Tag Archives: European economy

WHITHER EUROPE? PAIN TODAY OR GREATER PAIN TOMORROW

You can’t cure an alcoholic.  It is something an alcoholic has to do himself.  First he must recognize the problem; then he must be willing to endure the cure.  Europe isn’t there yet on either count.

France has just chosen to go full bore Socialist, riots continue in Greece as the Neo-Nazis gain political favor and German voters are prepped to depose Angela Merkel.  The nanny states with their unsustainable level of benefits are running out of money and the children are shouting like bloody murder for the continuation of their luxury.  Reality is unacceptable so they are voting for promises.  Apparently the pain has to get worse before Europe will be willing to suffer through the cure.

Some argue that the way out is to spend more to rev up the engine of government income which, of course, is greater tax revenue.  The argument to spend more is based on the assumption that the problem is an economic recession.  That’s understandable but this time it’s a false premise.  The problem is not just another recession.  The European private sector is not robust but it’s healthy.  It’s only sovereign nations that are bankrupt.  The wealth of a nation is derived from two sources, private assets and income that can be taxed and to a much lesser extent its mineral rights.  Taken together the wealth is large but government’s capacity to spend is even larger.  When nations face insolvency during a more or less normal economic sector down cycle, the problem is overspending, not the economy.

EUROPE’S PROBLEM IS SO SIMPLE

Has anyone noticed that the problem in Europe is with governments, not the private sector?  Has anyone pointed this out?  Not that I have seen.  Economies are weak but not in recession, certainly not in depression.  It’s nations that are in virtual bankruptcy, not industry.

Bad planning, embezzlement, inefficiency, and over spending at a corporation will put the company out of business.  It creates a hardship, but only for the people who worked there and only until they find another job.  The process eliminates a poorly acting member of the economy and acts as a discipline and incentive for other members of the private sector to do better.  But when bad planning, corruption, inefficiency and over spending occur in a government, the government doesn’t go out of business, it increases taxes to pay for continuation of the same destructive pattern.  There is very little discipline to curb over spending in a democracy because the people vote for the candidate that promises the most and delivers the most of those very things that are the cause of the insolvency.

The problem is simple, too much government spending.  The solution is also simple; it’s just not palatable.  Churchill said it well with his inimitable wit, “Democracy is the worst form of government,…except all others”.