Saturday, May 5, 2012

The Failed and Broken European Model ... Employment and Young Folks

Memo to the Youth Vote says this in straightforward language about the wrongheadedness of our U.S. politicians following the European welfare entitlement states off the indebtedness and slow growth financial cliff:

"Why would anyone under the age of 25 vote for Barack Obama in November?
Mr. Obama resumed his College Tour 2012 last week, visiting campuses in Iowa, North Carolina and Colorado for the purpose of replicating his 66% youth-vote total from 2008.

In 2008, he reeled them in with promises of hope and change. In 2012 he's offering cash, promising to protect 3.4% interest on their college loans. We're about to find out if it's true that when you're young, hope springs eternal.

Put differently, the past three years have been a Peter Pan presidency for Peter Pan voters. If you're going to college, it's good to vote for Barack Obama again, so long as you'll never have to turn 23.

But for many young Americans, there will be no Tinker Bell showing them how to land a job with lovely thoughts.

The youth unemployment rate for Americans has hovered around 16%. Anecdotal stories abound of college graduates living in the bedroom they grew up in, jobless. But hey, the president they voted for as freshmen is promising 3.4% interest on the average $25,000 or so of college debt they owe four years later.

At his appearance before students at the University of Iowa, President Obama ran straight at those who've criticized his student interest-rate gift as small beer: "These guys don't get it. . . . This is the economy!" Mr. Obama shouted. "This is about your job security! This is about your future! If you do well, the economy does well. This is about the economy!"

We get it: The election really is about the economy. If so, the job market for many young people during the Obama presidency has bordered on, well, social Darwinism. Many students who did well in school either don't have a job or took one far below their expensive skills.

Last May, the Nobel laureate economist Robert Lucas, an expert on economic growth, put together a lecture on the economy because so many people asked him why the U.S. economy's post-recession growth rate was struggling around 2%.

He noted that in the years after World War II, both the U.S. and Europe grew at an annual rate of about 3%. But in the mid-1970s, Western Europe dropped below that growth rate and stayed there, creating a 20% to 40% gap in income levels between Europe and the U.S. Prof. Lucas suggested this had to do with the cost of maintaining the social-welfare commitments Europe accumulated in the postwar years.

He then looked at the levels of U.S. social-welfare commitments, including the new Obama health-care entitlement, and ended with a simple observation: "Is it possible that by imitating European policies on labor markets, welfare and taxes, the U.S. has chosen a new, lower GDP trend?

If so, it may be that the weak recovery we have had so far is all the recovery we will get."

That stark assertion—this may be all the growth we're going to get—is something the youth vote should think about. . . . In Spain the youth unemployment rate is 50%; in Italy it's 36%. . . .

The Chronicle of Higher Education this week has a nightmarish story about what low economic growth has done to the Continent's intellectual seed corn. In Spain, 300,000 of last year's graduates left the country. A Portuguese professor says the system there is falling into "a sort of third-world pattern." A side-bar story is headlined: "In Italy, a Dysfunctional University System Sinks Deeper Into Decay."

For new American college graduates, there is an alternative to that job you thought you'd have: Join a union.

If your new goal in life is to join the United Auto Workers (saved by Mr. Obama with your parents' taxes) or work for a government agency somewhere for the next 40 years, the president is your candidate. The modern Democratic Party from top to bottom is the party of all unions, hardly different than the European political parties whose union members and unemployed college graduates filled city squares Tuesday in forlorn May Day demonstrations. If a career inside an American union is what it's all about, then an Obama vote ("Forward") is a no-brainer.

But aside from the aspiring union lifers, what's in an Obama vote for the rest of the youth vote? The U.S. annualized growth rate in the first quarter this year was 2.2%. Perhaps the life raft is that provision in ObamaCare that extends health-insurance coverage to children living at home until the age of 26. If Barack Obama wins another four years, you may need it."

See also College Grads Need Jobs, Not a Lower Loan Rate which is subtitled "Young workers who enter the labor force in a recession suffer years of lower wages."

Here's a brief excerpt:

"Roughly two-thirds of lifetime wage growth occurs in the first decade of employment, when individuals build their skills and match them to the right jobs. Graduating into a down economy puts that process off track. As Ms. Kahn writes, "workers who graduate from college in bad economies are unable to fully shift into better jobs, at least over the first 15 years of their careers."

If we assume that unemployment today is one percentage point higher than it could have been given more effective policies—such as a stimulus that actually stimulated, and spending and entitlement reforms to generate confidence in the economy—today's new college graduates on average will lose around $40,000 in inflation-adjusted income over the next 15 years. That money wouldn't simply have helped graduates meet their loan payments; it's more than enough to repay the average college graduate's entire $25,000 loan balance.

Young voters helped elect Mr. Obama but may pay a large price for doing so, both today and in the future. What college graduates need most is not the Band-Aid of lower student loan payments but an economy capable of creating new jobs that will let them score the best jobs, repay their loans, and build a future. That the best the president can offer them is $7 per month in lower student loan payments shows how far this White House's aspirations have fallen."

Discussion and Analysis

Setting aside the expressed views of the writers about the Democratic Party, labor unions and President Obama, the substantive points raised need to be considered fully by Americans, including our young people.

The European welfare entitlement state is a established fact, and it has been so for many decades.

After World War II, the Europeans believed they had a better way forward than the free enterprise system in America, so they set about creating a hybrid economy perhaps best described as democratic socialism.

Suffice it to say that the European democratic socialist model has failed to make life meaningfully better for ordinary European citizens. And Europe and its various sovereigns are now in a genuinely deep financial hole which will, at best, probably curtail solid employment and economic growth for at least another decade.

As a practical matter, most of Europe is broke, unemployment is sky high, the welfare entitlement state is under siege, the cost of living is quite high and the people are terribly upset about their future prospects.

The arguments about austerity and economic growth are endless, as well as silly, and there is every reason to believe that conditions will become worse as more socialistic policies are enacted as new socialistic politicians assume greater control across the continent.

In particular, Spanish unemployment is approximately 25% and likely on its way to 30%. Youth unemployment in Spain is roughly 50%. And things aren't all that much different in Italy, Portugal, Ireland and, last but by no means least, Greece.

And don't forget France, long socialistic and the land of the 35 hour workweek. They have elections this Sunday, and the socialist Francois Hollande will defeat the incumbent Nicolas Sarkozy. But not to worry. Sarkozy is in effect a socialist, too, so not much will change regardless of who wins the election.

And lest we leave anyone out, even England adopted the socialistic model after World War II. They now aren't in much better shape than the other countries.

Excluding contrarian Germany, welfare entitlement states are what Europe represents. And the evidence is overwhelming that life for the citizens is and will be most difficult for them in the years to come.

So We the People in the U.S. have some serious things to decide as well.

Will we choose to rely on the government or ourselves?

Will we compete globally or hide behind our politicians and union leaders to "protect" us?

Summing Up

The foregoing is not some kind of conservative right wing rant. It's directed at the ~90% of We the People who have chosen to go along to get along and take the government freebies when they're offered.

In other words, I believe many of our so called fiscally conservative fellow citizens have been standing with the "progressive non-payers" these past few decades.

To me they're all part of the charade that's been going on in America and American politics.

And too many of We the People have either not understood what was happening, chosen to look the other way, or both.

But we've run out of excuses and need look no farther than Europe to see what can happen to us if we don't start taking the right steps to stop being so dependent on government and union officials.

Here's the truth.

Government growth and involvement impede economic growth.

Collectivism and individualism are diametrically opposed.

Equal results and equal opportunity are diametrically opposed as well.

Unions impede economic growth and our country's global competitiveness.

Both government growth and union growth impede employment growth, including youth employment opportuities.

Unions have no proper place in the public sector. Taxpayers can't logically negotiate with themselves.

At least that's the way I see it.

Thanks. Bob.