Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Thursday, June 02, 2005

Why the German Economy Will Continue to Sag

Voters often opt for socialist-type programmes that require them to take no responsibility for decisions and require no effort on their part to anticipate and prepare for future problems. We/they fully expect to receive the benefits of any good things that happen to or for us, but we expect the gubmnt to bail us out, should something go awry.

The result is that incentives are seriously distorted. Ralph Peters makes this point very well in this NYPost piece [registration required] about the German Economy [link via Newmark's Door].

Cradle-to-grave security sounds wonderful. But it gnaws at the sinews of any economy and poisons the moral bloodstream. Socialist policies destroy the work ethic, while rewarding the least-productive members of society.

But Germans remain convinced they can have it all. The results? A stagnant economy. The highest unemployment since the end of World War II — 12 percent nationally and as high as 25 percent in industrial cities such as the Ruhr's Gelsenkirchen. A national pension system in deep crisis. Collapsing social benefits. And punitive taxation.

There's more: Unsustainable worker protections. Crippling taxes on industry for each worker employed. Massive outsourcing abroad as a consequence. A higher-education system in ruins. Talent flight. Political demagoguery. ...

The problem is that socialist policies encourage people to be less entrepreneurial, thus shrinking the size of the pie; they also encourage more rent-seeking [fighting about who gets what], diverting efforts away from production and toward distribution.

In the end, it's capitalism that's more humane, providing a bigger pie for all. Socialism subdivides ever-shrinking slices.
Do you think Peters' article will have any impact? Probably not much. These ideas are important but are being turned aside in too many economies [for example, Mongolia]. And that has frightening implications for the long run, for surely we should not cheer the economic policy failures of other economies, especially if such failures are likely to lead to more serious future problems.
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