Portugal next to require bailout, highlights simple truths

I was going to review the BBC’s explanation for the cause of the problem in Portugal and analyse it in technical terms, but I decided instead to point out a few “big picture” general truths that the economic crisis nicely highlights.

So, following Ireland and Greece, Portugal is the next euro-based economy to require a bailout. Despite reassurances from Spain’s finance minister that “’of course’ Portugal would be the last eurozone country that needed a debt bail-out”, I think we could be forgiven for taking anything any politician says these days with a mountain of salt. (I couldn’t help but notice the irony that one of the agencies that will be attempting to rescue Portugal is the International Monetary Fund. This is amusing, if you have an eye for acronyms and 60s TV.)

EU Commissioner Ollie Rehn says that there would have to be an “ambitious privatisation programme” to reduce debt. This raises the question of why, since everyone pretty much concedes that private production is the only source of real wealth, the private sector needs any more encouragement to produce and generate tangible assets? Of course, the answer is that the private sector doesn’t need any incentive to operate, it simply requires freedom. Freedom from regulation, restriction, and extortionate taxation. (I oppose taxation on principle, but I am not naive enough to think it can be repealed overnight or entirely in the current political climate.) It is government, with enough controls and rules and regulations to make an obsessive-compulsive look chilled out on cannabis, which stifles and hampers the real source of wealth: the private sector.

As the current global economic meltdown continues, I can’t help but reiterate one of Ayn Rand’s gems regarding wealth and finance which she phrased in the form of a question. I will paraphrase: ‘if the problem is that there isn’t enough money, why doesn’t the government just print more?’ Understanding why it simply doesn’t work this way is to understand what the problem is in the first place, and how we got to this stage. Money, (coins or paper), in a proper economy, represents produced but unconsumed goods. It can represent any goods, but those goods must exist. When you print paper money, without producing any actual goods to back it up, you devalue the existing currency and you devalue savings. This is the source of inflation.

Now, as if that wasn’t bad enough, tax is aimed at private citizens and corporations, with the more productive carrying the heaviest tax-burden of all. (Liberals will recite the party line about “the rich should pay more” but there is no good argument for this, and there never has been. It is simply penalising the more productive and successful because they are productive and successful).  The money to pay tax is taken from the savings of citizens and the investment capital of corporations. In other words, when times get tough we all tighten our belts; we cut down on the eccentricities and make sure we have just enough to get by. Similarly, corporations make staff redundancies, shut down factories, and donate less capital to research, investment and innovation. So, the private market stagnates, or shrinks, which means fewer jobs, less production, and, as a direct corollary, less actual wealth. Actual wealth is the only thing that keeps an inflated economy above water. Notice the sick irony: in an attempt to solve a problem it created, government raises taxes and bleeds dry the very lifeblood needed to keep a country alive.

This is why the economies of the world are falling apart: mixed, planned, or in plain old terms socialist schemes are ruining the market, just as they have done throughout history. And yet, time and time, our intellectuals and politicians, despite paying lip-service to capitalism, even recognising that only the private sector can save us, refuse to give up their bloated powerful positions and public sector schemes. Socialism is so obviously impractical and destructive, but it is also the means by which politicians amass enormous wealth and power. That is why they will cling to the socialist ship even as it sinks around them.

One final thing I wanted to share is this article: when the government is forced to make public sector cuts, it starts with non-essential personal, which raises the question “if they are nonessential personnel, why are the taxpayers funding their employment to begin with?” It’s so wonderfully eloquent, and it’d be hilarious if pointing out the failed historic evils of Soviet Russia from our higher ground. It’s not so funny when the joke’s on us. At the moment, the “joke” is on Portugal. Spain might very well be next. But I really don’t believe the worst is over.

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2 Responses to “Portugal next to require bailout, highlights simple truths”

  1. EvilPuppy Says:

    The public sector cuts reminded me of a Yes Minister and Yes Prime Minister series made by BBC :).

    I unfortunately have to agree with you – the worst is about to come. But maybe after the European Socialist Union collapses, we will have an opportunity to create an organization that promotes free trade and open labor market thru Europe – nothing more.

  2. evanescent Says:

    I couldn’t agree more. We can only hope! (Since the strangehold of Big Government isn’t going to go away anytime soon) And we can only hope that no irreparable harm is done to our industry (and ourselves!) until then.


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