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  • Europe 2010: A Glimpse of America’s Economic Future?

    The Greek financial crisis and its spillover effects in Europe provide a scary look at America’s possible economic future if we don’t get our economic house in order.

    Underneath the big bailout numbers ($146 billion rescue package for Greece; trillion dollar support for the Euro and European government bonds) are three related economic developments:

    1. The Greek government is defaulting on its economic promises to its citizens – Wage concessions and overly generous pensions, work rules and social spending bought votes and support for the government.  Now the bills are due and the government can’t pay.

    2. European government borrowing is becoming more expensive – Interest rates on Greek debt topped 12 percent during the recent crisis.

    3. The value of the Euro is falling, down by about 7 percent against the dollar over the last two weeks – This increases the costs of imports to European citizens and fuels domestic inflation.

    In Greece’s case, its economic over-extension is the product of years of heavy government involvement in economic decision-making.  When economic policy is driven by political considerations, the line of least resistance is often to spend more now and pay later.  Governments can, at least for a little while, avoid the market discipline that keeps private firms’ costs for both labor and capital in line. European labor costs, in particularly, have grown wildly out of line with world norms, and capital costs have failed to account for real risks of sovereign over-spending and default.

    The U.S. has historically maintained more separation between government and business, avoiding the politicization of economic decision-making that has characterized European systems. Unfortunately, that wall of separation has all but collapsed under the weight of TARP, the stimulus bill, automotive bailouts, and the health care bill. What took years to develop in Europe seems to be happening in an instant in America.

    The Greek crisis is providing a great object lesson for America.  If the United States continues to rush down the European economic path, we can expect a default on government promises (Medicare, Social Security, Health care), higher interest rates on U.S. government bonds or even a flight by foreign investors like China to alternative investments, and a drop in the value of the dollar, raising energy and consumer costs and spreading inflation throughout the economy.

    As Ebenezer Scrooge asked the ghost of Christmas yet to come: Must these things be?  America has two paths, one good and one bad, from which to choose.  The good path is to cut government spending, reduce taxes and regulation, and unleash the entrepreneurial energy of Americans. Call this the high growth path. It’s the traditional American way, and the philosophy underpinning the Index of Economic Freedom.  The bad alternative is to increase spending, raise taxes, and increase government control of economic decisions. That is a low growth path.  It worked in Europe for a while. Not anymore.

    Posted in International [slideshow_deploy]

    15 Responses to Europe 2010: A Glimpse of America’s Economic Future?

    1. Dennis O' Breme says:

      Where have all of the sane people gone in America? The Grasshoppers [from Aesop] have taken over and are wasting everything the ants had stored.

    2. Eric Rogers says:

      The single most destructive part of the "bad path" is the slow cancerous death of "the entrepreneurial energy of Americans". Loans and spending cuts cannot restore entrepreneurial energy to a generation who has never experienced such energy. America must act quickly !

    3. Paul Stone, Sumter, says:

      It seems that the powers that be can't learn anything from other nations, history, or common sense.

    4. Barry S says:

      The crux of the entire economic situation in the U.S. is that the federal and state governments are doing everything possible to remove entrepreneurial incentives. Why should individuals or companies invest in themselves when they are punished for doing so with higher taxes, more regulations, plus the threat of lawsuits from their employees and state-run bureaucracies.

      What once was a thriving environment for business innovation that held promise for business success and employment possibilities for those who worked for those businesses that were successful…….well……that environment is just no longer there…..at least in California where I live. I recently drove through the center of my home town and was shocked by the number of storefronts with "For Rent" signs in the windows of what were once thriving businesses.

      My frustration is in an uptrend mode. No matter who I vote for, the end result never seems to waver: higher and higher taxes, more regulation, bigger and bigger government with employees who receive wages and benefits unheard of in the private sector, and a faceless bureaucracy that seems to avoid accountability. We taxpayers have become the slaves, and the government has become our master.

    5. Tom Georgia says:

      Should any of us even expect to see significant change for as long as we have freedom-fearing, regressive statists in control of the political power in Washington as well as in many of our state governments and local governments?

    6. Tim Az says:

      Well there is good news Barry. You don't have to be a slave to the Kalifornia Govt. if you vote with your feet. Kalifornia's govt. has been leading the way to self destruction for years and it's now teetering on the edge of a bottomless pit.

    7. Drew Page, IL says:

      At least some of the European countries are coming to their senses and are turning toward a more conservative goals of fiscal responsibility. They have have learned, or are coming to the realization, that the government can't be the guarantor of all human needs and desires. And now, because of its socialist bent, the International Monitary Fund must come to the rescue of Greece with a trillion dollar bailout, part of which will come from U.S. taxpayers.

      Undaunted by these European failures of socialistic policy and with no sense of financial sanity, the Obama administration doggedly continues to pursue their dreams of a social utopia no matter what the cost. Mr. Obama and his supporters, many of whom are the beneficiaries of his largesse, see no end to the money they can take from all current and future taxpayers.

    8. Don Harper, Lubbock, says:

      Barry S, you are exactly right. The question is why has the Obama administration taken such a hard left turn? Surely they believe their actions will lead to the goals they desire. When all of history and current events coincide

      to show that their actions lead to economic ruin, is it too paranoid to think that this is the outcome they want? This is right out of Karl Marx's playbook. Destroy the existing society so it can be remade into a peoples' utopia, a Phoenix from the ashes of the ruin. I kinda prefer it the way it was. Vote them out!

    9. Ben C. Ann Arbor, MI says:

      Sadly the above article is preaching to the choir. Our only hope is that those who voted for Obama have or will have voter remorse and realize the path we are taking. My suggestion for the Heritage Foundation is to find senior citizens over eighty years old who can relate in first person the problems with society and the socialistic turn it has taken. A panel of five or six seniors could give a compelling discussion about the errors of socialism and what its effects are/were in Europe and the United States. My Dad could be on the panel – he has alot to say.

    10. Aebe,Orrigone says:

      Our government will not pay heed to the obvious lesson, and that leaves it to Americans,to vote out corruption.

      Veterans – We,and the women and men now serving have earned our 2nd Amendment Rights.Do we really need a politician to validate them ?

    11. silentnomore9, Tenne says:

      I agree with each comment I read above. However, I feel rather like I am trapped in a position that I am unable to change. I recognize that time will not make it easier to change, but rather more dangerously costly. My question to each of us is: What can I do to persuade others to stop believing the lies they believe and start believing the truth? I know prayer changes things. So, I know change will begin with prayer. But, what can I do to change the outcome of elections, civil unrest and participative government? How do we overthrow the established political machines without an actual physical fight? They are not doing what we elect them to do. They are established in their own belief in the righteousness of their position. How do we dislodge the strongholds of their power without allowing our nation to be destroyed in the process?

    12. silentnomore9, Tenne says:

      I guess what I am saying is: We need quarterbacks who have been trained to get people to work together to win the game. We need leaders who are strong enough to sustain the fight and play within the rules to win the game and come out on top without sacrificing honor and integrity. I know that I am not such an individual. But, I look to the horizon for many such individuals. We need champions like David who have tested the power of God to sustain them in fighting the lions, tigers and bears and know that God will sustain them to the temporary victory over Goliath and the long term victory over Saul. This kind of character is not easily acquired and even less easy for me to recognize in others. But, I long for the righteous to rule so that I may rejoice.

    13. Paul K., Spokane, WA says:

      I have kept a chart from an ECONOMIST magazine in 1994 that showed the comparison of job creation of the U.S. and EU from 1970 to 1994. In that 24 year period the U.S. created 40 million private jobs and all of the EU lost 2 million private jobs. Both economic units creatd 4 million goernment jobs each. A BUSINESSWEEK article on 4-7-99, showed that the difference continued between 1992 and 1997, a period when the U.S. created 13 million jobs and the EU lost 800,000. I have tried to find more current figures in

    14. Paul K., Spokane, WA says:

      I have kept a chart from an ECONOMIST magazine in 1995 that showed the comparison of job creation of the U.S. and EU from 1970 to 1994. In that 24 year period the U.S. created 40 million private jobs and all of the EU lost 2 million private jobs. Both economic units created 4 million government jobs each. A BUSINESSWEEK article on 4-7-99, showed that the difference continued between 1992 and 1997, a five year period when the U.S. created 13 million jobs and the EU lost 800,000. The differences should attract a lot of attention but the information is difficult to find. I am glad I am not the parent of educated children in the EU who are looking for careers of their own. I have tried to find more current figures in EUROSTAT but no new job creation figures are posted amongst the volumes of economic information they provide. If anyone knows how I can get updated information, please post the souce or the figures with a reference. Thank you.

    15. Tristan, Tab Yakima says:

      At this point I just dont see our country righting itself out of this pending disaster.

      We as the people of this country need to get prepard for hard times and ready to rebuild our political structure I just hope the right people stand up when they are needed and keep the wrong people out.

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