NATO
The tweeter-in-chief is about to jet off to the NATO summit. My prediction is that he will say or tweet something unpleasant. It doesn’t take a genius to make that prediction. I also predict that the great and good will engage in a lot of tut-tutting in response. I believe the tutting will be misplaced. We would be better off focusing on the substance of Trump’s pronouncements and policies, as opposed to obsessing about his obnoxious personality.
We left troops in West Germany in 1946 to discourage the Russians from invading the part of Europe that they had not already colonized. We left troops in South Korea in 1953 to discourage the DPRK from marching south. In both cases, the objective was mostly achieved. In Korea’s case, they kept their end of the deal. They have a robust and combat ready military, and they offset a significant portion of our cost of maintaining troops in their country. With Europe, not so much. They are, in fact, free riders. Obnoxious Donald is 100% justified in his tantrum on the subject. Bush 43 and Obama politely requested a change. Nothing happened. Trump’s rant has actually produced a little movement.
The members of NATO all signed an agreement pledging to spend 2% of GDP or more on defense. Four of them, including the U.S., comply. Two are close. Twenty three aren’t close. We spend 3.5% of GDP on the military, a significant portion of which is related to the defense of Europe. You might think that the threat of Russian aggression would be taken a bit more seriously by the Europeans, given the invasions of Georgia and Ukraine. Instead, they allow themselves to be hostages to Russian natural gas shipments and unilaterally disarm. Why?
My answer to that question is that the Welfare State has swallowed all other spending priorities. European socialism has promised cradle-to-grave care of its citizens, including 4 week vacations and early retirement. As the birth rate falls and life expectancy rises, the numbers cease to work. European states already command a major portion of their economies. The leader of the band is France, whose government occupies 56% of the above ground economy. Others are not far behind. Further expanding the public sector threatens to kill the goose that lays the tax eggs. The EU criteria for fiscal management is that budget deficits should be limited to 3% of GDP and aggregate debt to 60%. Most members are out of compliance, some disastrously so. Some were out of compliance when they entered the Union. No boot is large enough to successfully step on the Greek numbers at the time of their entry.
The obvious solution to the shortfall is to raise taxes. The problem with that solution is that evasion ramps up faster than collections at some level of taxation. My theory, which can never be properly validated, because evaders won’t provide data, is that serious evasion kicks in when rates exceed 33% of gross income. I also theorize that the level of evasion goes up in a curve steeper than tax rate increases. Above 50%, evasion is endemic. My current data point is that cash can will get you a 50% discount on a lot of merchandise in Europe. Politics is all about resource allocation, and the decision tree has gotten ugly.
Europe has sacrificed military readiness for social welfare. That is their choice. However, as our obnoxious president rightly points out, we are under no obligation to pay for that decision.
