Learning from Europe’s Credit Problems

by | September 10, 2011

At first the problems in Europe looked like they would be confined to Greece, which was a basket case both politically and economically. Now it looks like the contagion is spreading. Initially to Ireland and Portugal. And then, possibly, to Italy and Spain. France may also be susceptible.

What’s the problem and what does this have to do with democracy? As we have argued in other posts, the way democracies currently operate encourages profligacy and incompetence in government. This is not a political problem; ie. the problem occurs both in very capitalist/conservative countries (eg. the United States) and relatively socialist/liberal countries (eg. Greece). Take a look at Greece. The country took a path of unsustainable employment in the public sector: poor work ethic, jobs for life, very early retirement with a nice pension. While the Greek government allowed this bloating to occur, no one considered the end game (bankruptcy). And the electorate, being composed of average people, assumed that the government knew what they were doing. Of course, now, they know they did not.

So what is the solution? One possibility we have suggested before is that politicians must take and pass courses related to good governance and economics. However, because the politicians are still under pressure from the electorate, they may choose to ignore this wisdom. It is the view of the forum administrators that the best ways to protect the electorate are to
restrict the voting privileges of those who benefit from government spending (ie. civil servants, welfare recipients; see also the article entitled Who should be able to vote?),
have a constitutional restriction on spending, probably the best of which is a balanced budget requirement (capital projects can be auctioned off and paid for over time as normal expenditures),
use guaranteed price contracts for government projects. (This can be done by limiting government staffing to high level managers who monitor projects. The bulk of the work would be outsourced to private contractors on a guaranteed fixed price contract. It may initially appear a little more expensive but there is no risk to the government because the contractor shoulders the risk. Governments have proven time and time again that they are horrible managers, unable to stick to a schedule or budget. Think of fixed price outsourcing like an insurance premium.)

Interesting ideas? Bad ideas? Let’s hear from our members!

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