Try Harder

European Unemployment

The big news in Europe is the dissolution of the French government as various left-wing government factions try to blame each other for the abysmal condition of their economy. ‘French economy going nowhere: now on track for nine straight months of zero growth’, writes the Telegraph.  The problem, says Hollande’s critics, is that he isn’t socialist enough. “Two senior left-wing French cabinet ministers have broken ranks with the President, François Hollande, and demanded that Paris abandon the ‘forced march’ of public-spending cuts in Europe.” They warned that unless France did something drastic, like spend more government money, things would fall apart. “The French government recognised on Thursday that its economy had ‘broken down’ after new data showed there had been zero growth so far this year. In more bad news for the eurozone new figures also revealed the German economy has contracted.” And it wasn’t just France. EU Central Bank Governor Mario Draghi said that compared to America, Europe was a disaster zone.

There were warnings of Green Suicide by a few lonely voices. “The U.S. shale-gas boom is placing 30 million jobs at risk in Europe as companies with greater reliance on energy contend with higher fuel prices than their American counterparts, the International Energy Agency said.” But the mainstream consensus was that Europe had done too little to stimulate demand. Paul Krugman wrote that Europe’s only hope was to print more money.  Draghi “is basically urging Germany to run bigger deficits, but the Germans aren’t interested. ”  Things are so bad, according to some pundits, that Europe ‘is where the US was 5 years ago’. Realizing this, President Obama is doing his best to catch up.  His basic idea was that America needed to become more like the Old Continent, with socialized everything, and to replace the curmudgeonly negative rights with the shining European positive ones.  Alas, not everyone likes that. Some are heading for the exits.

Last week, President Obama announced his intention to bring back the cash that many leading American companies are hoarding offshore by acquiring foreign companies and then relocating their headquarters abroad. This practice, known as an inversion merger, allows companies like GE and Starbucks to dodge the 35 percent corporate tax rate and pay lower taxes, if any, to the United States government. Senate Democrats including Durbin, Reed and Warren have proposed legislation — the Stop Corporate Inversions Act — that would end inversion and presumably close corporate tax loopholes. They are also urging President Obama to reform the tax policy through his executive powers.

The latest company to flee the Obama taxman is Burger King, which is bound for Canada. The King has sought refuge with the Queen. Although President Obama takes a dim view of this practice, which he calls “unpatriotic,” he has so far resisted calls to return the campaign donations made by such companies, whom he terms “corporate deserters.” But the fact is America is in better shape than much of the old continent despite its current self-doubt.  Michael Schuman at Time writes “the region’s economy is starting to resemble Japan’s, and that threatens to condemn Europe to its own lost decades:”

It’s more than two decades since Japan’s financial sector melted down in a gargantuan property and stock market crash, but the economy has never fully recovered. Growth remains sluggish, the corporate sector struggles to compete, and the welfare of the average Japanese household has stagnated. The stark reality facing Europe right now is that its post-crisis economy is looking more and more like Japan’s. And if I was Mario Draghi, Angela Merkel or Francois Hollande, that would have me very, very nervous that Europe is facing a Japanese future — a painful, multi-decade decline. … Sadly, Europe and Japan also have something else in common. Their leaders have been far too complacent in tackling these problems. What really killed Japan was a diehard resistance to implementing the reforms that might spur new sources of growth… But Japan’s case also shows that monetary policy alone can’t raise growth. The BOJ is currently injecting a torrent of cash into the Japanese economy, but still the economic recovery is weak. Prime Minister Shinzo Abe finally seems to have digested that fact and in recent months has announced some measures aimed at overhauling the structure of the Japanese economy, by, for instance, loosening labor markets, slicing through excessive regulation, and encouraging more women to join the workforce. Abe’s efforts may prove too little, too late, but European leaders must still follow in his footsteps by taking on unions, opening protected sectors and dropping barriers to trade and investment in order to enhance competitiveness and create jobs.

Dismantling the special handouts will never do. Because as Obama’s attitude toward corporate deserters shows, even if you don’t like where money comes from, who can resist taking it? And besides, as rhetoric in France and earlier in Greece shows, once politicians have convinced their constituents that the only reason socialism has failed is it hasn’t been tried hard enough then they simply try harder. Their adherents draw the economic noose which is the answer to all their problems ever tighter around their necks, never thinking something might be wrong with that. The American Thinker notes that some Ferguson looters belatedly realized after torching the vicinity that they had “nowhere nearby to buy food, liquor, tobacco, and other merchandise.” They thought it was a good idea to solve the problem by making this threat:

“To be honest, if they don’t come and restore these neighborhoods for these people, like when you gotta go travel miles to Walmart and to get gas and stuff like that, it should be right here. If they don’t restore this community for people who stay here it’s gonna be hell to pay”.

Looters think the key to solving unemployment is preventing these stores from gittin’ while the gittin’s good. While quoting this nonsense is considered racist, like making a mockery of the ignorant, Katrina vanden Heuvel, alarmed by a similar trend on the national scale, makes exactly the same plea in the Washington Post. Head the “corporate deserters” off at the pass, she says, before they get away.

Since 2011, 22 companies have attempted corporate inversions, including giants such as Pfizer and Medtronic. And the rate is picking up. We’ve gone from just three attempted deals in 2011 to 10 that have started in 2014 — and we’re only two-thirds of the way through the year. If this trend continues, the potential losses will be in the tens of billions. President Obama called these companies “corporate deserters,” and he’s right. This is tax evasion, plain and simple. It’s a shameless effort on the part of corporations to get around paying their fair share. And it’s wrong. Unsurprisingly, some blame also lies with Congress, which allows and, indeed, provides an incentive for bad behavior. When a dog bites someone, you blame the dog, but you also blame the guy who didn’t put him on a leash. Even if we manage to block inversions, they are just one among a plethora of popular corporate tax-dodging tactics that are draining our nation’s resource and contributing to income inequality. The corporate tax code is a “rotting economic carcass,” as Sen. Ron Wyden (D-Ore.) describes it, with so many loopholes that those who can afford the best tax lawyers — such as corporations — can game the system and win. … In the absence of legislation, President Obama refuses to sit still. He’s exploring a range of potential executive actions, regulations that could stem the growing tide of inversions. There are some promising options, most of which involve the Treasury Secretary issuing new rules and reclassifications to reduce the economic incentives for inversion.

Which only goes to prove that irrationality is not a condition of race, but only of irrationality. The only difference between the ideology of the French socialist minister and the Ferguson looter is scale. That and the immensely superior quality of the Frenchman’s comestibles. But the principles which govern both are the same. Eventually you run out of other people’s money and other people’s patience.  And that’s starting to happen all over the world right about now.

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