Another country from which to “learn”
The question, as posed earlier concerning Britain and France, is will we?
Electricity prices are rising in Germany – and citizen with a low-income are suffering particularly. They are at risk of fuel poverty. 10 to 15 percent of Germans are now struggling to pay their energy bills. 600,000 households have the electricity turned off every year.
Remember, Germany ran scared after the Fukushima disaster and dumped nuclear power (because, you know, German has so many earthquakes and tsunamis). They then went “green”. Result? See above?
The CEOs of manufacturing industries are warning that production in Germany is at risk because of low energy prices in the United States. The energy prices there are now only a third of those in Germany. “Many industrial companies are planning to build new factories in the U.S. and not in Europe because of low energy prices there,” said Gisbert Rühl, chief of steel trader Kloeckner. “We are now reacting to this development and plan new business units in the United States.” To move production to the U.S. is especially attractive for companies in energy-intensive industries such as steel and aluminium or chemistry.
That would seem to be good news for us, no?
Well, it should be … except for the Democrats plan to raise taxes on the oil companies. And Obama’s new wave of regulations. Oh, and the Obama desire to see fuel prices “skyrocket”, ably aided by his Secretaries of Energy and the Interior. And the EPA.
Etc.
~McQ
Observations: The QandO Podcast for 20 May 12
This week, Bruce, Michael and Dale talk about Greece, and the folly of governments.
The direct link to the podcast can be found here.
As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.
Crony Capitalism is phony Capitalism–example 6,981: solar subsidies
Via Hot Air is an article by Bjorn Lomborg in Slate. It reviews the subsides of German toward “green energy” and how that has worked out for them.
Lomborg points out that when the global warming scare was at its height, Germany bought in, hook, line and sinker. And, as is their way, decided they’d become the “photovoltaic world champion” as it switched to solar power.
How much did the German government commit to this pursuit of clean and green? $130 billion dollars.
What happened when this tax payer funded gravy train left the station?
Germans installed 7.5 gigawatts of photovoltaic capacity last year, more than double what the government had deemed “acceptable.” It is estimated that this increase alone will lead to a $260 hike in the average consumer’s annual power bill.
Because, you see, solar power is more expensive than that nasty fossil fuel generated energy. Details, details.
Anyway the government handed out $130 billion in subsides, German’s responded and the net result was a huge drop in greenhouse gasses, namely CO2, right? Yeah, not so much:
Moreover, this sizeable investment does remarkably little to counter global warming. Even with unrealistically generous assumptions, the unimpressive net effect is that solar power reduces Germany’s CO2 emissions by roughly 8 million metric tons—or about 1 percent – for the next 20 years. To put it another way: By the end of the century, Germany’s $130 billion solar panel subsidies will have postponed temperature increases by 23 hours.
Reality … what a slap in the face that must have been. Suddenly, the German government gets “religion”:
According to Der Spiegel, even members of Chancellor Angela Merkel’s staff are now describing the policy as a massive money pit. Philipp Rösler, Germany’s minister of economics and technology, has called the spiraling solar subsidies a “threat to the economy.”
But, as usual, the German government had to learn this the hard way. Markets, we don’t need no stinkin’ markets. For a $130 billion dollar “investment”, Germany now gets 0.3% of its total power from solar. Any guess why governments should steer clear of picking winners and losers?
The German government has burned $130 billion to raise the average power bill by $260 a year and delay the dreaded temperature increases by … 23 hours.
Brilliant!
~McQ
Twitter: @McQandO
Stunning
I’m stunned every now and then when I see a story like this. By the way this isn’t an indictment of Germany, necessarily, its not the only country in which you’ll find such knowledge gaps. Japan has hidden its atrocities during WWII as well. In fact, most countries would prefer not to discuss such behavior.
But it sure makes it hard to say “Never again” and have it mean anything if part of the population doesn’t know what it refers too.
One in five young Germans has no idea that Auschwitz was a Nazi death camp, a poll released Wednesday showed, two days ahead of Holocaust memorial day.
Although 90 percent of those asked did know it was a concentration camp, the poll for Thursday’s edition of Stern news magazine revealed that Auschwitz meant nothing to 21 percent of 18-29 year olds.
And nearly a third of the 1,002 people questioned last Thursday and Friday for the poll were unaware that Auschwitz was in today’s Poland.
Maybe it’s not significant that 21% didn’t recognize a name that is so identified with concentration camps that it could be a synonym. Perhaps it is good enough that 90% of the total knew it was a concentration camp. Or does it signal that the shame and the knowledge of the shame brought to Germany by the Nazis is beginning to fade (of course my guess is if you asked the question of the same demographic here in the US, the percentage to which the name would mean nothing would probably be higher)?
Or, does it perhaps point to a demographic in which a portion is so self-absorbed that history like that represented by Auschwitz simply doesn’t register?
I wonder at times, as I watch the WWII era dim as veterans die off, whether things like D-Day and its import or Pearl Harbor will even get a mention in a few years.
But back to the poll. If ever there is something every German school kid should know about it is the Nazi era. If ever there was a subject to which they should be exposed, to include all of the atrocities by that regime, it is the subject of Germany and Nazism.
I can’t help but believe, and I don’t know it for sure, that the subject gets taught but it isn’t something that is lingered over by schools. And I wonder how sanitized it has become now days.
The fact that a fifth of the young demographic said the name “Auschwitz” had no meaning for them has thinking it is both short and sanitized when presented.
Wonder if they knew the name “Dachau” (10 mines northwest of Munich).
~McQ
Twitter: @McQandO
Ezra Klein: A larger welfare state might mean a smaller deficit
Honestly, that’s his premise. You can read it here. He bases his argument mostly in health care costs. Obviously where he tries to go with it is toward a single payer system. But he uses Germany as the model. Anyone, does Germany have a single payer system? No, it has a public health insurance program that covers 88% of the population.
Take Germany. They have a pretty big welfare state: pensions, health care, paid vacations, unemployment benefits equal to two-thirds of one’s income.
So that’s great and per Klein, who, like I said, wants you to believe by his vague general description, that Germany has a system like … Canada.
Don’t believe it? Well it takes that sort of implication to make a statement like this:
To bring this across the Atlantic, you could argue that the United States’s debt burden is the product of an insufficiently large welfare state — at least with regard to health care. To see a stark illustration of that thesis, head to the Web site of the Organization of Economic Cooperation and Development and download their health-care statistics for Canada and the United States [emphasis mine].
Notice how apparently we transitioned seamlessly from a country with health insurance to a country with a single payer system without that being obvious? In reality we’ve looked at the apple, now he plans on comparing it to the orange:
As recently as 1965, the cost of those two systems competed neck-and-neck. That year, Canada spent 5.9 percent of its GDP on health care. The United States spent 5.7 percent. But around that time, Canada was transitioning to its current single-payer system. Over the next four decades, the growth of health-care costs slowed in Canada while it accelerated in the United States. By 2009, Canada was spending 11 percent of its GDP on health care — and covering everyone. The United States was spending 17.4 percent of its GDP and leaving 45 million uninsured. In dollar terms, we’re spending $3,600 more per person, per year, than Canada.
Emphasis mine. It’s a pretty ballsy attempt, I’ve got to say. Here’s another question for those paying attention. Can anyone tell me what began in 1965? Anyone? That’s right … Medicare. Per Klein, we were actually spending less than Canada until the same year that Medicare and government intrusion into the health care market was made law.
Based on that extraordinarily flawed bit of reasoning which managed to factor out or ignore a major reason for the increase in US health care costs, Klein concludes:
If the United States had Canada’s health-care system, and Canada’s per capita health-care costs, we would have a much “larger” welfare state, but we wouldn’t have a deficit problem.
Really? Seriously? You really want to run with that one, Mr. Klein?
Perhaps a less rosy look at Canada might help temper that nonsense a bit. Here’s a Canadian economic analyst speaking about the Canadian healthcare system:
"There’s got to be some change to the status quo whether it happens in three years or 10 years," said Derek Burleton, senior economist at Toronto-Dominion Bank.
"We can’t continually see health spending growing above and beyond the growth rate in the economy because, at some point, it means crowding out of all the other government services.
"At some stage we’re going to hit a breaking point."
It means crowding out other government services or what?
That’s right, deficits.
Well, except in Ezra Klein’s magic welfare state where one can happily spend whatever they want and there are no apparent consequences or … deficits.
~McQ
Twitter: @McQandO
Half Solutions Will Not Work
Brett Arends is skeptical about Europe’s current direction:
Their proposal is preposterous. Anything can happen in this life, but it would be remarkable indeed if this idea got off the ground. Anyone pinning their hopes that this will solve the crisis needs to think it through.
Why would the Portuguese accept the right of Germany to impose budget cuts on their country? Why would the Greeks?
Would we accept that role for the Chinese and the Japanese, the biggest holders of Treasury debt? How would you feel if you opened the paper to be told that the new Sino-Japanese “Fiscal Stability Commission” in Washington had just slashed your grandma’s Social Security checks by one-third, scaled back federal highway repairs, and that it would impose a 10% national sales tax?
That is, after all, effectively what is being offered to the people of Greece, Italy, Spain, Portugal and Ireland.
It’s absurd. There is no reason why these countries should have to surrender sovereignty. They can simply, where necessary, default. A default by, say, Louisiana would not destroy the dollar. Neither did the bankruptcy of Enron or Lehman.
What happens when after signing the new treaty (if it ever actually comes to be) the Greeks or Italians decide to thumb their noses at the EU and default anyway? Kick them out? Isn’t that right where we are now? Isn’t the fear that countries are kicked out or leave leading to financial chaos and defaults? Will these countries truly continue to pay their bills and accept austerity in the face of a severe recession/depression?
If that is the concern, just as I have been pointing out for some time, anything short of true fiscal and political union will fail. The right of existing states to refuse to honor the treaty (remember the last one was treated as inconsequential by violators, including Germany and France) cannot exist which means the right of states to secede or be expelled from the union cannot exist. If that option is not off the table then Eurozone bonds cannot be treated as risk free. If they are not seen as risk free then they will be rated accordingly and the Eurozone will be unstable as Louis-Vincent Gave points out:
Basically, we have to remember that the average sovereign debt buyer is not a hazardous investor. The guy who buys a government bond is looking for a very specific outcome: he gives the government 100 only so he can get back 102.5 a year later. That’s all the typical sovereign debt investor is looking for. Nothing more, nothing less.
But now, the problem for all EMU debt is that the range of possible outcomes is growing daily: possible restructurings, possible changes in currencies, possible assumption of other people’s debt, possible mass monetization by the central bank etc. Given this wider range of possible outcomes, and the consequent surge of uncertainty, the natural buyer of EMU debt disappears. Again, the typical sovereign investor is not in the game of handicapping possible outcomes; he is in the game of getting capital back!
This is very problematic because once uncertainty creeps in, bonds will tend to gradually drift towards what I have come to call the bonds “no-man’s-land”. Basically, once sovereign bonds reach 90c to par, they tend to have a much higher volatility and much greater uncertainty. As a result, they are no longer attractive to the typical bond manager or asset allocator looking to buy bonds to diversify equity risk (think how Italian bond yields are now correlated to European equities. If you want to be bullish Italian bonds, you may now just as well spend a fifth of the money and buy European banks for the same portfolio impact…). And once a bond enters into no-man’s-land, it has to fall a lot before attracting the attention of distressed debt and vulture investors (usually yields of 15%+). So the first obvious problem is that more and more European debt markets are entering this “no man’s land” bereft of “normal” investors.
Do these countries need the Euro over the long term to be prosperous? More Brett:
The British look smarter and smarter for staying out of the euro area in the first place. Prime Minister John Major, and then, later, Chancellor of the Exchequer Gordon Brown, each took the decision to keep the British pound free. At the time fashionable opinion predicted disaster for the Brits. So much for that.
(Predictably, fashionable opinion now says the Brits look “isolated” for staying out. Really, you couldn’t make it up).
My guess is Brett is correct that we are no where close to a real resolution, which is a path to political unification or breakup.
It has long been clear the Franco-German duo wanted to use their shared currency to bludgeon the continent into something closer to a federal system.
Any investor pinning their hopes on this bird flying needs to be aware it looks a lot more like a turkey than an eagle.
This week’s meeting of European leaders already marks the fifth “summit” to solve the region’s debt crisis since early 2009.
My favorite comment this time: “After a series of ‘final’ summits, it would be nice this time to have a real ‘final’ summit.” That was from Standard & Poor’s chief European economist, appropriately-enough named Jean-Michel Six. What’s the betting Mr. Six will be attending Summit No. Six in the new year?
Which is not to say that the ECB or some other entity couldn’t stem the immediate crisis and kick the can further down the road. Maybe, but if so the question is how far? A week, a year, five years? That I cannot answer now.
Observations: The QandO Podcast for 27 Nov 11
This week, Bruce Michael, and Dale record talk about the implications of Germany’s failed bond auction.
The direct link to the podcast can be found here.
As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.
Will Eurobonds Work?
(Originally posted at Risk and Return)
I have been skeptical and so is James Bianco:
The problem in Europe is simple – they created a common currency – the euro. For years, the market erred. It thought that meant that every sovereign debt had the same rating as Germany. I was buying Greek bonds. I was buying Irish bonds. I was buying Italian bonds. But I thought I was buying German bonds. Then, a couple of years ago, I had an epiphany – no, I was not buying German bonds; I was buying Greece, Italy, and Ireland, or whatever, not Germany.
Those countries, recognizing that they could borrow into infinity because everybody thought they were lending to Germany, pretty much did that and expanded their welfare states to the point where they cannot pay their debts.
Germany has disappointed everybody with its intransigence, its unwillingness to “get with the program,” and endorse massive ECB bond buying and Eurobonds. Their reason? They believe they will be stuck with the bill. Of course, they are right, they will be:
If a Eurobond market comes with with strict discipline/rules on borrowing and paying debt back, it might work. Unfortunately no one will agree to a Eurobond market with strict discipline/rules.
If a Eurobond market comes with no discipline/rules, then it is just another way to trick the market into thinking they are buying German Bunds. It will “work” for a while as the crisis will ease until everyone borrows too much money and then comes back much worse.
I am not even sure it will work more than a few days at this point, but maybe. Either way it is not a solution, but a stop gap at best. It is also a stop gap that should not be attempted unless an actual endgame is in sight:
So how do you fix the Euro crisis? Unfortunately there are only three solutions and all are distasteful:
- Call off the union and go back to legacy currencies. This destroys the banking system who will be paid back with devalued/nearly worthless currencies.
- Massive austerity. This option is very unpopular among the electorates and will cause a bad recession/depression.
- Fiscal union. This is a nice way of saying Germany finally wins WW2. Is the rest of Europe now ready to take orders from Berlin? Didn’t they fight two wars to prevent this?
The only reason ECB printing keeps being mentioned is because the three options above are untenable and money printing is the only other thing they can think of. Money printing does NOT fix anything, it just makes the problem better for a while until it comes back worse than before.
This dovetails with my analysis in The German Dilemma that their are no good options from the German perspective, and in fact fiscal union is far more problematic than commonly realized:
Full Fiscal Integration: Since all other solutions put in place circumstances that are unstable and merely kick the can down the road, the fundamental flaw in the Euro needs to be addressed. That is the lack of a unified fiscal policy. The answer then is the end of sovereignty, the creation of a US of Europe. An obvious objection is that Germany wants to be a sovereign nation. We’ll skip this niggling little detail, but even if they didn’t want to remain sovereign do they want to harmonize laws and economic policy with Greece and some of the other PIIGS? West Germany just integrated with East Germany and the experience was traumatic featuring massive transfers to East Germans. The PIIGS will still not be competitive with Germany. That means internal adjustments (internal devaluation or austerity) to allow them to become more competitive for the PIIGS’ or massive transfers. Thus unifying the Eurozone under a single fiscal policy means massive transfers from Germany to the PIIGS to harmonize the welfare states and unify the debt and avoid austerity throwing the entire Eurozone into depression. Germans will pay for the debt in one fashion or another.
Cullen Roche points out that in the US we don’t worry much about the need for internal transfers between states to keep the system sound. Today that is true, though it has led to large conflicts in our past, playing a role in civil unrest, uprisings, the conquest of a continent and near destruction of its former inhabitants and the Civil War. Our unity was easier to envision and still born of blood and tragedy.
I am not saying unification of Europe would lead to such tragedies and conflicts. However, we need to ask if Germany (or really all the countries) want to make the internal transfers that make such a system work? Germans would pay a great deal, Greece and the other PIIGS would suffer internal austerity to the extent that they contribute to the economic re-balancing. Do Europeans, or most importantly the Germans, view themselves as a people who will be responsible for paying all the bills to integrate the Greeks and others?
Are Europeans ready to think about their home countries in the same way Texans think of Texas? Their state, but completely subordinate to the US? Will they be able to secede? We answered that question in the US with a war of incredible savagery and destruction. My guess is a unified Europe would be far less stable. They will not choose a civil war comparable to the US, but instead countries leaving over time as well as never entering the union. That leaves us with all the problems we have now still being there. Without a European populace overwhelmingly in favor of a true union this will not work. We would be faced with a PIIGS like crisis with every election and the possibility of secession in each of the former countries.
The necessity of creating a union where there is no possibility of secession, where citizens are more loyal to the European sovereign entity than their own countries is incredibly unappreciated. Half measures will not work. If Texas were to get upset about staying in our own Union it would not matter how overwhelmingly popular the idea of leaving was in the Texas legislature, the US military will ensure that Texas stays a subordinate state. We decided that issue in 1865 at the cost of well over 600k casualties.
If a similarly firm enforcement of Eurozone union is not agreed to (and setting aside a war to force union) then why should the market assume the system will remain intact? Why consider the bonds issued by the various states, or the Eurozone as a whole, deserve a AAA rating? My belief is that eventually the Eurozone will suffer other crises as states face local elections that wish to leave for one reason or another. Critically Eurobonds and fiscal Union make it easier for countries to leave, since the debt will be the Eurozone’s, not theirs. They can leave and stick the remaining members with the bill. That is an incentive which virtually ensures instability.
Treaties don’t matter if there is no enforcement mechanism, and all enforcement mechanisms at the end of the day have to have a credible belief in military force behind them to matter. Otherwise those who wish to exit can just thumb their noses at whoever stays behind. Has there ever been a successful union where the underlying members could leave? Not that I am aware of.
There are no good options, only more or less realistic ones.
Germany’s Chancellor Merkel has criminal complaint filed against her for bin Laden comments
The world is officially nuts. I’m not sure how else you classify what follows. Chancellor Angela Merkel of Germany recently remarked on the death of mass murderer Osama bin Laden saying was “glad” he’d been killed. That prompted the following from a German judge:
But Hamburg judge Heinz Uthmann went even further. He alleges that the chancellor’s statement was nothing short of illegal, and filed a criminal complaint against Merkel midweek, the daily Hamburger Morgenpost reported Friday.
"I am a law-abiding citizen and as a judge, sworn to justice and law," the 54-year-old told the paper, adding that Merkel’s words were "tacky and undignified."
In his two-page document, Uthmann, a judge for 21 years, cites section 140 of the German Criminal Code, which forbids the "rewarding and approving" of crimes. In this case, Merkel endorsed a "homicide," Uthmann claimed. The violation is punishable by up to three years’ imprisonment or a fine.
"For the daughter of a Christian pastor, the comment is astonishing and at odds with the values of human dignity, charity and the rule of law," Uthmann told the newspaper.
Of course the judge is assuming it’s a “homicide” (certainly no proof exists that’s the case) and thus a criminal act. In fact, the Geneva Conventions will clearly show otherwise. Obviously he files his complaint with nothing more than his opinion as a basis.
So you say, it’s one extremist view, why get excited about it?
While the judge’s reaction may seem extreme, his sentiments are apparently shared by 64 percent of the German population. That was the proportion of Germans who said bin Laden’s death was "no reason to rejoice" in a poll published by broadcaster ARD on Friday.
Germany – never a bastion of human rights or individual freedoms – continues to live up to its past with a new extremist but pacifist twist. This is an example of absurdity masquerading as reason, extremism as normalcy and stupidity as compassion.
Everyone who loves freedom and hates mass murderers should be “glad” Osama bin Laden has been killed. He was a monster, just like one which once ruled the land this puffed up pratt Uthman lives in. As much as Germans claim to have been “disgusted” with the “jubilation” over OBL’s death, nonsense like this does them no favor. The disgust on this side of the Atlantic for a country that assaults free speech and protects the memory of a mass murderer by going after those who express satisfaction at his demise isn’t one that I or most anyone here would ever care to live in.
~McQ
Twitter: @McQandO
German austerity v. US profligacy – guess which one is working out best?
While the US remains mired in recession (despite the claim its over) and the usual suspects are claiming we need to spend even more money we don’t have, Germany has managed a minor miracle. Eschewing a large stimulus package and instead opting for austerity and pro-business legislation, it has seen almost the opposite of US results:
"Although October’s decline in unemployment turned out weaker than expected, the underlying trend in the German labor market clearly remains one of rapid improvement on the back of strong economic growth," said Aline Schuiling from ABN Amro.Data on Europe’s biggest economy over the past week has been bullish, signaling its unexpectedly strong recovery could hold up in the face of signs of fragility in the global economy.
Consumer morale remains at its highest level since May 2008 going into November on expectations for a further rebound, a survey by GfK market research group showed on Tuesday.
Business sentiment hit its highest level in 3-1/2 years in October and firms’ expectations also improved, a survey showed last week, and the corporate outlook continued to improve on Thursday.
As I’ve pointed out in many other posts, this isn’t rocket science. People respond to incentives. People respond positively to positive incentives. That’s what is happening in Germany which has economically battled back first from the absorption of East Germany and now a deep recession to a position of prosperity and growing economic stability.
Meanwhile here we’re about to go into QE2 all while popinjays like Paul Krugman encourage us to go more deeply in debt as a country because everyone knows that government spends money much more wisely and well than do individuals.
~McQ