Monday, May 14, 2012

europe's voters say NO to economic reality

whiskeyandgunpowder | “Europe fights back against austerity” was how The Daily Telegraph headlined its weekend election coverage. “Anti-austerity movements are gathering pace across Europe following political earthquakes in France and Greece. A total of 12 European governments have now been dismissed in three years.”


As the European welfare state is officially in its death-throes none of us should be surprised if political strife gets cranked up to eleven. I firmly expect that we will see much more of this in the future. While I can understand the anger of the electorate and sympathize with the sense of desperation and foreboding, I cannot, however, consider the electoral choices of the weekend particularly enlightened. They do not reflect a coherent, let alone intelligent strategy as the Daily Telegraph headline seems to imply.

If those who ‘won’ the election deliver on their promises, economic disintegration will only accelerate. What is being offered in terms of ‘solutions’ is a dangerous assortment of economic poisons, more suitable to describe the European disease than provide a recipe for stronger growth.

Recovery through early retirement and infrastructure spending? – C’mon. Nobody can take that seriously.

But it seems that just because this heap of economic stupidity can neatly be swept under the wide tent of ‘anti-austerity’, the commentariat seems somehow willing to believe in the wisdom of the crowds and look for some deeper insights here.

I guess the reason for this is that the economic ideologies that are now being strenuously interpreted into the election results rhyme with the economic prejudices of most commentators. They, too, believe that state bankruptcy is best to be ignored or not to be taken too seriously so that we can spend our way out of this mess.

For a long time media pundits have treated us to the perceived wisdom that economic growth can only come from the actions of the government. Only devaluation through euro-exit, inflation through more money printing and more government deficit-spending, preferably by the still credit-worthy Germans and then fiscally-transferred to the maxed-out Greeks, can revive the economy because only this can lift aggregate demand, which is the magic cure-all of economic problems.

What is lost on these commentators is that the European mess is nothing but the inevitable result of government-stipulated aggregate demand. Easy money funded the Spanish and Irish real estate booms and bankrupted their banks and by extension their governments. Easy money allowed Greece’s political class to go on a borrowing binge that has now bankrupted the country and lured large parts of the population into zero-productivity, soon-to-be-eliminated public sector jobs.

Do you still want the state to ‘stimulate’ the economy? Be careful what you wish for.