Austerity

There has been a lot of talk recently about austerity, and how bad it is.

First of all there remains plenty of fat to cut from the bloated budgets of the Med. countries.  Spain has spent the last 30 years padding government, building patronage networks, creating unnecessary departments, and buying off every special interest they need to get elected.  Money has so often been spent not on need or necessity, but on favoring a certain groups who help win elections, the worst of which are politicians, government workers, and public sector unions, who have acquired amazing privileges and favors…all at the public´s expense.

Of course, just because there is waste does not mean that politicians will cut it out.  In fact politicians tend to resist cutting back on favors to their most favored groups.  So we have cuts to hospitals, and overworked staff, while no one in the government is fired, and incompetent banks make off with billions of public money.  Greece has resisted tooth and nail every attempt to clean up the system and make the country more competitive.

There is too much emphasis in the government in closing the budget gap with new taxes.  All this does is hurt the economy, and the government ends up collecting less than expected, because taxes depress activities which are taxed.   Instead the government should remove the waste, bloat and duplication which abounds.  With an emphasis on efficiency and efficacy, and prioritizing spending to where it is really needed, Spain could eliminate the deficit, help the economy and still maintain the quality of vital services.

In addition the government needs to liberalize the economy, get rid of unnecessary regulations, introduce genuine competition, let banks fail, etc.  The main reason why the Spanish economy has been locked in recession for 4 years (with no end in sight) is because the economic system is over taxed and regulated and the economy is not allowed to do what it needs to do to become competitive, so it languishes for a years in an uncompetitive state and perpetual crisis.

Finally, the Socialist system in Med. countries creates a seniority system in which older more established workers are favored, while the youth bear the brunt of the recession.  Spanish youth employment is 50%, and many of the best and brightest are leaving, taking their skills with them.  They have the qualifications, but so many cannot find a job, because the older generation has monopolized so much employment.  The worst example is the public sector where incompetent civil servants, who do not even go to work, are protected.  Meanwhile, there is a hiring free in the government due to austerity.  In sum, current incompetent workers are safe, but even the most qualified new applicants cannot get a job due to the firing freeze.  Why not fire the non performing government workers to make room for bright new hires?  That would make sense, but the government does not do it.

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