A Case of Poetic Justice

For the good part of last two years, I and other defenders of the free market capitalism had to endure the left, both in this country and in Europe, telling the rest of us how the financial crisis of 2008 signalled the futility of the free market system. German lawmaker Martin Schulz, chairman of the Socialists in the EU assembly, said “This crisis underlines the excesses and uncertainties of a casino capitalism that has only one logic -- lining your pocket. It also shows the bankruptcy of 'law of the jungle' capitalism that no longer invests in companies and job creation, but instead makes money out of money in a totally uncontrolled way.” The French leader reiterated his earlier attacks on American capitalism as well. "We cannot continue along the same lines because the same problems will trigger the same disasters," said Mr Sarkozy. "This is no longer acceptable. This is no longer possible. This sort of capitalism is a betrayal of the sort of capitalism we believe in." They were joined in similar attacks by politicians from Austria to Spain, while the American left (and the pretenders on the right) made the most of the crisis to their political benefit.


Flash forward two years, and now the shoe seems to be on the other foot. Despite their recent condemnations of the free market system, the EU is singing a different tune these days. The one trillion dollar rescue package (which the U.S. tax payer will partially shoulder) to stabilize the PIIGS (Portugal, Ireland, Italy, Greece, Spain) has been a great source of anxiety. The European markets, and the Euro as its principal currency, have been jittery and in decline for an excellent reason: the very survival of the EU as an intact entity is being questioned in the markets all across the globe - will France and Germany, the two relatively healthier members of the union, be able to prevent a domino effect, or will the one trillion dollar anchor around their neck prove to be the eventual demise of the 27 nation club. The culprit, this time around, is not a temporary financial crisis (which was in good part the doing of the government - most important factor being the "recourse rule" instituted in 2001) as in 2008 being passed as the deficiencies of the free market capitalist system. No, this time around what stares Europe in the face is the undeniable and inescapable permanent effects of European style socialist capitalism. The time to pay the piper has finally come and the economically weakest members of the union have started to crumble under the weight of their sovereign debt.


The Euro debt crisis is educational in multiple levels. Greece, the most immediate concern, was told in no uncertain terms by the IMF and the European Central Bank that they will need to agree on an austerity program as well as a higher 23% VAT. Among the considerations Greece was asked to undertake were the privatization of their public healthcare, energy, and transportation sectors. The Times reports that economists — not right-wingers opposed to health care who want to blow up Times Square — say liberalizing "the health care industry would help bring down prices which are among the highest in Europe." Is this not a tacit admission by the same socialists that state involvement in crucial sectors is a cost killer?


As Dan Henninger points out in the Wall Street Journal today, the state of Europe can be summed up in one word: stagnation. Jean-Claude Trichet, the European Central Bank president who just agreed to monetize the debt that Europeans can't or won't pay, noted in a 2006 speech that "over the period from 1996 to 2005, euro area output grew on average 1.3 percentage points less than in the U.S., and the gap appears to be persistent." Angus Maddison, the eminent European historian of world economic development who died days before Europe's debt crisis, wrote in 2001: "The most disturbing aspect of West European performance since 1973 has been the staggering rise in unemployment. In 1994-8 the average level was nearly 11% of the labor force. This is higher than the depressed years of the 1930s." Stagnation isn't death but rather a purgatory which is very difficult to get out of. Economies don't usually die. Greece proves that. They slow down. Europe's low growth rates allow its populations to pretend that real, productive work is being done somewhere by someone. But new jobs are created slowly, if at all. Younger workers lose hope. Those who need more evidence of this purgatory's near inescapableness by employing Keynesian economic policies can ask the Japanese about their ever continuing 20+ year experience with it despite the staggering level of government involvement in their static economy (which got them little other than an unparalleled 200% debt to GDP ratio).


Chris Whalen of Institutional Risk Analytics also emphasized the point today in Tech Ticker that the investors worldwide are nervously wondering how badly Europe's sovereign debt crisis is affecting the banking system -- both over there and here at home. "In some ways European banks are worse than ours. They're certainly less transparent. It's a strange time. And I think it talks to the basic lack of competitiveness, the lack of productivity really, in Europe." In the last sentence, of course, he was referring to the underlying problem of persistent economic woes.


Regardless of what end of the spectrum one may be at - whether one believes that the sovereign debt crisis will be at least temporarily overcome, or questions the viability of the EU and/or the Euro like Paul Volcker, - we must accept the inescapable logical conclusions EU is teaching us. Social democracies of the world, without exception, are failures. More specifically, socialism cannot co-exist with free market capitalism as it by nature must drain resources from the producers of any society (a very simple and logical fact that liberals cannot see despite a world of evidence). The one trillion dollars that the productive citizens and job creators of Europe, Asia, and the U.S. will not have to grow economies is neither the first, nor will it likely be the last waste of money. However, in a sick way, it still feels good to see the shoe on the other foot so soon after free market capitalism - the only economic system that has been proven to work successfully - was brutalized by the liberal elites of Europe.


Lest we forget the pearls of wisdom uttered by Margaret Thatcher: "The problem with socialism is that sooner or later, you run out of others' money"