There is no bigger threat to economic freedom than an authoritarian government. It destroys property rights and economic incentives. It crushes the pillars of entrepreneurship and makes it practically impossible for people to make an honorable living on their own. Gradually, an authoritarian government destroys free-market capitalism, and when the destruction has reached a critical point the most obvious economic result is the inevitable decline in the standard of living for all.
Misery replaces opportunity. Poverty replaces prosperity. Government dependency replaces self determination.
There is nothing new in this. The history of the 20th century is filled to the brim with evidence of the destructive effects of authoritarianism, including its devastating power to destroy well-functioning economies and the prosperity they produce. It would be logical to conclude that we have learned the lessons of the Soviet empire, of the collapse of collectivist economic projects in Latin America and of the slow but unrelenting stagnation of Europe’s welfare states.
You would expect that those lessons would be loud and clear, available to everyone.
Unfortunately, that is not the case. Socialism is on a worldwide rebound. It is not new: already eight years ago I warned about the resurrection of communism in Europe. At that time it was a topic that nobody really paid any attention to. This is understandable. The economy was in pretty good shape, both in the United States and in Europe – in other words there was no reason to worry about depression-driven support for extremism of the kind we can witness in Europe today. The terror attacks of 9/11 were in fresh memory, as were the attacks in London in the summer of 2005. The only extremism that made its way into the public debate had an islamist trademark.
Nevertheless, my warning was timely. Communism and its ideological affiliates have been on the rise for a long time. After a decade in disarray following the fall of the Soviet empire, socialists regained strength and confidence after 9/11. In addition to their support for Saddam Hussein’s regime and opposition to any efforts to topple it, they started lining up their political assets in parliamentary democracies to advance their ideology on democratic terms. In the mid-2000s, the global left was becoming politically savvy thanks in part to idolized authoritarians like Hugo Chavez in Venezuela.
Today, socialism has made dangerous inroads on several fronts around the world. The socialist power structure that Chavez put in place is still in charge of Venezuela, and perhaps even more radical now than under his reign. The “Chavista” version of Latin American socialism has spun off at least two other authoritarian leaders in the region, Evo Morales in Bolivia and Rafael Correa in Ecuador. In a separate but parallel advancement of socialism in Latin America, Cristina Kirchner has driven Argentina into the same ditch on the left side of the road as the gentlemen Chavez, Morales and Correa have done with their countries.
In Europe, the last few years of serious economic crisis has pushed large groups of voters into the arms of socialist parties. It is a remarkably broad phenomenon that has made Chavez-admiring Syriza one of the largest parties in Greece; it led to the sweeping French socialist election victories a couple of years ago; in September it will probably carry the surging left-wing coalition in Sweden to a strong election victory (on a message that the world’s highest taxes are not high enough!).
Even the nationalist movement in Europe is a form of socialism. Hungary’s Fidesz and Jobbik adhere to the same economic collectivism as do Golden Dawn in Greece, Front National in France and an assortment of smaller, nationalist parties in the Netherlands, Belgium, Germany, Denmark and Sweden. The difference between socialists and nationalists in Europe is, essentially, that the former want to expand the welfare state with no inhibitions while the latter want to reserve the services of the welfare state for the people of their individual countries, and not share them with immigrants from – primarily – Africa and the Middle East.
(Disclaimer: UKIP, Britain’s patriotic movement, is basically a libertarian party. They are opposed to the welfare state and to immigration aimed at living off it, but unlike continental and Scandinavian nationalist parties they also want to ultimately dismantle the welfare state. As such they are rather alone on the European political scene. Now back to our regular broadcast.)
The rebound of socialism is not limited to Europe and Latin America. The Obama administration was carried into office by a warped belief that government can take care of people from cradle to grave. Obama and his fervent supporters soon found that Americans still have a strong sense of individualism and skepticism toward government as a partner through life. It is fair to say that on a broad scale, Obama’s aggressive statist agenda has peaked and so has collectivism in America. The question is how we as a country will downsize government, and whether or not it will happen on fiscally sustainable terms.
Others are not so lucky. South Africa is a good example. After two decades of European-inspired welfare statism, South African voters have grown a bit weary of the ANC. Their hold on power is not yet in jeopardy, but it has weakened in recent years. As I have explained in numerous articles, the reasons for this weakened support for the ANC are obvious to any sober observer of the South African economy. Poverty is pandemic among black South Africans and has slowly but steadily spread to colored and white South Africans as well. Unemployment and crime have become permanent phenomena, especially – but not exclusively – in the large areas of the country that still live in abject poverty.
Despite 20 years of promises, the ANC has delivered precisely what socialism always delivers: decline, deprivation and despair. As a result, many South Africans are turning to alternative political movements, and one of the first to capitalize on this is Julius Malema. The former president of the ANC’s youth league has formed his own political movement, an outright communist party that pervertedly calls itself the “Economic Freedom Fighters”. Here is some of what they want to do to South Africa:
A supposition that the South African economy can be transformed to address the massive unemployment, poverty and inequality crisis without transfer of wealth from those who currently own it to the people as a whole is illusory. The transfer of wealth from the minority should fundamentally focus on the commanding heights of the economy. This should include minerals, metals, banks, energy production, and telecommunications and retain the ownership of central transport and logistics modes such as Transnet, Sasol, Mittal Steel, Eskom, Telkom and all harbours and airports.
They have similar plans for agricultural land, with the intent to redistribute it from current owners and users to others, ostensibly based on racial preferences. The miserable consequences of land expropriation in Zimbabwe have apparently not deterred them. Nor has the economic disaster created by Chavez in Venezuela, where government has gotten itself involved in everything from utilities to the production and distribution of food. Not surprisingly, Julius Malema, South Africa’s premier communist, wants to do the same.
A communist government is just about the last thing South Africa needs. By the same token, Europe is absolutely not in any need of more collectivist policies. Latin America’s socialist experiments must end now, so the continent can reap the harvests of its full economic potential under economic freedom.
Currently, much of the global socialist rebound is currently flying under the radar of freedom-minded scholars, activists and politicians. Let’s hope that changes.
I got some really positive feedback on my first austerity video. Thank you! The topic is timely, especially with reference to the crisis in Europe. After the elections in May when statist parties on the left gained seats in the European Parliament, the debate over how to handle the perennial economic slump has intensified. Austerity critics have become more vocal, and the funniest part of that is that they do not even realize that the kind of austerity they criticize is really the kind I define as “Government-First” austerity in my video.
This is telling of what the debate over austerity in Europe is really about, and who the participants are. Proponents of the European version of austerity are not out to reduce the size of government, but to make sure government - the welfare state to be precise – survives the recession as unharmed as possible. As I point out on the video, if they had a “Limited Government” purpose behind their austerity they would use private-sector growth, or lack thereof, as their metrics for whether or not austerity was successful. But since private-sector activity has been plunging in the countries hit worst by the European version of austerity, it is clear that the purpose behind austerity as applied in the EU is of the “Government First” kind.
This puts an absurd light on far-leftist criticism of austerity. Since there are no limited-government proponents on the scene in the European debate, statists are bashing statists over not using the right tools to save the welfare state. With the noise from their fight rising, it is becoming increasingly likely that my predictions for Europe’s future will come true: the continent is bound for a new form of stagnation. So long as Europe does not dispose of the welfare state, they will end up right there, in the economic wasteland of industrial poverty.
The harder the far left works to end government-first austerity, the farther to the left they will pull economic policy in Europe. Instead of trying to balance government budgets as a means toward saving the welfare state, the far left does not even want to have to worry about the budget. Their attacks on the EU’s constitutional stability and growth pact are symptomatic of this.
Austerity criticism is not limited to the EU level. Wherever socialists have made headway in national parliamentary elections they raise their anti-austerity voices. Italy is a case in point, as illustrated by an article in the EU Observer:
The EU is at a “crossroads” between accepting a long period of austerity and high unemployment or taking steps to boost an economic recovery, Italian prime minister Matteo Renzi has warned. Speaking in national parliament on Tuesday (24 June), Renzi told deputies that “high priests and prophets of austerity” were stifling the European economy. Renzi’s government takes control of the EU’s six month rotating presidency next week and has indicated that migration and the bloc’s stability and growth pact will be its main policy priorities. The Italian prime minister has led calls for the pact’s rules on budget deficits to be interpreted in a way that encourages more public investment.
In other words, what they want to be able to do is to spend more on government-run, tax-funded education, on more roads, mass transit and so called research and development programs. They also want to pour more money into non-fossil energy, the kind of complete waste that has been Germany’s failed attempt at replacing nuclear energy with “renewable” energy sources. (Out of utter panic over rising energy prices, Germany is now building coal power plants almost as fast as the Chinese.)
None of that spending would help the economy grow. If you tax the private sector into oblivion, it does not matter if it can ship its products on four-lane highways or six-lane highways. There won’t be anyone there to buy their products in the first place. It matters even less if the energy that manufacturers would use is from sometimes-producing wind turbines or sometimes-producing solar panels. If the energy is too expensive to make manufacturing competitive, nobody is going to want to buy it in the first place.
Europe does not need more government. It does not need more government-first austerity either. It needs limited-government austerity. And soon. Otherwise, it is basically over for Europe as a first-world continent.
Here is the first in a four-part series on austerity, its theory, its application and its consequences:
The United States of America is a wonderful country to live in. Contrary to the laments of most of my conservative and libertarian friends, this country is still among the most free and opportunity-friendly places on Earth. Americans are strong individuals, they are friendly yet have a lot of integrity, they celebrate winners and have compassion for losers. There is less racism here than in Europe, and we are more prosperous than they are, and deep down in the fertile soil of Middle America, the roots of freedom and democracy stand firm even when the political storms rage viciously through the legislative hallways of our country. Our constitution, while twisted and tweaked and bent and stretched, is still working.
Our deeply rooted sense of individuality – as opposed to individualism – and freedom is currently helping America through one of the toughest periods in her almost 250-year long history. This country is the last place on Earth where totalitarianism would take over. But our freedom, prosperity and peace are at least to some degree dependent on what is going on in the rest of the world.
This is why in the 20th century the United States established itself as a global power. Throughout most of that time, Europe has been a major scene for our foreign policy and military engagements. A big reason is that Europe has long been, and still is, a central stage for the fight against totalitarianism.
With the rise of totalitarian nationalism in primarily Germany, Italy and Spain in the 1920s and ’30s, Europe became the world’s most important battle ground between freedom and tyranny. Freedom won the war, but once the bullets had stopped flying a more polished version of the values that drove Hitler, Mussolini and Franco to power began setting roots in Western Europe. The idea of collectivism, which is in the DNA of Naziism and fascism, is also prevalent deep into the segments of European politics that are generally considered democratic. The notion that government can and should shape a nation, socially, culturally and economically, has taken seemingly more palatable forms than the swastika.
Today, nationalists no longer use the sense of patriotism as their first and foremost voter recruitment tool. The new gateway to nationalism is the welfare state.
More on that in a moment. First, a quick look back at how nationalism – and totalitarianism - is once again able to rise to political prominence in Europe.
In 1960, in one of the most revealing books on the subject, titled Beyond the Welfare State, Swedish economist Gunnar Myrdal explains how the idea of central economic planning without political dictatorship has conquered Western Europe and is slowly but relentlessly replacing Capitalism as the prevailing economic model. The welfare state, for short, would soon spread its intellectual tentacles across the Atlantic and peacefully defeat the American free-enterprise system. Myrdal was partly right: with considerable help from John Kenneth Galbraith’s Economics and the Public Purpose and The New Industrial State the American left made a major effort during the 1960s and ’70s to establish the European notion of collectivism and indicative economic planning as the new normal for the New World.
They never quite succeeded. The Obama administration represents the last effort of the collectivist left to “fundamentally remake” America (as Obama put it during his campaign). But while the welfare state is finally reaching its peak as a socio-economic model here in the United States, the Europeans are holding on to it for dear life. The entire fiscal struggle during the Great Recession has been about saving Europe’s ailing welfare states with every means possible – even at the expense of years of declining GDP, at the cost of 30, 40, 50 and even 60 percent youth unemployment. Ill-designed austerity, motivated not by a desire to shrink big government but to save it, has taken more from people in the form of higher taxes and given less back.
Instead of conceding that the welfare state is a lost cause; instead of repealing the welfare state and giving economic freedom a chance; the political leadership in Europe has doubled – no, tripled – down in their defense of collectivism, high taxes, income redistribution, entitlements, socialized health care and deep, stifling regulations of the labor market.
In countries with the biggest, most intrusive governments this has resulted in a dangerous political backlash. When voters feel betrayed by the government that promised to take care of them cradle to grave, and there is no alternative there presenting a case for economic freedom, voters turn their back on the established political institutions that gave them the welfare state. Those institutions also happen to be parliamentary democracy. Feeling that parliamentary democracy has let them down and left them out to dry, both financially and politically, large groups of voters are now turning to another form of collectivist parties.
The modern totalitarians.
When the European welfare state swept through Western Europe in the ’50s and ’60s its collectivist principles appealed to people whose cultural background was a straight line from late Medieval collectivism through undemocratic monarchies to the nationalist movements of the early 20th century. Europe may have been the birthplace of the concept of the individual, but the continent never quite unleashed what they had discovered. Unlike America, the roots of Europe’s political culture are still firmly in the notions of nationalism, collectivism and - almost for a century now – the welfare state. It was a smooth transition for Europe to go from nationalism to the welfare state: instead of being part of an ethnically, racially or culturally defined group along nation-state lines, the Europeans became part of a mildly Marxist dichotomy between taxpayers and entitlement recipients.
While the technical difference is considerable, the cultural difference is minor. The individual shrinks and crawls in under the group banner, hoping that the group will care for him. By giving legislative power to political parties that promise more entitlements, Europe’s voters have reaffirmed and reinforced the collectivist principles that guide the welfare state.
Those collectivist principles, however, are easily transferrable, from the welfare state onto another collectivist vehicle. Now that the welfare state has proven, beyond a shred of a doubt, that it can no longer keep its entitlement promises, Europe’s voters have begun listening to the old nationalist tunes again.
The difference between today’s nationalists and those that ultimately paved the way for Naziism and fascism after World War I, is that today they know how to use the welfare state to appeal to people. Every nationalist party in Europe, from the Danish People’s Party and the Swedish Democrats to the far uglier Front National in France, Fidesz and Jobbik in Hungary and Golden Dawn in Greece, promises to preserve the welfare state in one form or another. They have learned to capitalize on people’s frustration with the failing welfare state. But instead of rightly pointing out that the statist economic model is flawed, the modern nationalists – and especially the totalitarians among them – have projected the blame onto centrist, social-democrat and liberal political parties. Ultimately, this blame falls on parliamentary democracy itself.
So far, only the outer rim of the modern nationalist surge has pointed finger squarely at parliamentary democracy. However, as Golden Dawn, Jobbik and similar parties gain ground, antipathy toward the parliamentary system will grow. France will be one of the key battle grounds between nationalism and parliamentarism: if Le Pen follows in the early footsteps of her father it is entirely possible that her rise to the presidency in 2017 could mark the beginning of the end of De Gaulle’s Fifth Republic. If the radicals in her movement set the tone, the new France that would emerge - the Sixth Republic – could become a catalyst for a new, broad nationalist surge across Europe.
There are already movements around the continent hard at work to create a fascist “Gross-Europa”. They are probably not going to gain more than marginal political influence, at least not in the near future. But it is important to remember that a decade ago, the idea of a President Le Pen in France was laughable. Furthermore, the idea of a resurrection of European communism was ridiculed. I know, because I warned about it in an article in Front Page Magazine back in 2006 and got more than a few sarcastic comments from more established “thinkers”. Even a cursory look at the results in the EU Parliament election in late May shows how frighteningly right I was back then.
And I did not even consider that nationalism would be a competing force. But with two competing, and growing, totalitarian movements now procreating in Europe’s political landscape, the continent is facing a dark future. Independently, these movements will reinforce Europe’s collectivist culture and cling to its dying welfare state for as long as they can, and then some. Most of all, they are going to use it to entice people into crossing the line, from parliamentary democracy into a totalitarian political system Europe has supposedly left behind it.
Using the welfare state as an economic gateway drug, the modern totalitarians are going to try to reshape the continent that, for a century, has been America’s most costly foreign-policy problem. Given that both the nationalists and the communists now rising to political prominence are negative, in some cases outright hostile, toward America, that foreign-policy problem may soon come back knocking on the doors of the U.S. State Department – and the Pentagon.
In a great article in the Wall Street Journal, former vice president Dick Cheney and his daughter, former senatorial candidate Liz Cheney, explain how Obama’s failures on the foreign-policy front are transforming the Middle East into a new major headache for America. They are correct, but it is crucial for America’s future that our foreign policy does not overlook the radical transformation taking place in Europe right now.
The political establishment in the EU is grasping for some positive news in the election fallout. It is still too early to say definitively what the consequences will be, but my first conclusion, namely that Euroepan democracy was dealt a blow, still stands. The anti-democratic flanks of the political spectrum gained ground at the cost of centrist parties. The one silver lining is that democratic, Euro-skeptic parties like the UKIP did very well and will increase their influence on the European scene.
As I also pointed out in my last article, the election has put Europe at a fork in the road: either the continent makes a turn toward a better future, with less EU-level government and a general move in the libertarian direction, or the anti-democratic collectivists – in the shape of communists, Nazis and aggressive nationalists – will gradually gain more power and push the EU in a very dangerous direction. If the EU political establishment is smart, they will extend an olive branch to democratic Euro skeptics like Nigel Farage from UKIP and Morten Messerschmidt from the Danish People’s Party.
Based on post-election media reports thus far, it is by no means certain that the Eurocracy will make the right choice here. As an example, consider this report from EUBusiness.com:
European Union leaders agreed Tuesday to take a fresh look at the bloc’s policy priorities, after a stinging vote setback across Europe that saw dramatic gains by radical anti-establishment parties. Meeting for a post-mortem summit in the wake of the dismal European Parliament election results, the bloc’s 28 national leaders gave European Council chairman Herman Van Rompuy a mandate to fine-tune policy goals on issues from jobs to energy. … He said that now that Europe was emerging from economic crisis, there was a need for an agenda of growth, jobs and competitiveness. He also stressed that “a strong response” was needed to the climate change challenge and “a push” towards energy union and to lessen energy dependency.
Not a word about the need to reconsider the growth of the Eurocracy. Not a word of self reflection over what the EU has become. To be blunt, if this is how the mainstream parties in the European Parliament are going to respond to last week’s elections, the chickens are going to come home to roost, marching in lines behind either a hammer and a sickle, or a swastika.
It is still unlikely that this will happen, but it definitely cannot be ruled out. The question is if the Europhile parties in the Parliament have it in them to slow down the EU project and be more reflective than Herman van Rompuy. The EU Business again:
Projections give the conserv ative European People’s Party (EPP) 213 seats out of 751, with the Socialists on 190 and the Liberals 64. That will give the centre-right, centre-left and Liberals a solid working majority. … The anti-EU camp will have about 140 seats though analysts say it will be difficult for the disparate groups to operate in a coherent fashion.
It would be foolish of the Europhile parties to use this arithmetic as a basis for their policies. Nevertheless, there is a great risk that this is how they choose to read the voter mandate from last week’s elections. A story from Euractiv concurs:
The Eurosceptic election victory, notably in France, the UK and Denmark, should not drastically affect the work of the European Parliament. With 140 MEPs in the next legislature, Eurosceptic parties will still represent a minority out of the 751 MEPs in the EP. “Their influence will be low. They will only have a slow-down effect on proceedings,” said Henri Weber, an outgoing French MEP. “They will obstruct more, and turn up to sessions with their national flags, as did Nigel Farage’s UKIP party during the last mandate,” he continued. Law-making should only be marginally affected by the increase of Eurosceptic MEPs, as most plenary session voting in Strasbourg is taken by absolute majority. With 751 MEPs from 28 EU member states, the Eurosceptic vote cannot reach the absolute majority alone (376 seats). “The National Front is definitely not the dominant political party in Europe. The party that came out on top in these elections was the EPP, followed by the PES and ALDE” stated Nathalie Griesbeck, French centrist MEP.
Yes, but they lost seats right and left. However, if there is one positive touch to this, it is that the Eurocracy will probably move ahead with some items that could actually help the European economy. One of those items is the proposed Transatlantic Trade and Investment Partnership, TTIP, which has strong support in the EU political leadership as well as in the European business community. Back in February, EU Observer reported:
The ‘honeymoon phase’ of talks aimed at brokering a landmark EU-US trade deal are over, business leaders have warned. Speaking at a meeting of business leaders in Athens to coincide with a meeting of EU trade ministers on Friday (28 February), Markus Behyrer, the director general of lobby group BusinessEurope, led calls for EU leaders and the business community to tighten their communications strategies to retain public support. “The honeymoon phase of the negotiations appears to be over,” said Behyrer. “Now the phase when negotiators will need our support and encouragement…we will have to prove that this is not a race to the bottom but a race to the top.” At a press conference later Karel de Gucht commented that “the debate should be based upon the facts – not just speculation and fear-mongering.”
There was one caveat in that article:
Finland’s Europe minister Alexander Stubb warned that “selling” the talks would be “a really tough case”. “We are grappling with people who are anti-free trade, anti-American, and anti-globalisation,” he said.
The anti-free trade, anti-American, anti-globalization crowd made big inroads into the European parliament this election. They will do what they can to stop or delay the TTIP. Fortunately, as the Daily Telegraph reports, the determination was strong as late as last week, on both sides of the Atlantic, to bring the trade negotiations to completion:
US and EU trade representatives have had a “productive” fifth round of talks, but hard work lies ahead, US trade representative Michael Froman says. “We’ve moved from discussing a conceptual framework to defining specific ideas for addressing the majority of the negotiating areas,” Froman said as the talks ended. He said there was “a lot of work ahead” but “steady progress” was being made and there was now “a firm understanding of the key issues that need to be resolved”. Froman’s chief negotiator in the Transatlantic Trade and Investment Partnership (TTIP), Dan Mullaney, called the week’s talks “challenging”. Completing the world’s largest free trade agreement “will require a lot of creativity and a lot of persistence,” he told reporters. Ignacio Garcia-Bercero, chief negotiator for the European Union, underlined that the overall goal was “highly ambitious” but that progress had been made through “intensive” discussions this week on labour, environment and sustainable development issues. The US and European Union aim to expand what is already the world’s biggest trade relationship by dismantling regulatory barriers that force companies to produce different products for the US and European markets.
This would be a huge boost for trans-Atlantic trade and have a cost-lowering effect on many consumer and industry products. Let’s hope the Eurocrats prioritize this as they move forward, but that they also learn to listen to Euro-skeptics when it comes to the relations between the EU and its member states. If they don’t, the authoritarian flanks of the European political scene will continue to grow at the expense of democracy, political stability – and economic freedom and prosperity.
Anyone who has had even a minimum of experience trying to balance a check book knows that if you first define the food you want to buy, the car you want to drive, the house you want to live in and the clothes you want to wear, and then look for a job to pay for those expenses, you are very likely going to end up with an acute overdraft on your checking account. Anyone who has ever run a business knows that if you hire the number of people you want, buy the inventories you want and hire the facilities you like, and then start trying to sell products to get the revenue that those costs require, you are almost certainly going to go belly-up.
The welfare state does not confine itself to the same realities as private citizens do. Its MO is the exact opposite of how the real world works. It makes promises to a select group of citizens and then forces another group of citizens to pay for those promises – regardless of whether or not the latter group can afford it. The promises are made in the form of “defined benefits”, in other words government first decides to give away a certain amount of money (welfare checks, housing subsidies, food stamps) or specific services (education, health care, child care) and then, once the package of entitlements is in place, starts looking for a way to pay for it.
This upside-down approach sets up the welfare state for some big trouble. It also has terrible long-term consequences for all of us. When the entitlement programs go online they reduce work incentives among large layers of the population. So do the taxes created to pay for those entitlement programs. Fewer people work to feed themselves fully, while fewer people work fully out to build wealth or create businesses.
So long as the welfare state is small, focusing its entitlement programs only on those who are really needy, there is only a marginal loss of economic activity. The lack of a visible macroeconomic price tag on this small welfare state encourages government expansionists to pursue more entitlement programs with higher taxes.
At some point, though, the growing welfare state inhibits enough productive economic activity to create serious problems with growth and prosperity. What was initially a tolerable balance between tax revenues and entitlement spending soon becomes an unsustainable imbalance: slower economic growth leaves more people entitled to support from the welfare state; slower economic growth produces fewer decent-paying jobs, leaving more people entitled to support from the welfare state; more support from the welfare state discourage people from pursuing decent-paying jobs, eventually reducing supply of such jobs.
To complete the imbalance: slower economic growth reduces the stream of tax revenue needed to pay for the ever-growing output from the welfare state’s entitlement programs. A structural imbalance emerges where government expansionists pursue ever higher taxes and the private sector quietly winds down its operations, or moves them overseas.
Latin America has seen plenty of this, with Argentina as the absolutely best example. In the period from circa 1920 through the 1950s, Argentina was a flourishing economy with among the highest standard of living in the world. There were years when Argentina attracted more immigrants from Europe than the United States. Then the welfare state came and the rest is history.
A history that the current Pope should have learned. He was, after all, cardinal of Buenos Aires before rising to the Holy See. Unfortunately, learning from history is apparently not a prerequisite for rising through the ranks of the Catholic church. The Associated Press reports:
Pope Francis called Friday [May 9] for governments to redistribute wealth to the poor in a new spirit of generosity to help curb the “economy of exclusion” that is taking hold today. Francis made the appeal during a speech to U.N. Secretary-General Ban Ki-moon and the heads of major U.N. agencies who met in Rome this week. Latin America’s first pope has frequently lashed out at the injustices of capitalism and the global economic system that excludes so much of humanity, though his predecessors have voiced similar concerns.
What is injust about an economic system where every individual can find work at his own best ability, or start a business, build a career on nothing but his own merits? What is unjust about an economic system that does not come with long bread lines, where consumers can make independent choices what they want to eat, where they want to live, how much they want to save for their own future? What is unjust about an economic system where people can give to charitable causes regardless of their faith, and regardless of the faith of the recipient? What is unjust about an economic system where people can choose their own doctor, what school their children should attend and how much they want to save up for their own retirement?
What is wrong with an economic system where you get to keep the proceeds of your hard work, where the farmer who spends that extra hour out in the field can put better food on his children’s dinner plates? What is wrong with an economic system where the poor do not have to be poor for the rest of their lives, but can work their way up from despair to independent wealth?
Back to the Associated Press story:
On Friday, Francis called for the United Nations to promote a “worldwide ethical mobilization” of solidarity with the poor in a new spirit of generosity. He said a more equal form of economic progress can be had through “the legitimate redistribution of economic benefits by the state, as well as indispensable cooperation between the private sector and civil society.” Francis voiced a similar message to the World Economic Forum in January and in his apostolic exhortation “The Joy of the Gospel.” That document, which denounced trickle-down economic theories as unproven and naive, provoked accusations in the U.S. that he was a Marxist.
My mother grew up poor. My grandfather, who had six years of school to lean on, worked as a logger and built a small farm big enough to provide the very, very basics of what his family needed. They set aside money so they could move to a mining town where my grandfather hauled iron ore a thousand feet under ground while grandmother raised seven children to be strong, independent, proud and ambitious. My mother once explained what set their family aside from many other families living under the same conditions:
“We didn’t have time to complain about how poor we were. We were too busy doing our homework.”
So there is your priority. Either you invest in yourself, pursue opportunities and build your life – or you sit at your kitchen table day and night complaining about how your neighbor drives a better car than you do.
The Associated Press again:
Francis urged the U.N. to promote development goals that attack the root causes of poverty and hunger, protect the environment and ensure dignified labor for all. “Specifically, this involves challenging all forms of injustices and resisting the economy of exclusion, the throwaway culture and the culture of death which nowadays sadly risk becoming passively accepted,” he said.
And of course the Pope does not spell out what he believes are the root causes of poverty and hunger. If he pursued those “root causes” he would have to address the fact that the poorest nations on Earth are also run by corrupt, ruthlessly selfish dictators who steal from their own people. Or does the Pope see no difference between the government systems of, on the one hand, the United States, Canada, Western Europe, Australia and Japan and, on the other hand, the Democratic Republic of Congo, North Korea, Zimbabwe, Somalia and the Central African Republic?
Europe’s only way out of its crisis is to phase out the welfare state and gradually replace its entitlement systems with private solutions. This is a time-consuming process that requires relentless political commitment over a number of years, but it can be done, in Europe as well as here in the United States. However, the economically necessary is not always the politically realistic. Sometimes the economically necessary is not even politically desirable.
The latter scenario is the most problematic. When ideological preferences pull in an entirely different direction than the economy needs to go, the political rift between “ought to” and “must” happen makes necessary economic reforms close to impossible. The growth of nationalists, socialists and even fascists in today’s European political landscape is a clear sign of how big that political rift has become, but there is more bad news (if you can take it…). Recently I reported that the next head of the EU Commission – de facto the executive branch of the European Union – is going to be a statist, no matter who wins the May European parliamentary elections.
Today, Euractiv.com offers another example on how Europe’s ideological landscape is drifting to the left. They interview a former Belgian union activist and influential politician who is running for the European Parliament on a ticket for the center-right European People’s Party coalition. By their ideological label you would think they would be fighting hard for less government, lower taxes and more economic freedom. Well, sorry to disappoint you:
Mr. Rolin, you’ve decided to leave the trade union and enter into politics and run for MEP at the next European Parliament elections. What will be your priorities?
My first, second and third priorities will be employment, because that is the most important things right now. We see how the current crises affect us, how they deconstruct the European social system. Unemployment is devastating in social and economic terms but also in terms of democracy. We see it with the rise of Eurosceptic, populist and far-right groups.
“Deconstruct the European social system” is a code phrase for cutting entitlements in the welfare state.
We heard from the panelists at the European Trade Union Summit that austerity does not work. Do you share this opinion?
Entirely. Austerity policy does not work. And we see it. If it did work, it would have been verified, you know, like in mathematics. This has been verified by Greece, we’ve just heard it at the panel. It does not work. It creates more inequality, more unemployment, more misery in the population. Therefore it is high time to change our course. Even though we succeeded in saving the European currency, we need to have a policy focused on investments. I think that the ETUC’s programme aimed at boosting investments is very pertinent.
The first problem with austerity that he brings up is “inequality”. The very concept is alien to any concerted effort at promoting economic and individual freedom. By accepting the term “inequality” we immediately accept the false notion that it is somehow wrong that some people work harder than others and thus earn more money.
It is very telling of just how deeply the welfare state has been accepted in Europe that a parliamentary candidate for the large center-right party coalition regards “inequality” as the biggest problem with austerity. Unemployment comes second and general misery third. Never mind that austerity destroyed one quarter of the Greek economy; never mind that it has recalibrated the welfare state and made it an even heavier burden on the private sector. No, the biggest problem with austerity is that it has caused more “inequality”.
But wait – there is more:
Austerity does not work, you say. but you will nonetheless join the European Peoples’ Party (EPP) group in the European Parliament if you win, and the EPP has been the driver of austerity policies. Your party (Belgium’s Christian Democrat’s Centre démocrate humaniste, CDH) is a member of the EPP at the EU level. Isn’t there a contradiction between your trade unionist’s convictions and your political battle?
I see it as a challenge to bring a social dimension to the EPP, which is absolutely necessary. The CDH’s programme is very clear on that matter. We want to turn our back to austerity and put in place social policies, intelligent economic policies which will make it possible to have a real economic recovery through employment oriented investments, and sustainable employment.
Apparently, now it is part of the center-right path through Europe’s political landscape to believe that government can create “sustainable employment”. This is an outright socialist idea, no matter which way you twist and tweak it. If it was just a matter of “employment” you could let the EPP candidate and his party bosses off the hook with the assumption that they want to have fiscal policies that encourage more growth and more jobs. But the adjective “sustainable” gives an entirely new meaning to any policies for employment. It means, in short, either expanding government payrolls or making it even harder for employers to lay off employees. Both strategies are antithetical to economic freedom, growth and prosperity.
But Mr. Rolin is not just convinced that Europe needs more statism – he is also convinced that without it, the entire European Union is in peril. Euractiv again:
The 2009 EU elections had a record low participation from the voters, do you think this will change this time, that people need more Europe this time?
I am convinced that people need a more social Europe, they need to believe again in the European project. … As for the European Commission’s discourse on social affairs, it seems to me that it is not in phase with the reality. The workers are living a particularly difficult reality because of the crisis. It is therefore high time to go beyond the observation that something needs to be done. We have to be more radical in our policies and make them fit to the citizens’ aspirations. What is at stake is crucial. Either Europe succeeds in answering to European citizens’ aspirations and stop the growing social divide, or the European project will fail.
In other words, the only way for the European Union to survive is that it expands the welfare state at its level, in addition to what the member states are doing.
More welfare-state policies is precisely the wrong medicine for Europe. And just to drive home the statist point with particular fervor, Mr. Rolin tells Euractiv how important it is to raise taxes and reduce the scope of free-market policies:
What should be the priorities of the next Commission?
The tax on financial transactions is an indispensable element. It is time to put it in place, because it is economically intelligent; but also because it will bring equity and trust. Then, we need to stop the fiscal, social, environmental competition. We have to realise that we are Europe. Europe cannot be built on intra-European competition policies. We need to put in place cooperation policies. Together we can win. If we fight against each other in Europe, we will all be losers. That is for me the priority of all priorities: fighting against that logic. And the second thing of course is to boost growth throught sustainable investments. And finally, in terms of economic governance: yes, we need to control the state deficits, because the debts will have to be repaid one day but we need to stop confusing consumption debt or investment debt. When I invest in the future, it’s positive.
A tax on financial transactions will move those transactions to Seoul,Sydney or Sao Paulo. And it will happen fast. The financial industry is very fluid compared to other industries. There are other countries and cities in the world that offer likeable climates for the financial industry. If anyone is in doubt, look at what happened when Sweden tried a similar tax on the stock market back in the ’80s. I have lost track of all the people in that trade that I knew who moved to London or Luxembourg with their employers, as a direct result of the tax.
Alas, the tax is not going to produce any noticeable revenue. All it will do is drive high-end jobs out of the EU, and with them a whole lot of upscale spending that in turn will cause job losses in real estate, retail, manufacturing and transportation. Just look at what happened in New York in 2009-2010 (and look what is coming back there now thanks to a slow but sustained economic recovery). If that is the kind of “equality” that this new center-right European politician wants, then by all means, go ahead. We here in America will happily continue to out-compete you with cheap energy, lower taxes and stronger work incentives.
Mr. Rolin’s passage about ending intra-European competition is more frightening than it sounds like. What he is saying is, plainly, that there should not be jurisdictional competition between EU member states for jobs and investments. But that also means an end to policy competition: it means centralized tax and entitlement policies, centralized regulations, etc.
One of the reasons why the U.S. economy is doing comparatively well is that taxes below the federal level have been kept back during the recession. States have made concerted efforts at reining in spending, mostly with positive results. In addition to the Obama administration’s notable fiscal restraint this has eased somewhat the fiscal burden of government on the private sector. (If Obama showed equal restraint on the regulatory side, our economy would be roaring ahead right now.) When states hold back spending they can cancel tax hikes and even cut or eliminate some taxes. Kansas, Oklahoma, North Carolina and Nebraska are four good examples of states pursuing or implementing tax-cutting reforms. States that have pushed taxes higher lose jobs, while states with constant or lower taxes attract employers.
If Europe gives up on jurisdictional competition, it will lose one of its few remaining instruments for growth-and-prosperity promoting policies. Taxes will rise to pay for an expanding EU-level welfare state. Spending will grow in a misguided attempt to eradicate “inequality”.
And the entire continent will travel, Eurostar style, straight into the economic wasteland of perennial stagnation, eradicated opportunities – and industrial poverty.
Last week marked the 50th anniversary of President Lyndon Johnson’s declaration of “war on poverty”. The ambitious, bordering on pompous, goal behind this “war” was obviously, and officially, to create a society where nobody would have to live in conditions defined as poverty.
About the same time, the mid-1960s, Western European countries were entering the “full speed” phase of building their welfare states. Health care, income security, education and retirement were all in the hands of, or in the process of being transferred to, government. Across Europe, government spending was closing in on 40 percent of GDP. That level of spending marked a turning point for Europe’s welfare states: from that moment on their economies entered a long stagnation phase that set the stage for the slow decline that began about 15 years ago.
The United States never reached quite the same point of stagnation. While our economy has not exactly had a stellar growth record since the Millennium recession, it has proven more resilient in the current crisis. The reason for this is largely that our government is not quite as big and intrusive as it is in Europe, and that we have not yet created the massive general income-security systems that Europeans are so proud of. Those systems clearly discourage work, but also require destructively high taxes, typically on payroll, making the cost of hiring even low-skilled workers prohibitively high.
The combination of us not having a general income security and the fact that our health care system still remains largely market based is enough to set us apart, macroeconomically, from Europe. While those systems were never part of the original intention behind the “war on poverty”, Lyndon Johnson did provide America’s left with a platform from which to strive for a full-fledged American version of the European welfare state. So far they have not succeeded, which today is a blessing for us.
This does not mean that they are not trying. As I reported in my book Remaking America: Welcome to the Dark Side of the Welfare State, high-profile liberal think tanks are pushing hard to bring America even closer to the European welfare state.
Any further addition of tax-funded entitlements would of course be as bad for the U.S. economy as they have been for Europe. The last thing we need right now a combination of work-disincentivizing income security and growth-suppressing taxes. The lesson from Europe is frighteningly clear: once the welfare state passes a certain point – again represented in part by government spending exceeding 40 percent of GDP – the private sector can no longer endure the burden but begins a slow but inevitable process of decline.
In Europe’s case, this decline began around the Millennium recession, though signs were there earlier. It continued during the years up to the beginning of the Great Recession and has since then exploded into a full storm of industrial poverty. This has led to one of history’s big ironies. The goal with the European welfare state was the same as that of the “war on poverty”, namely to elevate everyone to a standard of living beyond what is at any point in time considered “poverty”. Yet, when the welfare state was allowed to grow uninhibited by economic common sense it brought about economic decline of a scale that is now at the very least sentencing an entire generation of Europeans to life-long poverty.
On top of this irony, there is another thoroughly illogical feature common to both the “war on poverty” and the European welfare state. The very definition of poverty actually makes it practically impossible to get rid of poverty: when we define poverty as a fraction of median or average income, we have practically guaranteed that we will have poor people in perpetuity.
It is important to keep in mind that neither the spending programs under the “war on poverty” nor the European welfare-state entitlement programs actually end or reduce poverty. All they do is alleviate poverty by taking money from Jack and giving it to Joe. Once these redistribution programs become woven into the social and economic culture of a country, they tend to perpetuate the need for themselves. When people get money or services – cash or in-kind entitlements – for free over a long period of time they adjust their daily lives as well as their long-term economic planning to what they get without effort. As a result they will not be very interested in replacing entitlement-based goodies with work-based income.
To sum up, the overwhelming experience from the past half-century of trying to use government to eradicate poverty on both sides of the Atlantic is that government is exceptionally inept at helping people to better their lives. Instead of improving the lives of the poor, all that the European welfare state has done is pull more people down into poverty or a near-poverty stagnant life; as for the American “war on poverty”, it redistributes at least $1.2 trillion per year – seven percent of GDP – while doing nothing to reduce the country’s poverty rate (which has remained around 12-14 percent for decades).
Fortunately, there are tangible signs that American big-government liberalism has reached the peak of its political influence. This bodes well for the future of this great nation. Europe, on the other hand, is not only worse off than we are, but still pursuing the same kind of welfare-statist policies that in the first place put them where they are right now. If this difference in policy future defines where the two continents are moving, the differences between America and Europe could, in a decade or so, be as significant as the differences are today between the United States and South America.
That said, there are some global trends and institutional changes taking place that could in fact make it harder for the United States to pursue a free-market based path back to unprecedented prosperity. More on that later. For now, let’s declare the “war on poverty” lost; let’s scrap the European welfare state and let’s make freedom big and government small.
Joseph Stiglitz is a well-known, respected economist. He has strange views on how to solve the European crisis, but he has been correct in pointing to the destructive forces of austerity as applied in Europe. At the same time, he praised the economic policies of Hugo Chavez, Venezuela’s now-deceased authoritarian socialist president. Those same policies have allowed inflation to run away past 50 percent and caused frequent shortages of power, food products and other consumer goods.
Now Stiglitz is at it again. This time he is back on the European crisis, and he actually sounds like he has read this blog. We welcome him among the readership!
That said, he has not done his Liberty Bullhorn homework all the way. While his crisis analysis is largely on the right side, his proposals for how to address the crisis are off the chart wrong. Defying common sense and thorough scholarship, Stiglitz actually wants more government in Europe, in virtually every corner of the economy.
It has been three years since the outbreak of the euro crisis, and only an inveterate optimist would say that the worst is definitely over. Some, noting that the eurozone’s double-dip recession has ended, conclude that the austerity medicine has worked. But try telling that to those in countries that are still in depression, with per capita GDP still below pre-2008 levels, unemployment rates above 20% and youth unemployment at more than 50%.
The European Commission has downgraded its growth forecast, though Europe is still very much in a state of wishful recovery thinking. This prevents any rethinking of fiscal policy, making the continuation of the crisis the only reasonable alternative. No wonder the European Central Bank is close to full-scale crisis panic.
Back to Stiglitz:
At the current pace of “recovery” no return to normality can be expected until well into the next decade. A recent study by Federal Reserve economists concluded that America’s protracted high unemployment will have serious adverse effects on GDP growth for years to come. If that is true in the United States, where unemployment is 40% lower than in Europe, the prospects for European growth appear bleak indeed.
Exactly. As I explain in my forthcoming book, “Industrial Poverty”, Europe is in a state of permanent stagnation.
I am glad Stiglitz has come to the right conclusion regarding the nature of the crisis (and he does not have to feel ashamed that he reads this blog…). What troubles me, again, is that he is such a hopeless socialist when it comes to designing crisis solutions:
What is needed, above all, is fundamental reform in the structure of the eurozone. By now, there is a fairly clear understanding of what is required: • A real banking union, with common supervision, common deposit insurance, and common resolution; without this, money will continue to flow from the weakest countries to the strongest. • Some form of debt mutualisation, such as Eurobonds: with Europe’s debt/GDP ratio lower than that of the US, the eurozone could borrow at negative real interest rates, as the US does. The lower interest rates would free money to stimulate the economy, breaking the crisis-hit countries’ vicious circle whereby austerity increases the debt burden, making debt less sustainable, by shrinking GDP.
Please, no. First of all, the banking union would only serve the same purpose as the currency union, namely to extend a shield of artificially high credit worthiness from strong economies within the euro zone to the weak, poorly run countries on the southern rim. That artificial jag-up of credit was what allowed Greece, Portugal, Spain and Italy to borrow boatloads of money despite the fact that their economies and their fiscal policies were basically unchanged from when they had their own currencies. The banking union would do the same for private banks.
Secondly, the “debt mutualization” idea has been floating around for a long time. Superficially it is a good, or logical, idea: now that all these countries have the same currency, why not issue one and the same series of Treasury bonds for every country in the euro zone? However, this would only reinforce the skewed credit evaluation of euro-zone countries that came about as a result of the currency union. Put bluntly: German taxpayers would be responsible for Greek debt, not just de facto as is the case today, but de jure.
The only way that this could work is if all fiscal policy is completely centralized. That, however, would require the creation of a full-blown federal government in Europe. Given the huge democratic deficit that currently exists in the EU – with first and foremost the toothless parliament and the appointed executive office – this would only strengthen the forces that grow government at the expense of taxpayers and private businesses.
Third, Europe does not need more, cheap money. As I explained at length recently, Europe’s businesses and households are not borrowing for lack of money in the banks. They refuse to borrow because they have no good outlook on the future.
Back to Stiglitz:
• Industrial policies to enable the laggard countries to catch up; this implies revising current strictures, which bar such policies as unacceptable interventions in free markets. • A central bank that focuses not only on inflation, but also on growth, employment, and financial stability • Replacing anti-growth austerity policies with pro-growth policies focusing on investments in people, technology, and infrastructure.
His “industrial policy” point suggests that government needs to grow to help the European economy grow. But every time I review data of the size of government and economic growth, the inescapable result is that the smaller government is, the better the economy performs. Perhaps Stiglitz should go back and take another look at the “performance” of the Venezuelan economy?
As for the central bank idea, the European Central Bank is effectively already doing everything that Stiglitz is asking for. This is, in other words, a moot point. So is his third point, despite its note about the negative effects of austerity: unless and until he gets more specific, his criticism does not serve as the platform for an alternative that he sets it up to be.
Then Stiglitz goes on to try to make the case that central banks cannot be left independent, but must somehow be enrolled in the big government conglomerate that is his vision of our future:
Much of the euro’s design reflects the neo-liberal economic doctrines that prevailed when the single currency was conceived. It was thought … that making central banks independent was the only way to ensure confidence in the monetary system; … independent US and European central banks performed much more poorly in the run-up to the crisis than less independent banks in some leading emerging markets, because their focus on inflation distracted attention from the far more important problem of financial fragility.
No, the reason why the economies of advanced industrial economies have taken such a beating in this crisis is that they have advanced, over-sized welfare states. I have explained this at length on this blog, and – again – more is coming in my book.
And just to get a little taste of his socialist vision:
Finally, the free flow of people, like the free flow of money, seemed to make sense; factors of production would go to where their returns were highest. But migration from crisis-hit countries, partly to avoid repaying legacy debts (some of which were forced on these countries by the European Central Bank, which insisted that private losses be socialised), has been hollowing out the weaker economies. It can also result in a misallocation of labour.
And exactly how does Stiglitz define “misallocation of labor”?? There is no better way to determine where labor is best allocated than the free market. Or would professor Stiglitz suggest that countries with a higher degree of central economic planning somehow allocated their labor better than free-market based economies?
Is professor Stiglitz seriously suggesting that it is better to keep all unemployed Greeks in Greece than to allow them to pursue a better economic future abroad? Evidently, that is his vision.
Europe does not need more government. Anyone who proposes more government for Europe must answer two questions:
a) Why was government not big enough to prevent the crisis? and
b) When is government big enough?
As I have explained on numerous occasions, Europe’s crisis is not a regular recession. It is a structural crisis that will change the European economic landscape for the foreseeable future. The children now growing up in Europe will live a life less prosperous than their parents, who are now in their 30s or even 40s, who in turn find themselves having to work harder than their parents to achieve the same standard of living.
With youth unemployment exceeding 20 percent in most EU member states, and GDP basically having ground to a halt, the young in Europe are fighting an uphill battle to just get a start on some kind of self-determined life. This, together with widespread unemployment among adults and no end in sight to the crisis, opens the door to a grim future for the Old World. The only way to avoid this scenario is for Europe’s political leaders to give up on the welfare state and let loose the private sector. Free-market Capitalism, for short.
Sadly, that is probably not going to happen. Instead, more and more voices are calling for the continent to double down in defense of the welfare state. The EU Observer reports, starting with an essentially valid but not exactly meaningful criticism of current austerity policies:
Up to 25 million more people in Europe are at risk of poverty by 2025 if governments continue with austerity policies, international aid agency Oxfam has said. In a study released Thursday (12 September) ahead of an EU finance ministers’ meeting this weekend, Oxfam said there are lessons to be learnt from deep cuts made to social spending in Latin America, South East Asia and Africa in the 1980s and 90s, where it took 20 years to get back to recover.
So long as austerity is focused on preserving government in a tighter economy, it will have disastrous effects on the economy. If instead austerity was motivated by a genuine ambition to roll back, and eventually eliminate, the welfare state, then the situation would be much better for the private sector. A roll-back strategy combines spending cuts with well-designed, targeted tax cuts to give the private sector room to replace what government is cutting back on.
Unfortunately, rolling back government is the last thing Europe’s politicians want to do. Their sole purpose with austerity is to save as much as they can of the welfare state, even if it means destroying the future for generations of Europeans. What Europe needs is free-market reforms, lower taxes, a gradual privatization of the welfare state and constitutional reforms to guarantee that big government never happens again.
Again the voices in favor of such reforms are few and far between while the voices with the opposite message are loud and high-pitched. Euractiv again:
“These policies were a failure: a medicine that sought to cure the disease by killing the patient. They cannot be allowed to happen again. Oxfam calls on the governments of Europe to turn away from austerity measures and instead choose a path of inclusive growth that delivers better outcomes for people, communities, and the environment.” Greece, Ireland, Italy, Portugal, Spain and the UK – countries that have pursued budget cuts most aggressively – are soon reaching the rank of most unequal countries in the world. “The gap between rich and poor in the UK and Spain could become the same as in South Sudan or Paraguay,” said Natalia Alonso, head of Oxfam’s EU office.
This is precisely the wrong way to go. Income differences are irrelevant, and to see why, let’s ask Natalia Alonso where she would prefer to live the life of a poor citizen, the United Kingdom or South Sudan.
Nevertheless, the consequences of this focus on “inequality” is that strong voices are pushing for a restoration not of the prosperity-producing private sector, but the prosperity-consuming welfare state. By throwing in comparisons to deplorably poor, undeveloped countries with questionable property-rights traditions and economies perforated by corruption, statists turn a blind eye to structural and institutional factors that really matter in building free, prosperous societies. The Euractiv article on the Oxfam report is a case in point. Having mentioned South Sudan and Paraguay in passing it moves focus back to Europe:
As an example, mortgage laws in Spain see banks evict 115 families from their homes every working day. Meanwhile, almost one in ten working households in Europe now live in poverty and the trend is worsening, the report notes. Child poverty is also rising and workers who do get paid often do not have enough to support their families. In the UK and Portugal, real wages have fallen by 3.2 percent over 2010-2012. The real value of wages in the UK is now at 2003 levels. Italy, Spain, and Ireland all recorded decreases in real wages over this period. Greece has recorded a fall in real wages of over 10 percent.
Yes, Europe is turning into an economic wasteland, and poverty is returning. As an example, Greek unemployment is still rising, hitting 27.9 percent in July. But to somehow compare that poverty to what the South Sudanese experience is intellectually disingenuous. Europe’s population is sinking into industrial poverty, a new form of poverty, best compared to what people in Eastern Europe experienced under the Soviet era. They had access to most of the basic products you expect in an industrialized society, but at basic quality and with no prospect of ever being able to improve their lives. This is a bad future for Europe, and a waste of an economic heritage from generations of hard-working Europeans, but it is still a life vastly better than the life the poor endure in South Sudan.
That said, the medicine for eliminating both forms of poverty is largely the same. Industrial poverty is the result of the welfare state, and can only be eliminated through the elimination of the welfare state. That means doing away with the destructive consequences of decades of social democracy, returning instead to free-market Capitalism.
By the same token, the only remedy for poverty in an under-developed country like South Sudan is free-market Capitalism.