Brexit and Beyond

With the signing of the Maastricht Treaty in 1992 Europe shifted focus from integration and inter-nation cooperation to the construction of a so called super-state. The European Union, which in the Maastricht Treaty replaced the European Communities, is not a "United States of Europe" as it is not a federation; it is a new nation-state. 

As a nation-state structure, the EU's existence is directly contradictory to the continued existence of nation states as its members. By logical and political necessity Brussels would have to become the real, and only, capital of Europe. It was this inevitable future that the British people rejected. They were wise in doing so, because their vote may cause a turnaround and partial or (less likely) complete reversal of the super-state project.

If the British people had voted to stay in the EU they would have been part of a project where three things would have happened, each one serious enough to sink the entire continent, economically and socially:

End of the Government Credit Line, Part 3

In the first two installments of this article series I explained that the budget problems in, primarily, the European welfare states are caused by a combination of long-term decline in GDP growth and unending spending. The spending problem, in turn, is caused by a more than a little stubborn refusal among political leaders to reform away the welfare state, or even parts of it.

It is hard to blame those who are reluctant to entitlement reforms. The welfare state itself is the root cause of the economic decline, yet it is also a formidable political lock-box, almost impossible to remove without major political and social consequences. 

Almost, but not completely impossible. The reforms that will save Europe - and eventually the United States - from perennial economic decline will require courage, fortitude, persistence and humility on behalf of the politicians leading the way. I will leave the search for such courageous men and women to others; what matters here is to explain the economics of why we are on the long-term path to stagnation and decline. 

End of the Government Credit Line, Part 2

For decades, Europe's welfare states have continued to grow despite a long-term trend of economic stagnation in the economies that feed those welfare states. The weakening trend of GDP growth began in the 1970s, at a point in time when the European welfare state had reached its point of maturity. It offered comprehensive, tax-funded, often single-payer health care; universal K-12 schooling, often with government-run universities monopolizing or dominating academic education; pre-K child care and elderly care on government's tab; and last but not least: elaborate income-security systems providing both poverty relief (welfare, unemployment and pensions), income redistribution (progressive income taxes) and redistribution of consumption (child benefits, housing subsidies).

At first the growth slowdown was thought to be a passing problem related to the first oil crisis (1973-74) or the second oil crisis (1979). However, as the 1980s unfolded with its 7+ percent annual expansion of global trade, the lower growth rates in Europe in general - and in Sweden in particular, being as it was the epitome of the welfare state - began taking a toll on the fiscal solvency of Europe's welfare states. Debt levels increased steadily as temporary borrowing turned into a permanent source of government funding. Over the 40 years from 1965 to 2005 every European-Union member state increased its debt-to-GDP ratio, in many cases dramatically.

End of the Government Credit Line, Part 1

It has been a long-standing conventional wisdom in global finance that treasury bonds are the safe low-risk "anchor" you should always keep in your portfolio. That is still predominantly true, but the Great Recession shook that conventional wisdom and weakened investors' confidence in debt issued by governments.

Since the depth of the recession in 2009-2010 things have not gotten much better. The Greek debt write-down in 2012, sold to investors as a structural necessity to permanently turn things around, only led to a net loss among investors and a continuation of the underlying, reckless fiscal policies that created the government debt problem in the first place.

During the recovery, which started in 2011, the world should have seen a reversal of government borrowing. Deficits should have gone away, or at least shrunk so drastically that countries with large debt and less-than-perfect credit could be upgraded again. That has not happened.

Low-Tax Antagonists Strike Again

What has made Monaco such a crowded little piece of real estate? What made Switzerland one of the most prosperous nations in the world? Why have so many people from around the world parked their money in places like the Bahamas, Cayman Islands and Panama? How does a piece of wind-torn prairie called Wyoming attract so many high net-worth residents?

The answer is simple: low taxes and high privacy.

Taxpayers from high-tax jurisdictions, primarily welfare states in Europe, have flocked to low-tax countries and territories to be able to keep more of their savings. Unfortunately, the freedom for people to choose where to keep their money has been dwindling over the past 10-15 years because of an international campaign against low-tax jurisdictions. The campaign has been very well funded through the Organization for Economic Cooperation and Development (OECD) and the European Union.

On the other side, trying to fight back and defend financial freedom, is a tiny little think tank in Alexandria, VA called the Center for Freedom and Prosperity. Now, though... 

When Conservatives Save the Welfare State

The welfare state is a global problem, slowly bringing the entire Western world to an economic standstill. There are two reasons why this is happening. First, lack of long-sightedness among economists and other social scientists, leaving the long-term trends in our economy unexplored; there is no analysis of long-term causal trends. Since the decline in growth and stagnation of prosperity in the Western world is a long-term phenomenon, very few people pay attention to it. 

Secondly, Even when there is some insight into the problem, the welfare state prevails. In Europe, this is due entirely to destructive ideological attachment to our modern systems of redistributive entitlements. In the United States, this ideological impairment of analytical thought only accounts for part of the reason why the welfare state persists. A more likely explanation why there are no major movements to reform away our big entitlement programs is that we simply have not yet suffered an urgent fiscal-panic style crisis. 

So, how would America's conservatives - who adamantly state that they are for limited government and against the big redistributive state - react when faced with a real fiscal-panic situation? Be aware: the answer may shock you.