Dear Friends,
It seems to me, the European Union and all the countries within it, are in an economic death spiral, and unless they break out of it, there will be a generational depression to pay for it. If you think this is hyperbole, then recall the Greek, Spanish and Italian economic catastrophes. Add to them the Cypriot banking seizure of customer’s assets to pay bank’s liabilities. Take into consideration the negative economic growth in Europe, the festering religious animosity that is rapidly becoming sepsis, the growing welfare state, and the budget deficits that follow, and there is only one conclusion that can logically be reached… Europe is headed for a historic crash… drawing the World with it.
At this point the elite in Europe have only one belief, socialism, in whatever flavor that nation favors. From the two main schisms, the Mediterranean model with one breadwinner and the Scandinavian model where it’s, everyone in… welfare states. There are sub sects of this, Britain’s Labor government is one example of a socialist convention, that fit’s neither the Mediterranean nor the Scandinavian models. Within these governments there are a small sub faction of laissez faire capitalists but they are overwhelmed by the vast majority of socialist factions. Most people in Europe believe in the hands on state, instead of the hands off state.
They all have only one plan of growth, Keynesian, this same plan has failed so spectacularly every time it has been tried, it should be called the Edsel plan. The group think we see in the media, political elites and the academic elites on this subject is remarkable. I am certain that many papers will be written on this phenomenon, in the years to come, but today we have to deal with it. The group’s answer is always to print more and spend more… cut tomorrow. Printing and spending has achieved many notable economic milestones… none of them good. Hyper inflation, stagnant economies, high unemployment, more oppressive government, the list goes on and on. What the Keynesians forget is that not all spending is equal.
What is needed to improve economic outlooks in any nation is, a total overhaul of the regulatory, taxation and standardization schemes, (Japan should take heed by the way). In the last part, standardization, Europe is way ahead of it’s rivals. Unfortunately in the areas of taxation, and regulation Europe is strangling itself. If, for example, Budgets must be balanced and could not be in deficit for more then three years in a row and that the debt must be paid back within three years, taxes could be lowered. If that were done, taxes could be simplified to a Europe wide percent sales tax system, (or value added system), each country collecting it’s own taxes, and then paying a portion to the European Union… taxation would become less a barrier to business. If regulation were simplified and overhauled, regulated sick time, vacations, hiring and firing rules, etc, the friction these laws impose on doing business would be lifted. Lastly, if the welfare laws were limited, more people, who are perfectly able to work, would move into the workforce, generating even more extrinsic economic growth and cutting the need for high budgets.
The death spiral can be escaped but it will not be easy. Today, the group think way to lower the huge debt burden the welfare state has imposed on Europe, is by “austerity.” Which is, cutting spending and raising taxes. Cutting spending is what they need to do, raising taxes will inevitably undo any good the lowering of spending accomplishes. Moreover, it makes the public believe that taxes will be higher in the future, (Because they will be), and the people will react accordingly, to protect their assets instead of spending or investing them. Cut spending, simplify and cut taxes, simplify regulation and move immigrants from welfare to work. To accomplish these goals, commissions could be set up to pour over every line of regulation on the books in Europe, then, every month submit a suggestion paper of those that should be removed, to the various parliaments. In America, when we make ad hoc committees for this type of thing, we call them blue ribbon panels, this one should be a permanent fixture in every government. Maybe in Europe you can call them red tape panels. Nevertheless Europe has a great deal of work to do to become more of a Meritocracy. Let’s pray and hope they get started, before it’s too late.
Sincerely,
John Pepin
