Stiglitz Says Europe Made Wrong Bet With Austerity ... Nobel Prize-winning economist Joseph Stiglitz (left) said, "The belief that markets will get new confidence has been shown wrong" by Ireland's austerity drive. European governments made a "wrong bet" by pushing for austerity after the global recession, resulting in slower economic growth for the region and the U.S., Nobel Prize-winning economist Joseph Stiglitz said ... in Budapest. If Germany, the U.K. and France remain committed to budget cutting, "that will have systemic consequences for the entire Europe." Europe's economy is at risk of sliding back into recession as governments reduce spending to rein in budget deficits, Stiglitz, a former chief economist at the World Bank and now a professor of economics at Columbia University in New York, said in an interview with Dublin-based RTE Radio on Aug. 24. "A weaker Europe means the United States will be able to export less and the likelihood of an export-led U.S. recovery becomes less," Stiglitz said today. – Bloomberg
Dominant Social Theme: It is time to think again about how to save Europe for the EU.
Free-Market Analysis: We have mentioned many times before that "austerity" was the wrong prescription for Europe. But the idea many have is that lazy European socialists deserve what they get. This is in fact, part of a dominant social theme, "The socialists have ruined Europe for Europeans and common sense needs to return."
Looked at from a larger perspective, however, it was not socialism that ruined the economies of European countries but deliberate policies of the powers-that-be. From Karl Marx's creation of communism, to the installation of a version of his vision in Russia, to Europe's socialist leanings in the mid-to-late 1900s, to the current green communitarianism, we think we detect the hand of a shadowy power elite.
Why would a power elite interested in wealth and eventually world government, encourage various forms of leveling? Because "isms" always involve state interference. When one postulates this, that or the other social goal, government inevitably becomes a corollary. The power elite itself, as we have long pointed out, works within a mercantilist strategy. The stronger and more invasive the government, the more the power elite benefits, as its great wealth and influence provide it with the wherewithal to pull the levers of public policy for private gain.
And so, with power elite help as we see it, Russia "fell" to communism and Europe was overtaken by socialism. The Western elite didn't benefit directly from communism but did so indirectly as the "threat" of communism allowed further militarization of Western countries and generated a gargantuan military-industrial-intelligence complex. It turns out communism ultimately degraded Western freedoms; meanwhile home-grown socialism provided the elite further ways of expanding the state.
This spread of socialism in the West was accomplished through central banking. We have long referred to this as Dreamtime, because the hot money flows of central bank money creation can make societies seem tremendously exciting and progressive. People are tricked into believing that the lucrative jobs and expensive houses they acquire are due to their industry and talent when in fact they are the result of an over-printing of money.
When the hot money cools off, the damage is uncovered, the jobs are revealed as unnecessary and the houses are unaffordable. Sometimes, central bankers can restimulate, and thus these intervals of misery have come to be known as recessions. But ultimately, the damage that is done to society and the economy is cumulative. Over decades, whole industrial swaths become dysfunctional. Entire industries rise up producing items that would not be necessary or would not find a foothold in a real economy.
One of the biggest distortions – or bubbles – in a central banking economy is inevitably the financial sector itself. A central banking economy protects the banking sector through good times and bad because the banking sector especially is the distribution arm of the hot money that central bankers print. Actually, bankers could distribute the money in any manner. They could drop it from helicopters and it would have the same effect, and more efficiently and quickly. But central bankers will NEVER distribute new money through distribution channels other than banks because then control would be lost and the essential phoniness of the system would become clarified.
And so it has gone for at least 60 years – and America has been no less of a victim than Europe. In Europe, central banking was a way of palliating citizens, as it allowed the erection of vast socialized states with equally vast social privileges. People accepted the intrusiveness of state control because so many goodies were being given away. The European Union was built on the back of central banking. America itself has gradually lost most of its "exceptionalism" as a result of the corroding influence of central banking.
Eventually, Dreamtime subsidies. It did so in America and it did so in Europe. Economies, like badly damaged heart patients, can take only a certain amount of monetary defillibration and then they cease to respond. They flatline. This is what has happened in America and Europe. Economies are not reviving because the distortions have simply become too great.
The financial centers remain in massive bubbles while industry itself, tremendously distorted, has not been allowed to collapse. The entire social infrastructure meanwhile, retirement at 55 and 60, full health care coverage, public schooling, public housing, massive government employment, bloated police and military services, all of these are seen suddenly as oppressively unrealistic. And there are many reasons why: Public unions are out of control, People in southern climes are lazy, Mediterranean cultures are naturally corrupt, etc.
And so the boot comes down. In Greece and Ireland, especially, "austerity" has been the rule of the day. The local elites who pocketed the money for years and years, promoting the vast authoritarian Ponzi scheme of the EU, have retained their ill-gotten wealth but the citizens themselves, sold on the idea of a "greater union" and a more profitable posterity, have reaped the bitter fruit of this illegitimate union. Retirement ages have begun to rise, government jobs are being pruned, workdays and workweeks are lengthening and jobs, generally, are disappearing.
As the tide recedes, what is left behind is the detritus of the authoritarian state. The EU continues to legislate an endless barrage of petty, intrusive regulations. Bureaucrats continue to dream about an ever-closer union that includes an anthem, a flag and an active military. Jurisprudence is focused on the Napoleonic code where all are guilty until proven innocent and tax collection in particular is ever-more efficiently enforced.
Stiglizt, a socialist at heart, is right to perceive that austerity is not in the best interest of the European Union. Who knows what his real motives are? Perhaps he is just completing a necessary Hegelian dialectic – presenting another side of the debate. Maybe it is now perceived that the powers-that-be have made a further miscalculation and must move toward the center.
It IS a miscalculation, in our view. Germany remains disconsolate; there is talk of a Greek civil war and Irish bonds were just downgraded once again. Italy has yet to be heard from, but Spain and France are striking, and generally discontent is rising across Europe from what we can tell. The tribes, as we have long predicted, have risen from their slumber. It seems the only government programs expanding these days in Europe have to do with increased taxation and "efficient" enforcement. Greece, as we have reported, is now using Google earth to find undeclared swimmings pools.
What did the power elite expect? It was easy enough to trick people into trading freedom for the comfortable confines of state authority when times were good. But did the elite really believe that people would honor the terms of a legislative contract that doomed them and their children to a kind of perpetual poverty? Did they elite believe that in exchange for trinkets handed out in the 20th century that people would accept penury in the 21st?
The tribes of Europe will grow increasingly restless, we predict – as we have before. These cultures go back millennia and they are as stiff-necked in their own as the Pashtuns in Afghanstan. Tribal culture is the single thing that the power elite (itself tribal) has set itself to stamping out in the past several decades and centuries. But tribes are stubborn things.
Stiglizt is correct. Perhaps the big European and American banks that are owed money could take haircuts, and sizeable ones. But, you know, we do not think that was the plan. The elite, in its arrogance, expected that people once entrapped would remain so and would accept their fates as Dreamtime dupes. But no one likes to feel a sucker; these days the Internet can reveal such machinations clearly. So we will be very surprised if austerity stands, in its current incarnation anyway. The more the elite insists on the concept, the more it jeopardizes not only the strategy but the EU itself.
As a free-market oriented publication, we have no great sympathy for public unions and state graft. But that is not what has occurred here. From our point of view, the elite set out to deliberately trick the millions in Europe into handing over wealth and control to state institutions run from behind the scenes by a massively powerful, intergenerational, familiar conspiracy.
Conclusion: Yes, central-banking Dreamtime was a strategy to consolidate power in both the US and Europe. But perhaps the elite did not count on the truth-telling of the Internet. And perhaps the downturn – the Great Recession – was worse than expected. And now the austerity that was supposed to crush generations of Europeans – and remold them into evermore submissive citizens of a superstate – is itself in jeopardy. The project itself becomes harder than was once expected.