further. It’s recognized that they, and others, must reduce borrowings to manageable levels. That means budget cuts: austerity. Though the word misleads: we’re really talking “slightly less profligacy.”

However, Europe now has record 11% unemployment (with Depression-level 24% in Spain, whose banks are tottering). Such economic weakness is poison vis-à-vis these countries’ debt crunch, threatening a downward spiral. Hence some, like France’s new President Hollande, argue that spending cuts make things worse, and call for the opposite tack, promoting economic growth instead.

But that’s a false choice. Europe’s growth problem is not insufficient government spending. Such spending may be stimulative in the short term, but adds to debt, dragging them down. And (as Greece shows) a prosperity that depends on government spending, financed by borrowing, is unsustainable. Europe’s real problem is lagging business vitality and competitiveness, and a host of government policies that impede business flexibility and, especially, employment. Reflecting the old “social welfare” approach, many European countries try to protect workers by making it very hard and costly to fire them. That makes companies reluctant to hire in the first place.

So there are plenty of things Europe can do to open up its inflexible markets to spur hiring and growth, without spending a Euro-cent. Of course, such reforms face resistance from vested interests (like labor unions), and misguided ones. When France proposed more flexible contracts for young workers, students rioted; they wanted no one ever fired. Never mind that the new scheme would help their being hired.

Now Hollande has reversed Sarkozy’s hard-won reform of raising the retirement age from 60 to 62. Absolutely the wrong direction to go. Surely anti-growth! Madness.

I’m reading Landes’s The Wealth and Poverty of Nations. It shows how Europe originally flourished because of an environment conducive to its people’s creative energies, enterprise and industriousness. Today’s Europe is conducive to living off the industriousness of others.

The European social model is meantime also being undermined by demography. Populations are falling and aging, with ever fewer earners supporting ever more benefit recipients – another reason why over-generous welfare and pension provisions cannot continue. It would help if Europeans had more children. That’s where the sex comes in. They should do it more.

For Greeks to reject the austerity and bail-out deal would be suicidal: no more borrowing. Leaving the Euro, which might inexorably follow, would impoverish them even more. Maybe they’ll come to their senses in the June 17 election re-run.

Breaking up the Euro would also be economically catastrophic for the rest of Europe; so would letting any country beyond Greece go broke. But for all its problems, Europe as a whole is not in such bad shape, mainly because German strength counterbalances weakness elsewhere. Thus the answer seems clear: as Franklin said in 1776, all hang together, or hang separately. In other words, Europe has to go further toward becoming a single economic unit, by issuing Euro-bonds, for example, backed jointly by all members. The Economist recently published a concrete plan along such lines. (German Chancellor Angela Too-Little-Too-Late Merkel remains dead-set against it.)

Such a plan would mean giving up some national sovereignty and becoming more of a “United States of Europe.” Maybe a bitter pill to swallow, but necessary to avoid worse. This eventual outcome may have been inevitable from the Euro’s adoption.

Which brings us to another problem, a boulder in this path: the European Union’s democratic deficit. The EU really operates, to too great an extent, without voter consent or accountability. Brussels is seen as a remote bureaucratic ruler, imposing its edicts by fiat. The European Parliament is impotent. The proposed European constitution was derailed a few years ago by rebellious negative votes in French and Dutch referenda. So the political elites rammed through most of the constitution’s provisions by way of a treaty. Voters resent this kind of thing, and it aggravates their rebellious mood.

The Euro itself was similarly a project of the political elites, with voters never really consulted. Now there is a (justified) widespread feeling of, “What a mess you got us in.” And if the elites’ answer to the mess is “more Europe,” will voters (especially Germans, who’d pay the bill) agree?