Papering over fiscal mismanagement is getting more and more expensive

BY ROY NERSESIAN

COMMENTARY

There are cracks in the wall and tears in the wallpaper because the foundation of a house has been built over a sink hole. The easiest solution is to patch the wallpaper and forget about the cracks and the sink hole causing the cracks. The sink hole is prosperity built on debt, not economic output. For decades, this has been the formula for success. Of course, everyone realized that there would be a day of reckoning because prosperity cannot be based on printing pretty designs on paper — but this would be long after the politicians who kept themselves in power by promising something for nothing have retired in glory. True prosperity is people going to work producing goods and services for others earning enough to have a fair claim on goods and services produced by others without government deficit spending.

U.S. states preeminent in fiscal mismanagement and financial irresponsibility such as California, New York, and New Jersey are at the end of the line. Either they balance their budgets as Governor Chris Christie is attempting to do or pray for U.S. government intervention as California seems to be doing or declare bankruptcy. Europe may be in bigger trouble than the United States. Europe has become a continent of entitlement believers. Oh, you're born in Europe? — that's sufficient to entitle you to free medical care, free education, minimum income to meet basic needs along with subsidized this and subsidized that. The latest entitlement being pushed in Europe is the right to a fully paid two-week vacation no matter who you are or what you do.

The entitlement race to the bottom is over in Europe as debts issued to cover these free-be's can no longer be rolled over, refinanced, or expanded. But quite unlike the United States that believes that prosperity can be based on throwing money from a helicopter, individual European nations cannot print euros. For Greece and now Ireland to save themselves from bankruptcy, they must make their appeal to the only economically functioning nation in Europe: Germany. And guess what? Germans believe that prosperity comes from working, not from printing money, and have little patience to bail out their proliferate neighbors who believe that they're entitled to prosperity by virtue of their birth.

For Ireland to avert bankruptcy as a consequence of its crumbling economy, bad banking loans à la America, and fiscal mismanagement and financial irresponsibility on the part of its politicians, papering over the widening crack required a loan of €85 billion (about $115 billion) from the European Union and the International Monetary Fund. This new layer of wallpaper is pretty expensive. On top of nearly €15 billion of austerity measures that have already been introduced, another €15 billion will be forced down the collective throats of the Irish people in the form of slashing welfare benefits, cutting the minimum wage by 12%, broadening and increasing income tax rates for corporations and individuals, increasing the VAT tax (similar to a national sales tax) by 2 full percentage points, increasing higher education fees by one third, and dismissing nearly 25,000 public servants. This collective €30 billion pain pill (a pill that causes pain) will be spread over four years, and if spread equally over a population of 6.2 million, each individual's burden will be €5,000 or about $6,800 for every pensioner, baby, student, handicapped person, hospital patient, prisoner, and everyone else capable of breathing. For a family of four, that's about $25,000 spread over four years. For an Irish family, that's a lot of money.

But don't fret, the Irish government is quick to point out that such an austerity program will right the sinking economic ship creating jobs and a return to prosperity. Exactly who is on meth?

At what point do the people say that slavery to save an economic house built on a sink hole of untruths and false hopes is not worth it. Better to renege on debt than dedicate generations to the hardship of paying off debt created not by borrowing other people's savings, but by a stroke of a pen in a banker's ledger. A charismatic leader who can convince the world that we're better off without debt and can pull off the liquidation of all debt public and private with a minimum of social and economic disruption; well, welcome to the New World Order. The world's self-appointed elite looks upon an economic meltdown as an opportunity to inaugurate a new system under their enlightened control. And it's no secret: the New World Order is printed on our money (Novus Ordo Seclorum) and has been on the lips of world leaders for decades (Bush I for one). It will take someone with talents far exceeding those who have led us down the primrose path to financial ruin — but they'll be great cheerleaders when he appears. And that day is getting closer as the wallpaper to cover the propagating cracks becomes increasingly expensive to apply.

Roy Nersesian, a resident of Maplewood, teaches at the Leon Hess School of Business at Monmouth University in West Long Branch and also at the Center for Energy and Marine Transportation at Columbia University. He has authored several books, the last on Energy for the 21st Century published by M.E. Sharpe.