Thomas Piketty , a renowned economist from France who posted an op-ed in the New York Times titled “A New Deal for Europe”. While Piketty’s topic is important, his conclusions are misplaced. His logic shows just how unapologetic Progressives are for the problems their policies have inflicted on the world.
Piketty expresses concern for the growth of the far Right in Europe. This Blog has been concerned for some time with the potential for fascism to once again rear its head in Europe. This concern stems from Europe’s unsustainable economic path that has led to the large sections of its population being negatively impacted, creating a breeding ground for discontent. This path started long before the meltdown of 2008 that Piketty refers to. Its roots stem from the Left’s Progressive policies that have dominated European politics for decades.
Piketty blames mismanagement by European governments for not only poorly creating the EU, but also managing their economic policies. While true, the EU’s creation was so poorly done that it guaranteed the current result, as economist Milton Friedman predicted in 1997:
“The drive for the Euro has been motivated by politics not economics. The aim has been to link Germany and France so closely as to make a future European war impossible, and to set the stage for a federal United States of Europe. I believe that adoption of the Euro would have the opposite effect. It would exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues.”
Piketty concludes that Europe’s challenges can best be addressed by governments now doing the “right thing.” Expecting the same group that created the current mess to do a better job this time is incredulous.
Piketty states: “Only a genuine social and democratic refounding of the eurozone, designed to encourage growth and employment, arrayed around a small core of countries willing to lead by example and develop their own new political institutions, will be sufficient to counter the hateful nationalistic impulses that now threaten all Europe.” He also says: “The objective would be to reduce public debt as a whole, starting with a system of allocation of payments based on the increases in debt that have occurred since the crisis began.”
Nicely said, but politically and economically unrealistic. Europe’s political, social and welfare programs make this kind of reform impossible. Reducing government debt will cause pain to much of society. Piketty ignores this, much like some of the BS we hear from Republicans in this country who believe that we can grow ourselves out of the excessive debt.
Piketty also concludes: “Such a process demands a new form of democratic governance, one that can assure that such disasters are not allowed to recur.” Economic realities are disconnected from a “form of democratic governance”. The laws of supply and demand will prevail in the long run, irrespective of interventions. While Piketty acknowledges that governmental interventions caused the problems in the first place, he then suggests that further interventions in infrastructure, universities social welfare, etc. are the appropriate response now. Again, why should we expect these next interventions to work better than the last ones?
Irrespective of one’s belief as to the appropriateness of governmental spending on any particular project; military, green energy, social programs, etc., from a macro economic standpoint the issue is straightforward. Governments; i.e. the people, can only borrow so much from the future to pay for today’s lifestyles. We have hit the economic wall with additional borrowing and deficit spending becoming a drag on growth, not simulative, as suggested under Keynesian economic theory.
Excess debt is the basis of our current macro-economic problems. Central banks worldwide have likely come to this same conclusion, which is why some in Europe and Japan, and likely to come to the United States, are going to negative interest rates. Given the ineffectiveness of historically low interest rates in the past eight years, central bankers understand that pushing the rates still lower will unlikely to lead to economic growth. Irrespective of this they are taking this radical step in an attempt to debase fiat currencies, which will lead to a crisis that would enable governments to create a new currency (currencies) that will result in writing off the debt that is unrepayable. While not a pretty solution, this method for sovereign debt abandonment does not require political will or approval.
The European Union as created will likely not survive. It has only been held together this long because member countries fear the results of undoing the union. The Europeans may continue to use Band-Aids to hold off the inevitable, but they do not have the political will or courage to take the steps necessary to make the EU viable. This will have serious consequences. The blame rests solely on those Progressive politicians who created an entity based on desires, rather than economic and political realities. Still they have the gall to suggest that the same approach going forward will work better this time.