Thursday, March 07, 2013

Spanish Economy

The Euro-zone is in disarray and the Euro is struggling to survive.  Greece has already collapsed into chaos because their generous socialist programs can no longer be sustained and now Spain is sinking into chaos as well.   Although the root causes of these problems should be an object lesson in the failures of socialism no one in the Obama administration seems concerned.  Socialism as a form of government has failed and it should be apparent to anyone watching because it is financially unsustainable over the long haul.

When Zapatero and his Socialist Workers Party took power their goal was to improve the already generous social programs already in place.  Indeed the objective was to perfect or even surpass the lavish social programs that have long been the hallmark of Western Europe.  To achieve this objective Zapatero raised the minimum wage and greatly expanded health insurance to cover everything from minor issues up to and including sex changes.  He made government scholarships available to everyone and young adults were given rent subsidies that allowed them to leave the parental home.  Because of the declining birth rate he gave mothers $3500 for the birth of a child and free nurseries for toddlers.  Then he gave stipends to the elderly for nursing care.  All of these benefits were government provided but like all socialists they were predicated on the present without regard for the future.  The declining birth rate alone should have been a red flag because it signaled that the tax revenues would eventually not cover the financial obligations.

Well the piper must be paid and as Margaret Thatcher once observed “the problem with socialism is that eventually you run out of other peoples money” and that is where the Euro-Zone countries now find themselves.  They are faced with growing financial obligations with declining tax revenues and a population accustomed to low retirement ages, great retirement benefits, and many government benefits.  Greece allows retirement at 50 with 95% of your last wage as your retirement.  France has a 35 hour work week and attempts to raise that to 37 hours was met with great resistance.  Spain isn’t quite as bad but when now that reality has set in Zapatero and his socialist government must now find a way to pay for all of those great benefits.  To that end Zapatero had negotiated a deal with unions to freeze pensions and raise the retirement age from 65 to 67 and the deal includes reducing union bargaining rights.  Additionally Zapatero has suspended the childbirth bonus and reduced civil servants pay by 5%.

Of course these actions have not gone over well with the people accustomed to generous government programs and thousands have taken to the street in protest.  But the government of Spain isn’t alone in being forced to cut back on these social welfare programs.  Greece led the way and they are still reeling from the impact as protests and strikes continue but Western Europe must make these cutbacks because their debts and deficits have risen to dangerously high levels.

The governments of France, England, and Germany have accepted the necessity to cut back on their spending and have made fiscal discipline their objective, but even so there is resistance.  For example France tried to raise the retirement age to 63 and met with such stiff resistance they had to back down.  The cherished social welfare programs that characterize European governments can no longer be sustained because they cost more than the revenues allow and to continue would mean bankruptcy.  But in Spain these reductions have been particularly painful because they are being carried out by a Socialist government.  Socialism is based on unbridled welfare spending, employment, an generous government programs paid for through high taxes on the wealthy.  Businessmen and bankers are viewed in the Socialist ideology as wicked capitalists who exploit the workers.  Not unexpectedly the wealthy simply leave taking their capital with them leaving unemployment behind them.  The government can no longer afford all of these programs because the capitalists are no longer willing to see their wealth taken to be redistributed to those who did not earn it.

These welfare programs, tax the rich schemes and wealth redistribution programs favored by the Obama administration are inexorably leading the US into the same problems being face throughout Europe. 


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