Stagnant Europe Entering 2015

Welcome back to The Liberty Bullhorn – the starting point of economic freedom on the internet!

While this year is promising for many, especially Americans who have a steadily improving job market to search for new opportunities, the outlook on the new year is hardly better in Europe today than it was a year ago. As far as Europe is concerned, 2014 went down in history as the year of squandered hopes for a recovery. I have lost track of all the forecasts that predicted “the” recovery take-off during last year, though it would be valuable for future reference to collect all the “squandered hopes” forecasts. There is a lot to be learned from the serial failures of econometrics-based forecasting during 2014.

The reason why Europe is nowhere near a recovery is that its political leadership is doing absolutely nothing to address the fundamental structural problem of their economy. The welfare state is still in place and its austerity policies have been driven by an urge to save the welfare state – make it slimmer and more affordable – so that it can fit inside a smaller economy with high unemployment and weak tax revenues. But it is precisely these efforts that have escalated the current crisis to a level where – as I explain in my book – it has now become a permanent state of economic affairs.

So long as Europe’s leaders refuse to acknowledge the nature of the economic crisis, they will continue to inject the patient with the medicine that perpetuates the illness.

There are some lights in the tunnel, for sure. The Greek economy has, of late, shown signs of transitioning from an almost unreal ratcheting down into an economic depression to a state that is at least a little bit promising. Its vital macroeconomic signs indicate stagnation rather than decline, which is hardly something to write home about, but good news for people who on average have lost 25 percent of their income, their jobs, and their standard of living since the beginning of the Great Recession.

Sadly, just as the Greeks were being given an opportunity to catch their breath, their elected officials went ahead and caused an early parliamentary election to be held in late January. If current opinion polls are correct, the next prime minister will be Mr. Tsirpas of the Syriza party – a radical socialist group that considers deceased Venezuelan president Hugo Chavez and his authoritarian government a good role model.

Greece does not need an economic model that has caused high unemployment, eradicated property rights and brought about 63 percent inflation. Greece needs major free-market reforms, thoughtfully executed and coupled with growth-generating tax cuts.

But Greece is not the only EU member state that is struggling. France is going nowhere, and going there fast. The socialists in charge in Paris stick to their tax-to-the-max policies, which is part of the reason why the country is going into 2015 with record-high unemployment. Economic forecasters, perhaps burned by last year’s irresponsibly positive predictions, now expect a 0.4-percent increase in real GDP for 2015. That is much more realistic.

Overall, when predicting Europe’s future, one should not ask “when is the economy going to recover?” but “what reasons do the European economy have to start growing again?”.

Again, there is not much positive to look forward to for our European friends. However, it is better to talk about things the way they are, and then find a solution to the problems thus identified, than to pretend that everything is really not what it really is.

Europe has a lot of potential. It could join us here in America and restore prosperity, hope and opportunity for the entire industrialized world. If Europe chooses to do so, we have a future to look forward to that is almost unimaginably positive.

If, on the other hand, Europe’s political leaders stick to their statist guns, their continent will continue on its current path to becoming the next Latin America. It will no longer be even close to comparison with the United States, whose economy will continue its ho-hum economic recovery through 2015 and 2016. Beyond that, it depends entirely on who is elected president next year. If it is a Republican friendly to Capitalism, like Rand Paul or Mitt Romney, we will know for certain that there will be good, growth-promoting tax and spending reforms. A more mainstream-oriented Jeb Bush or Chris Christie would also be good, but not only second-tier good.

Even a fiscally conservative Democrat would be preferable to the kind of leadership they have in Europe.

Hopefully, there can be some libertarian-inspired change for the better in Britain thanks to the seemingly unstoppable UKIP. Maybe – just maybe – that could inspire a surge of support for libertarian ideas elsewhere in Europe.

4 comments

  1. Michael

    If only life would be that simple… Yes, Americans “have a steadily improving job market to search for new opportunities”. Sadly, it consists mostly of badly paid part-time jobs, with irregular hours and no long-term perspective. Unfortunately, it is a long-standing issue – Americans work longer and longer hours at inconvenient times (nights and weekends). Sure, many Europeans are facing similar difficulties. But it goes to show that just comparing official unemployment figures is not enough to draw conclusions, especially such far-reaching ones.

    http://www.njfac.org/jobnews.html
    http://money.cnn.com/2014/11/20/news/economy/america-part-time-jobs-poverty/
    http://pure.rhul.ac.uk/portal/files/23268363/LongHoursStrangeHours.pdf

    • S R Larson

      It does not matter which way you twist, tweak and turn this. The U.S. economy is producing more opportunities for people than the European economy is. As for your links:

      http://www.njfac.org/jobnews.html
      In other words, the unemployment rate among African Americans is the same as it is for Europeans in general.

      http://money.cnn.com/2014/11/20/news/economy/america-part-time-jobs-poverty/
      Seven million people work low-paying jobs that keeps them in poverty… and? The definition of poverty is what keeps them in poverty. But more importantly, you have not provided any comparison with European numbers. Besides, 7 million is five percent of the total number of working Americans. Not much to yell about. Furthermore, most of those jobs serve as entry positions for high schoolers and young people gaining their first job market experience, which they can build on to move up. Europeans are much less inclined to move up from low-paying jobs.

      http://pure.rhul.ac.uk/portal/files/23268363/LongHoursStrangeHours.pdf
      Adds nothing of substance. See points above.

      Here are some employment numbers you might want to consider:

      a) From 2010 to 2014 (November) the American economy has added 11 million jobs, from 130 million to 141 million;
      b) From 2010 to 2014 (second quarter) the European economy has added 800 000 jobs, from 217.9 million to 218.7 million.

      That is an 8.5-percent increase compared to 0.37-percent increase.

      Who is going to pay all the taxes needed to feed all your unemployed and all your entitlement consumers?

      • Michael

        I think my point was that you have not provided a thorough comparison, and did not take into account major factors, like millions of part-time workers in USA receiving no benefits or healthcare (compared to the European part-timers). Those part-timers are not highschool kids, they are (as stated in the articles I referred to) grown-ups with experience who’d rather have a ‘proper’ job. I was not trying to show you wrong, just demonstrate that its not all that simple.

        And arguing that it is the definition of poverty that keeps people poor – well, that sounds like you’re doing the twisting and the turning.

        Also, If you do quote figures, could you provide a source to those as well?

        But I think the argument you are making is a rather religious one. I do not have the idea that you are prepared to question your point of view or seriously try and understand mine. I have the feeling that you have your mind set and will not be bothered by other possibilities. It seems to me it is a matter of faith to you, so I’ll leave you to it since further discussion is in my opinion pointless under such terms.

  2. S R Larson

    Again, you are running away from the question I asked you. But before we get to that, let me point out that every poor and low-income person in this country has the right to health care through Medicaid. Usually, all they have to pay out of pocket is two dollars, or in some extreme cases $3.25. Most people on Medicaid simply refuse to pay that minimal copay and receive health care anyway. They frequent the ERs, free of charge, for minor issues like a sore throat, something that would be unthinkable in, for example, the Scandinavian countries. They have practically no waiting lists to worry about, etc. Check the facts before you comment again.

    And now back to my question: who is going to pay the taxes for your welfare state? Given the massive wave of deficits, despite the high taxes you pay in Europe, it is clear that you are consuming far more of government entitlements than the economy can afford. The over-consumption of tax-paid entitlements is now so bad in Europe that the very future of the common currency is in peril.

    What is your solution to that? Higher taxes? More entitlements?? You can marinate yourself in goodness and comfy government handouts all day long – at the end of the day the bill must be paid, a fact that still has not dawned on you liberals in Europe. You are now seven years into economic stagnation.

    What are you going to do the day the welfare state can’t support you anymore?