Tuesday, February 26, 2013

The Sequester and Lessons From Italy on National Health Care, Big Government and "Entitlementitis"

Italy is a mess. It's tempting to say, "That's just Italy." Tempting perhaps but untrue, too.

Ok, maybe it includes Greece, Spain, Portugal and perhaps even France, you say.

But how about the U.S.? What lessons are there to be learned from the Italians that We the People should internalize before we end up in a similar predicament?

Roman Decadence, American Sequester reads in pertinent part as follows:

". . . the center-right coalition led by Mr. Berlusconi—convicted only last October of tax fraud and under indictment for paying for sex with an underage girl—scored a respectable second-place finish in Italy's lower house and may have won a blocking plurality in the Senate. The ostensible winner of the election, Pier Luigi Bersani of the center-left Democratic Party, is an ex-communist whose chief recommendation for office is his cultivated colorlessness. And running a close third is Beppe Grillo, a professional comedian and real-life clown.

How does this happen to a country?

The easy answer is to shrug: Isn't that just Italy? . . . Tim Parks, an English novelist who lives in Verona, ascribed Mr. Berlusconi's abiding popularity to Italians' "collective determination not to face the truth, which again combines with deep fear that a more serious leader might ask too much of them.". . .

In its analysis of the Italian economy, the Organization for Economic Cooperation and Development noted that in 2010 the public sector accounted for a whopping 49.1% of total gross domestic product. Since Italy's technocratic Prime Minister Mario Monti came to power in late 2011, taxes have only been going up, including a value-added tax that is now 22%. The typical Italian employee loses 47% of his wages to fund various social protection schemes.

Italian employers have it no better: A labor reform promoted by Mr. Monti did little to ease the biggest problem employers face, which is the near-impossibility of laying off workers. The grip of unions is overpowering: The OECD notes that Italian industrial productivity is declining even as industrial wages have risen throughout the financial crisis.

None of this can be accounted for by some intrinsic defect of national character, except in the sense that people tend to respond to the incentives they are given, not least the incentive to evade high taxes, retire early, and take all the vacations to which they are legally entitled. Nor does the problem lie with Italy's adoption of the euro, or Mr. Monti's short-lived attempts to impose fiscal "austerity."

A better place to look is the growth of Italy's entitlement state. In 1950—the beginning of Italy's Miracolo Economico—GDP per capita stood at €4,407 (in current euros). By 1978 it had nearly quadrupled to €16,596. But afterward it began to stagnate. Per capita GDP has now been essentially flat since 1998.

What happened in 1978? Funnily enough, that was the year Italy adopted universal health care. The Italian economy did continue to grow in the 1980s, nominally becoming the world's fourth-largest economy in the late '80s. But it did so on borrowed money. In 1982, the debt-to-GDP ratio stood at 51%. By 1990 it was 102%. Since then there have been a variety of attempts to curb the growth of government and loosen the shackles of over-regulation, none of them especially serious. Italy's debt now stands at 126% of GDP, second only in Europe to Greece. . . .

Italy simply has an advanced case of entitlementitis. And summoning the political will to overcome it is never easy.

Which brings us to the sequester in the United States. Yes, it's a hatchet not a scalpel. Yes, it will hobble our defenses. Yes, it avoids making cuts to the entitlement programs that are the real drivers of our national debts. And yes, President Obama will want to game the cuts to his political advantage, regardless of consequences. All true. Then again, U.S. government spending is now 41% of GDP. We, too, are in Italian territory.

The sequester is going to hurt. But when else will we be able to summon the seriousness to cut? To judge by what just transpired in Italy, they've long since passed the point of no return. Has the United States?"

Summing Up

The Europeans are trying to teach us a lesson so that we won't have to learn it the hard way.

Especially the Greeks and the Italians, although the French and English appear headed to oblivion as well.

Let's hope ALL the members of the government knows best gang in Washington are watching the action in the rest of the world. 

It's a lesson very much worth learning, if only for the sake of future generations of Americans.

Thanks. Bob.

No comments:

Post a Comment