Dangerous Times: Milton Friedman just won his euro bet
Even as President Obama is following in Eurosocialist footsteps, the 14-year utopian experiment on a single currency is collapsing. The architect of the euro just ran up the white flag on the biggest policy mistakes in history. Former German Finance Minister Oskar Lafontaine called his own brainchild a "catastrophe".
"The economic situation is worsening from month to month," he wrote on his Left party blog. "unemployment has reached a level that puts democratic structures ever more in doubt."
"Catastrophe" is the right word.
Today Greece is suffering more than 50% unemployment. That's worse than the Great Depression in the US. This winter in Athens, people cut down the trees in the city parks for firewood. They couldn't afford to buy heating fuel. The resulting wood smoke created the worst smog in decades, obscuring even the Parthenon. About half of the younger people are leaving the country.
Ireland, Spain, and even France are in distress. The Netherlands economy is the worst in half a century. Only Germany is still going strong, and that fact is creating deep resentment. Germany can afford the euro. Other countries can't. The industrious Germans make the euro expensive, while being shackled to the same currency makes Greek and Italian exports harder to sell. A single, one-size-fits-all currency can't adjust to market conditions in widely varying spocieties and economies
Milton Friedman predicted this outcome, based on his life's work in economics. Forbes wrote an article last year, called, Happy Birthday, Milton Friedman, The European Crisis is Your Latest Vindication.
"July 31st (2012) was Milton Friedman's 100th birthday, and his birthday present is to watch the 'European Project' come crashing to the ground, just as he predicted that it would. I doubt that it gives him any pleasure. In fact, Friedman told Robert Mundell (the 'Father of the Euro') that since the experiment had already been entered into, he hoped that he would turn out to be wrong. But he hasn't been."
For econophiliacs, the detailed debate between Friedman and Mundell can be found here.
The details are dizzying, but the basic question is whether free markets work for currencies as well as goods and services. Before the rigid euro, Greece could lower its currency to sell olives and wine cheaply enough to compete on the world market. A cheaper Greek drachma could attract tourists by the millions.
But today the euro is fixed around $1.25 and Greece has lost its relative advantage. Olives from Argentina are now cheaper. Result: A shrinking economy that cannot support a growing population, a generous old-age pension plan that cannot be paid out, a welfare system designed to attract cheap immigrant votes for the left and damn the consequences, and a 24/7 propaganda campaign about the glories of the European Union that is suddenly out of touch with everyday reality.
When times were good, Greeks came to live in Athens. Many bought luxury BMW's, because the welfare state was subsidized by the EU. Then the Germans realized that the Greek budget was a pack of lies. The southern rim of Euorpe has a long, long history of tax evasion and corruption, in good part because there have been few honest governments. Everybody lies to the taxman because they know the system is rigged. Everybody has a way of fiddling the system. Many people hold double jobs to get double incomes. In two and half millennia, that's the only way ordinary people can deal with corrupt and self-serving rulers. The EU is hardly free of corruption itself.
When the wealthier half of Europe started to realize it was subsidizing a giant sinkhole, the European Central Bank finally insisted on realistic accounting and deep spending cuts in Greece, Italy, Spain and the rest. The result was extremely painful to regular people, the kind of economic pain that Americans knew in the Great Depression.
Today the Germans blame the Italians and vice versa. France is still trying to dance on a tightrope, relying on Germany to rescue it, because the Franco-German political alliance is the core of the European Union.
For Americans the bottom line is that free market economics has won a major battle in a long debate. The European Union placed its bets on a single, top-down currency. Free market economists saw how dangerous that was.
Milton Friedman is out of fashion these days, with Keynesians like Paul Krugman sounding fanatically convinced that goverments can control markets. We are spending trillions of deficit dollars on the theory that massive injections of money will get us out of the Long Recession -- any day now. Krugman has been cheerleading that oompah band for five years, but it isn't working. We are still not growing.
Why not? Krugman argues we aren't spending enough. Friedmanites say we are spending way too much.
And you know where Obama stands. For Obama and his cronies there's no way the Feds can waste money. Green energy from bacteria? Chicago Carbon Exchange? If you can tax carbon you can trade it. All you need is millions upon millions of suckers, and that's where the mendacious media come in.
Before scientific medicine, bleeding was a sure cure for any number of diseases. Doctors would carry little scalpels in their pockets to open their patients' veins to purge those toxic humors. If the patient died, too little blood had been drawn. Or it might be too much. Either side could explain their failures, after the fact.
Europe's economies are sick today, and German economists now recommend less spending. But next door France parades economists who support higher taxes and no budget cuts.
Sounds familiar? If the patient dies either side has an explanation. Maybe it was too much spending. Maybe it wasn't enough.
Ordinary people are now suffering because of arrogant EU decisions taken in 1999. This is the "catastrophe" Lafontaine was describing. But he is a Eurocrat, after all, and he will never admit that he personally made any mistakes in launching this giant Hindenburg balloon in the first place.
Nobody is ever wrong in Europe, as in the Obama Administration. Even after admitting failure Mr. Lafontaine will not take responsibility for his brainchild. No, he tells us that he was right all along. Instead, Lafontaine blames other countries for "not acting rationally."
This is a human-made disaster. It could have been avoided, but the European ruling class was seduced by the imperial glory of its "new" model of a welfare state with peace and love forever. That is what Europroganda has been telling the world for more than a decade. Kids who grew up believing in that are now falling for idiotic conspiracy theories to explain the impossible: That EUtopian welfare could be vulnerable to market forces. Nobody told them.
Europeans have been going along with the farce of pseudo-electoral governments. The European Union has no elected representatives with real power. Elected Members of European Parliament have no power. Unelected bureaucrats appointed by Germany and France have all the power. The EU has a nice building, but it's a pure front.
As a result, the fear and panic in Italy, Greece, Ireland, and the rest is not being heard by the ruling class in Brussels. Like bureaucrats throughout history, the EU is most interested in its own power and privileges. They are an unaccountable aristocracy.
Today we are seeing CYA all around. Britain, France and Germany are telling three different lies, which all leave them blameless. Millions of people are suffering and the elites only care about saving themselves.
Apres nous, la deluge.
Meanwhile everybody is out for themselves.
Will somebody tell Obama?
Would he care?