Sunday, May 5, 2013

European "Austerity" ... Greece, Britain, Spain, Italy and Portugal in "Action"

We hear lots of talk about austerity and its necessity, or its evils, depending on who is doing the talking. But just what is meant by austerity? As used it seems like one of those words that means whatever the speaker says it means, and is generally intended to describe a painful or bad thing. But is it really?

Is a government and nation living within its means a bad thing, or is it exactly what needs to be done when government spending is out-of-whack?

In other words, is it appropriate to label government spending reductions as austerity measures? Whose money is the government spending anyway? And if it's ours, which it is, does leaving the money with us equate to a bad thing to do?

Or do government layoffs and spending cutbacks merely represent an effort to "rightsize" the government, as similar measures are  called in the private sector?

Let's look at Europe and Greek "austerity" to get a better handle on what all this means.

Greek Austerity, at Last is subtitled 'Three years into the crisis, Athens finally cuts government staff:'

"Three years into the euro-zone crisis, it's become fashionable to argue that economic austerity hasn't worked and that it's time to return to "growth," which is supposedly defined as government spending. The end-of-austerity talk may come as news to civil servants in Greece, which only now is beginning to cut government staffing.

Under legislation to "speed up" the firing process approved with broad support by the Greek Parliament on Monday, 2,000 government employees are slated to be laid off by the end of May. Another 2,000 will get the ax by year's end, for a total of 15,000 dismissals by the end of 2014.

This is a tiny chip off a government that in 2010 employed nearly 800,000 permanent staff, or one in seven Greek workers. A condition of Greece's 2010 rescue was that government employment shrink by 150,000 between 2011-2015. This would be achieved largely by restricting new hiring.

It didn't work. A European Commission review in March 2012 found that "the higher-than-expected number of exits in 2011 was overcompensated by a higher-than-expected inflow." Government employment fell by only 80,000 in 2011 and 2012.

So now the strategy is "mandatory exits." According to the Christian Science Monitor, the first government workers to be let go in Athens's new burst of cost-cutting were a policeman, for stealing debit cards, and another employee for 110 days of unexcused absence.

The layoffs will be accompanied by a "mobility scheme" that offers civil servants reduced pay and training while they look for more useful jobs. By the end of the year, 27,000 government workers are expected to be transferred into the program. . . .

Britain is supposed to be another model for the alleged failure of austerity. But much as David Cameron and Chancellor George Osborne talk about fiscal discipline, spending in the U.K. has grown 4% since 2009, and an effort to cut the ranks of the civil service to 380,000 from 440,000 has made scant progress.

The Spanish and Italian governments both have hiring freezes as part of their broader spending cuts, though they've only managed to shrink their staffs by around 5% since 2009. Portugal reduced the number of government workers by 3.5% last year, exceeding the 2% reduction that was targeted in its 2011 bailout agreement. Yet even this seems inadequate: In 2011, one in nine Portuguese workers was a government employee.

Cutting government alone will not cure what ails most European economies: namely, tax rates that are too high, labor codes that are too restrictive, and regulations that discourage private enterprise and investment. But Europe also needs to show that it can discipline its overgrown civil services. Before anyone announces the death of "austerity" for Europe, it's worth trying more of it for governments."

Summing Up

Spending restraint, aka austerity, or fiscal prudence by government as practiced in Europe is a joke. It's that way here, too.

And until government spending is reduced and the private sector is encouraged to make the investments necessary to get economies moving again, the so-called period of painful "austerity" and needlessly high unemployment will continue.

A bloated and wasteful government results in high unemployment and weak economies, along with fewer individual freedoms and ruinous financial conditions for nations and their citizens.

In other words, big government is proof positive of the old saying that "if the wrong thing is being done, it's probably being done poorly."

Until now, government spending restraint in Europe has been a matter of all talk and too little action. The continent is becoming weaker and more irrelevant with each passing day.

That's a shame but it's also a fact.

We in the U.S. should heed the lessons of Europe and take the necessary steps to rein in wasteful government spending and harmful regulations, so we can get ten or fifteen million more people at work in the private sector, being productive, paying taxes and providing for themselves and their families.

Self reliance and the private sector are good things. Government austerity is just an inappropriate word.

Thanks. Bob.

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