Trump and Political Correctness


Political correctness is killing all of us, but now there’s Donald Trump.

Before I continue this post, let me clarify that I have not endorsed Trump. His candidacy clearly offers some vigor and vibrancy to the field, but we’re still early in the vetting process. I largely agree with him on a number of issues, however, including his recognition of two menaces that face our nation—illegal immigration and political correctness. I don’t want to get into the weeds of policy in this post, but suffice to say that these two issues are joined at the hip. Illegal immigration continues unabated in the U.S. and very few politicians prior to Trump have been willing to address it because of fears of political correctness.

Here’s how it works. Anyone who opposes open borders is a racist because the majority of current illegals in our nation are not of European descent. Besides, we are told that, “the U.S. is a nation of immigrants,” so anyone who seeks to explain the obvious flaws in connecting open borders today to open immigration a century ago is ignorant of history. There’s a script you have to follow on this issue lest you be scorned as a bigot.

Of course, the political movement correctness is internally inconsistent. In the immigration example, notice how justifying today’s open borders on immigration policies of the 1800s and early 1900s is legitimate and based on an understanding of history. Of course, the world has changed in many ways progressives have championed. The Federal Researve, fiat currency, Social Security, and Obamacare all represent stark departures from life in the U.S. circa 1900. The PC comeback to arguments for the gold standard claim that things have changed and you can’t live in the past. Even those who question man-induced climate change are called “flat-earthers.”

In short, PC is about stifling debate on certain issues. It leverages emotion and surface-level logic to squelch arguments that would be difficult to win in a more rational setting where all sides would be required to defend their claims in detail. It hides behind “stop the hate” and other slogans designed to portray free speech as irresponsible. The PC crowd demands that opposition speech is insensitive to certain groups of people and therefore should be controlled. Apologies are demanded from anyone who utters anything that might be offensive even if it is unintended or misunderstood. Fearing reprisal from the media and others, most politicians refrain from discussing certain topics and issue apologies whenever demanded. Of course, this only legitimizes the PC effort.

Nowhere is the PC movement more pervasive than on the college campus. They promote “safe zones” to protect students from alleged harassment. They designate certain areas on campus as “free speech zones” so as to restrict certain kinds of speech elsewhere. Oppose the safe zones and you are tagged and someone who seeks to promote intolerance. Even capitalism is a dirty word and its proponents are tagged as insensitive to the plight of those it has allegedly left to suffer.

Back to Trump. In the early stages of his campaign—when naysayers told us that he would not be taken seriously—demands for apologies were constant. A few examples include his use of the term “anchor baby,” his supposed indirect insult of Jeb Bush’s wife, and his lack to response to a statement (not a question) about President Obama’s religion. In each of these instances, Trump refused to apologize. Since then, the demands have waned, and many Americans seem to appreciate Trump as someone willing to speak his mind, even if his choice of words isn’t always perfect. His style is rubbing off on others. Even Jeb Bush mustered up the courage to use the term “anchor baby” without apology.

I’m a big proponent of using choosing your words wisely, especially when discussing difficult topics. I also understand that you shouldn’t yell “fire” in a crowded theater or directly incite a riot. However, I understand that nobody is perfect, and I am willing to live with occasional utterances of ignorance or stupidity in the interest of the free exchange of ideas. We need more speech, not less. Win or lose, if Trump is able to expose PC for the effort at mind control it is, then more politicians might be willing to engage in direct conversations about the future of our country without fear of reprisal. For this reason, if for no other, I’m glad to see Trump in the race.


Evaluating the Republican Tax Proposals


Many of the Republican candidates have been chastised because their proposed tax plans will increase the budget deficit. Pundits (and CNBC debate moderators) frequently argue that a net decrease in rates without cutting spending will increase the gap between government revenues and expenditures, thereby increasing the deficit. But this argument is problematic for one key reason.

Economies are dynamic and consist of lots of moving, integrated parts. Because each of these parts influences other parts, it’s inappropriate to assume that changing one of them will not have an effect on the others. Raising the minimum wage provides a good illustration because it prompts companies to hire fewer workers and/or raise prices, thereby increasing unemployment and inflation. Consumers who spend more on these higher-priced products and services have less money to spend elsewhere, thereby hurting other businesses. Those who claim that raising the minimum wage simply lines the pockets of minimum wage workers without considering the negative repercussions in other areas are shortsighted. They are engaging in static analysis—assuming one change will not result in other changes—which is why their conclusions are incorrect.

Economic proposals should be assessed with dynamic analysis so that their long term, multifaceted effects are evaluated. Consider the following principles that support dynamic analysis. I could list more, but these are some of the obvious ones:

  1. Simplifying a tax system improves business decision-making because it becomes easier to evaluate the financial pros and cons of each alternative.
  2. Lowering the marginal tax rate increases the incentive to produce; in some instances the increased production can more than compensate for the lower rate, and tax revenues can actually increase. This occurred during the Reagan years, as explained in part by the Laffer Curve.
  3. Tax incentives/breaks/loopholes provide incentives to individuals and companies to spend less efficiently in order to get the tax benefit. Eliminating these incentives helps all of us make better, more productive decisions. The mortgage tax deduction is a good example because it provides an incentive for each of us to spend more on housing that we otherwise would. Why not buy a bigger house when part of the higher payment can be passed along to other taxpayers?
  4. Taxes punish behavior, so they should be applied in the least punitive manner possible. Consider that taxing income punished income generation, while taxing sales punishes consumption. Given a choice, it’s better to tax sales because the alternative to spending is saving, which is also good for the economy.

There are various Republican tax proposals on the table, each of which should be evaluated through dynamic analysis.  Most of them score well along the above criteria because they lower taxes and simplify decision-making. So why do some pundits and voters fail to grasp this? Some can be excused because they don’t know any better, but others see static analysis as a useful shortcut to make a political point. Central planning works well in a static world because its unintended, negative consequences are not considered. Others take a static approach because it can be based in emotions. Responses like “We can’t give tax breaks to the rich” or “All workers deserve a living wage” illustrate the emotional folly of this type of thinking. They work well with the misinformed.

The solution to this problem is simple, but not easy. The next time your leftist friend fails argues for or against a policy without considering its intermediate and long-term economic and social effects, take the time to outline them in detail in detail. I suggest that you keep the discussion as simple as possible and avoid using technical terms like static and dynamic analysis. Remember…the argument for free enterprise solutions always strengthens when long-term effects are considered. Some won’t have the patience to endure a logical discussion that digs deeper than a sound bite. Some will exit the conversation when they begin to see their own ideas beginning to unravel. But a few will see the light, and the extra time is worth it.


No Social Security Increase


The Social Security Administration announced that there would be no annual cost-of-living adjustment (COLA) this year for Social Security recipients because there isn’t any inflation, at least not as calculated by the SSA formula. This is widely presented as a hardship for seniors. As the USA Today put it, “Though prices on paper may have dropped, the cost of living for Social Security beneficiaries is rising, and their quality of life is falling. Social Security recipients have lost nearly a fourth of their buying power over the past 15 years, according to the Senior Citizens League.”

While the formula used to calculate inflation is somewhat arbitrary, it is equally true that the Senior Citizens League is a special interest group whose purpose it is to promote the plight of seniors. Setting these issues aside, I want to make 3 points:

  1. None of the reports I have heard in the mainstream media have mentioned that Social Security is on a trajectory toward insolvency by 2035. Needless to say, raising benefit levels would simply hasten this reality. Recipients can only get an increase if someone else pays for it.
  2. All of the reports assume that Social Security is the sole source of retirement income. Sadly this is true for many, but it was never intended to serve that purpose. Some of you might be thinking that those who rely completely on Social Security simply could not afford to save more prior to retirement. In general, this is not true; saving for retirement is a matter of priority. But if this is the case in some instances, it only underscores the reality that Social Security doesn’t deliver much in return for 12.4% of income during one’s working years.
  3. Completely absent from all of the reports I’ve heard is a major driver of stagnating incomes for seniors. The Fed’s artificially low interest rates have all but destroyed returns on fixed income, leaving seniors with the a choice: Accept a guaranteed return below the inflation rate or invest in stocks and bonds, a risky option for anyone with a modest nest egg. Put another way, our government has robbed seniors of an opportunity to obtain a reasonable, safe, market rate of return for retirees with funds that supplement Social Security. This has been done to stimulate investment and keep the economy going, but its collateral damage has not gone unnoticed. Anyone interested in “helping seniors” should propose an end to the Fed’s near zero rate policy.

Social Security is in distress and its time we take radical steps to fix it, including privatization and opt-out options. Anyone who complains about the lack of a COLA this year should step back and look at the big picture. It’s only going to get worse.


China & Venezuela


I just returned from another trip to Asia. I always see some things firsthand when I’m there. I had two interesting encounters this time.

The first was at the national museum in Beijing. The modern history section tells the story from Mao to the present. The shift from Marxism to a mixed approach with some capitalism is officially presented as a natural evolution of socialism, not a departure from it. The term is they use frequently is market socialism, an oxymoron in a literal sense, but not from their perspective. As my Chinese colleague explained, socialism isn’t really about Marxism, but about income equality—nobody having more than anyone else. In other words, capitalism is fine as long as its abundance can be redistributed. In this sense, capitalism becomes the new socialism. This is a novel way of understanding the Chinese economy, but it also provides insight into the neo-socialists in the US. They are happy with capitalism to the extent that they can control most of its bounty through taxation, redistribution, and regulation.

The second encounter was with an engineer from Venezuela I met in the hotel lobby. I asked him how things were going there. He just shook is head and said, “It’s the government.” As he put it, “The government in Venezuela is just for the poor people, but it’s horrible for the professionals. They take everything the professionals and companies produce and give it to the poor, except for what they keep for themselves. Nobody who produces anything can make any money anymore. So many companies have shut down that there isn’t anything left to take from them. There’s no future.” I’ve covered the plight of Venezuela many times in my blog so there’s nothing new here, but it’s interesting to hear it firsthand from someone suffering through it.

Apparently Chavez and Maduro didn’t learn anything from the Chinese, who have figured out that some degree of free enterprise is necessary to generate the cash to finance government largesse. Of course, capitalism cannot coexist with income equality. Entrepreneurs take risks and work hard, and are only willing to do so if they get to keep what they earn. Income inequality comes with the territory. The Chinese, the Venezuelans, and the leftists in the US are all trying to figure out the same thing—how much wealth can confiscated before business leaders and other professionals quit producing.


Economics & China


I just returned from a trip to China. While there I spoke with students considering coming to the US to study, one of which asked me a great question: The economic systems of the US and China are different, so if I study economics in the US will what I learn be useful when I return to China?

I gave her a truthful answer: Economic principles are universal, economies are global, and there are similarities and differences between the US and Chinese economies. What you learn in the US would be very useful when you return to China.

But a complete answer is much more complex. Yes, there are economic differences between the two nations, but they aren’t as great as some think. Granted, the US and Chinese economies are officially “capitalist” and “communist,” the US has two centuries of economic growth China cannot match, and the US dollar—unlike the RMB—is openly traded and respected on world markets. These differences aside, the similarities are growing.

Both nations manipulate their currencies. The literal and figurative printing presses in Congress and the Fed have been expanding and inflating the money supply in the US. Central planners in China do pretty much the same, pegging the value of the RMB in part to the market value of the US dollar.

Politicians in both nations routinely call for economic growth while beating down the source of that growth, the private sector. The US and China are moving in different directions, but toward the same middle ground. The Chinese government just introduced a “reform package” for its state-owned enterprises (SOEs) that allows them to make more of their own decisions and offer better compensation packages to top executives, most of whom have left the SOEs for private firms. However, the government will retain tight control over capital and key strategic decisions will always be vetted by government officials.

Meanwhile, Washington has ramped up regulations for virtually every sector in the economy. From Obamacare to Dodd-Frank to “anti-trust” persecution of successful companies to calls for a national $15 minimum wage, the US government is implementing ever-expansive controls on US industry. Like Beijing, Washington attempts to find the “balance” between economic freedom that produces growth and jobs, and state control that legitimizes the political claim that business cannot be trusted. In this respect, both nations are off course. Of course, there’s no thing as a balance between liberty and statism. The US is moving in the wrong direction, away from a successful free enterprise tradition. The Chinese are moving in the right direction, but still want the control. Both the US and China could use a heavy does of Hayek.

There is one key distinction between the US and China—political freedom. Reform in China depends on the wisdom of the current socialist regime, but citizens in the US have the opportunity to replace its socialist political leadership by means of the voting booth. Statism is well grounded in the US; our government schools, a bloated social security system, and massive deficit spending connected to an entitlement mentality won’t change overnight, even with the right leadership. But we have the power to recall our representatives and begin moving in the right direction. Many of the candidates in the Republican presidential primary offer potential for doing just that.


Is Trump Correct on China?


Donald Trump is talking a lot about China. His central claim is that that the Chinese government continues to manipulate the value of its currency, keeping it low and enabling Chinese companies to export their products at lower costs than competitors in the US or other parts of the world. Is he correct?

When Trump made this claim as a presidential candidate several months ago, “fact checkers” rebuked him, citing economic reports that the Chinese currency (RMB) is now fairly valued relative to the US dollar. But the Chinese government pegs the value of the RMB in great part to that of the US dollar and reserves the right to inflate or deflate this value on a daily basis. If—as these economists claim—it is obvious that the RMB is not undervalued, and if the Chinese government is really committed to a market-based exchange rate, it would simply allow the value of the currency to float with the market. It’s like someone from the US Postal Service claiming that the private sector couldn’t deliver a letter for less than 49 cents. If so, then why maintain laws prohibiting the private sector from giving it a try?

There’s an interesting irony here. If the Trump critics were correct at the time when they claimed that the RMB was valued accurately, then the currency is now undervalued due to two significant devaluations made by the government during the Chinese market meltdown last week. I believe the Chinese currency is still undervalued but I am guessing. The truth is that we can’t know for sure without letting the market decide. The beauty of a market system is that prices will set automatically and will accurately reflect market value. An exchange rate is nothing more than a price for a currency. This debate would resolve itself if the Chinese government allows the RMB to trade freely on global markets.

So when it comes to currency valuation, Donald Trump is entirely correct. But he also refers to a need to “decouple” economically from the Chinese. Here I believe he is right again, but only to a point.

History, economics, and market logic tell us that free global trade benefits all partners. Artificially reducing trade between the US and China would have economic costs. If this is what Trump means by decoupling, then he’s incorrect.

But it is clear, however, that the US has mismanaged both its own economy and the US-Sino relationship. The Fed’s overbearing influence on interest rates and financial markets makes it difficult for US negotiators to argue with straight face that the Chinese government should leave its markets alone. US government subsidies also pick winners and losers, and our massive debt has given the Chinese an opportunity to invest heavily in the US dollar. US negotiators should have been clear about the currency manipulation issue years ago, but they bought the argument that a weak RMB was necessary and appropriate for Chinese development. In this respect, the relationship with China is skewed. We need to clean up our own house fiscally and then—from a position of strength—insist that the Chinese do likewise. To the extent that Trump is suggesting this type of reboot, he is correct.

For the record, I am not endorsing Donald Trump or any candidate for President at this point. Many of you know that I like Rand Paul a lot, but he has struggled to package his ideas effectively. Trump has clearly changed the rules of the game and I’m glad that he is running, however. His candor is a breath of fresh air, but there’s still a long way to go.


More of the Inevitable in Venezuela


It’s time to update the crisis in Venezuela. The mass printing of bolivars has led to predictable hyperinflation in recent months. It’s no surprise that President Maduro’s government hasn’t published any inflation or related data since December 2014, when the annual rate officially hit 68%.

But there are other ways to skin the proverbial cat. Venezuela-born and Miami-based financial analyst Miguel Octavio frequently travels to Caracas and always dines on a popular local favorite, arepas, at the same restaurant. The price he pays for arepas is always changing, providing key insight into general prices in the country. Since November, Octavio logged an increase from about 100 bolivars for an arepa with cheese in November 2014 to about 470 in July 2015, with the price more than doubling in the past 3 months. Because the trend is not stable, computing the current annual rate is an inexact science, but I’m estimating ~1000% based on the arepas. Conservative estimates are closer to 200%, which is no picnic. To put this into context, inflation is a problem in neighboring Uruguay and Brazil, but it’s only 8.5% and 9.6% in these countries respectively.

The economic calamity is widespread. Barclays analysts give a 98% probability to Venezuela’s default on its sovereign debt in the next 5 years. As a Bank of America economist put it, “People are literally getting rid of money faster than the government can print it.”

This type of hyperinflation is a broad result of Venezuela’s Marxist philosophy that demonizes and punishes free enterprise in favor of an arbitrary, inefficient central planning model. It is a direct result of the country’s decision to print more currency. We’re experiencing both of these evils in the US, although at a less tyrannical pace. While I don’t expect the US to go the way of Venezuela anytime soon, the trend is in the same direction. It might be a generation away, but massive debt, unfunded liabilities, and constant pressure on liberty and free enterprise—the engine of the economy—foretell trouble down the road.

For more on the situation in Venezuela, see


Democrat vs. Socialist


Chris Matthews recently asked DNC chair Debbie Wasserman Schultz to explain the difference between a Democrat and a Socialist. She wouldn’t answer. As we shall see, the reason why tells us a lot.

A Democrat is a member of a particular party, but a socialist can refer to either a party or an ideology. Dominant views in parties can and frequently do change, while ideologies are more consistent.

Democrats and Republicans are political parties. Their members tend to share common views on certain issues, but not always.

Socialism and capitalism are ideologies. Socialists favor government control of production because they believe government officials are more trustworthy and wiser than would-be business owners. Capitalists favor market control of production because they believe individuals can be trusted for the most part, and should have the right to control their own capital, labor, and purchase decisions. Besides, capitalism works.

Now back to Wallace’s question. Several decades ago, the answer would have been easy: Unlike socialists—who are statists—Democrats are neo-capitalists who also favor some government intervention in the economy. But this explanation is no longer true. Wasserman Schultz struggled with an answer because the Democrat party no longer emphasizes free enterprise. In fact, many Democrats are quasi-capitalists at best. How often do you hear prominent Democrats praise or even acknowledge free enterprise for anything positive? Most rail business and blame its leaders for every perceived social malady from income inequality to health care to unemployment.

But herein lies the rub. The President may be a strong leftist, but the current party includes large numbers of both traditional Democrats and modern socialists. If Wasserman Schultz embraces free enterprise in her definition of a Democrat, she will alienate the socialists. If she doesn’t, she distances herself from many blue collar Democrats and independents who see themselves as moderates. Democrats can’t win national elections without the support of this latter group.

Of course, Republicans have a similar problem. Many Republicans are not capitalists, but instead favor a blend of free enterprise, socialism, and cronyism. Today, libertarians and constitutionalists occupy the political space largely abandoned by the Republican party. They often vote Republican by default, if they vote at all.

Frankly, Chris Matthews asked a superb question, and the same should be posed to every prominent Democrat. To be fair, Republican candidates should be asked to clarify the difference between a Republican and a capitalist, constitutionalist or libertarian. Those who claim the values of liberty, rule by Constitution, and free markets should be asked what they specifically plan to do (if elected) to vigorously promote these ideals. Any answer that doesn’t include a repeal of Obamacare, a complete overhaul of the tax code, and a significant rollback of the welfare state is coming from an imposter.


Rand Paul’s fat tax


Senator and presidential candidate Rand Paul launched a flat tax proposal last month. It’s received a lot of criticism from all sides. Some has been warranted, but much of it is really designed to mask a deeper problem.

Paul proposed a single 14.5% income tax rate with no tax on the first $50,000 of income for a family of four, and deductions for mortgage interest and charitable contributions. The plan also eliminates the worker share of payroll taxes, gift and estate taxes, and all tariffs and duties. Capital gains would also be taxed at the 14.5% rate.

The left doesn’t like Paul because he has a way of encroaching on some of their constituencies. A July 10 op ed piece in the New York Times exemplifies the liberal opposition to the plan. It’s flawed because (1) it retains two popular deductions, (2) it would reduce government revenue, and (3) it helps the rich at the expense of everyone else. If these are really legitimate problems, then the NYT could address these concerns by countering with a proposal that (1) eliminates all deductions, (2) contains a higher rate that increases revenues, and (3) excludes more income. They didn’t because they don’t like the idea of a flat tax anyway. The arguments they made are but a smokescreen.

The NYT piece makes an interesting claim:“ Arguments about the proper role of government aside, a population and an economy that are growing in size and complexity cannot thrive with a shrinking government.” In other words, an economy can only grow when government grows. This statement is patently false and exposes their bias.

In fairness, a critical analysis of Rand’s proposal is in order. The $50,000 exemption and the 14.5% rate are arbitrary. Arguing to raise or lower them requires in-depth analysis of economic data, so I’ll set this issue aside. Suffice to say that government revenues would likely decline as a result, but Paul’s answer would simply be to spend less anyway.

An ideal tax system would contain no deductions, but the two retained in the proposal are logical. The mortgage tax deduction should be eliminated over time because it requires a higher tax rate to finance, and it distorts the housing market. Abolishing it (all at once) could have negative repercussions because individuals have become accustomed to the current system. I would prefer phasing it out over 4-6 years, adjusting tax rates down with each cut in the deductible amount. Nonetheless, one could argue that keeping it retains stability in the housing market. It’s also a political decision.

The charitable deduction is entirely logical. If charities don’t have to pay income taxes, then individuals should be able to assign a portion of their income to charities and avoid the taxes as well. I prefer a fair tax (i.e., sales tax) to a flat tax in part because it eliminates the entire question of charitable deductions. However, retaining this deduction makes perfect sense if you’re going to have an income tax.

Does Paul’s proposal “hurt” the poor? This is really a complex question. Eliminating the worker portion of social security would help low wage earners because this tax is paid on the first dollar of income. Not taxing the first $50,000 of income should be fair enough, but there are so many giveaways embedded in the tax code that this might actually hurt some low-income filers. If so, it only tells us how far we drifted into a tax code that’s entirely a game of redistribution and social engineering.

In the end, I’d propose a fair tax, or a slightly different flat tax. That having been said, no proposal like this has any chance of getting through Congress without changes anyway, so knit picking the details at this point is an exercise in futility. Consider the big picture. Paul’s plan would be a substantial improvement over the status quo. It would cut the influence of special interests, and save billions in compliance costs. Anyone who opposes it should provide an alternative.


The Greek Crisis


The size and scope of government has ballooned in Greece. Ordinarily this type of problem would be confined to a single nation, but not when there is a common currency. The problems of Greece affect the entire continent, particularly those in the EU. And what affects the Europe affects the entire world.

Investors fear government default, prompting the rest of to negotiate a bailout. The International Monetary Fund (IMF) is a key bailout vehicle, ultimately transferring a chunk of the European risk to U.S. taxpayers. We have been told that a bailout is in our best interest, lest this crisis reap havoc on the global economy. This might be true in the short run—as it was the last time Greece was bailed out—but the problem only gets bigger when you kick the can down the road.

The EU nations are demanding sacrifices from Greece in return for some debt relief, but the Greeks are balking and may actually hold some bargaining chips in this game of chicken. The negative ripple effect of a default would hurt the rest of the EU, so there are strong incentives for a deal favorable to the Greeks. The country is run by leftist Alexis Tsipras who, bolstered by a 61% vote against the latest proposal, continues to call for a more “sustainable” solution. That means a larger bailout.

You might remember the ~2011 Greek bailout. Austerity measures then included a government hiring freeze, giving more flexibility to private companies with regard to layoffs, and extending the retirement age beyond 61. The imposed budget was supposed to balance by 2014. It didn’t, and Greece defaulted on a €1.6 billion debt repayment last week. Greece owes the European Central Bank €3.5 billion on July 20, with another large payment due in August. Greece’s current debt level is 175% of GDP, compared to about 100% in the US.

This is unchartered economic waters, but it is doubtful that Greece will depart the EU. Tsipras was quick to note that a no vote on the bailout/austerity plan was not a no vote to leave the Eurozone. Clearly, Tsipras wants the benefits associated with being a weaker member of the EU collective without paying all of the dues. Of course, austerity will come to Greece anyway, either by means of a negotiated agreement or through the market’s invisible hand.

Could this happen in the US? Not exactly or at least not now, primarily because the US economy arguably remains the strongest in the world and the dollar is a preferred global currency. With a massive national debt, trillions in unfunded mandates, and seemingly no political will to change, financial crisis of some magnitude is in our future.

But there’s another lesson here. A common currency is a horrible idea because it fosters “moral hazard,” a situation when one party in a contract can benefit at someone else’s expense. When each nation has its own currency, the strength or weakness of the currency depends on government and economic factors within the nation. Exchange rates fluctuate and punish those that are fiscally irresponsible. But when nations share a currency, their politicians have an incentive to game the system to their own advantage. Of course, member nations “agree” to follow certain guidelines designed to eliminate the moral hazard, but these are not airtight, as evidenced by the Greek fiasco. When Europe’s central planners originally promoted the Euro, they set the stage for the current crisis. It was only a matter of time.

Unfortunately we are experiencing the same type of problem in the U.S. States that overspend turn to the federal government for help, which—directly or indirectly—must come from other states that are more fiscally responsible. Liberals are happy to oblige, thereby creating greater dependency on Washington and ensuring more irresponsibility in the future. Of course, the root of this problem can be traced to Washington’s ability to churn out more dollars through Fed and Congressional recklessness.

Whether it’s Greece or Detroit, governments should be held accountable for their actions and must make the tough decisions necessary to balance their own books. Bailouts simply breed more destructive behavior. The antidote for moral hazard is personal responsibility.

The EU was all about “strength in numbers,” but this can easily turn into “the producers carrying the non-producers” when the irresponsible learn to game the system or refuse to make tough choices. The EU is not obligated to bail out Greece, but the collective system they have created allows financial poison from one country to spread more easily to its neighbors. This creates incentives for Germany, France, and others to support bailout efforts, as well as for less prosperous members to engage in risky growth and development schemes because they won’t be held fully accountable for their actions.

Thanks to the European Union, Greece’s financial catastrophe is a collective problem. Because of the common currency, neighboring countries can’t afford to let Greece (or any other country in the EU) implode, so a bailout is required. A common currency formally links one country’s economic destiny to that of others in the group. Collective oversight—de facto one-world government—is always part of the arrangement, and the strong and responsible will always end up paying for the weak and irresponsible. This is why we should never give serious consideration to a North American currency, much less a global one.

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