Manhattan Contrarian

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Europe In The Grip Of Fallacy Economics

Today's Wall Street Journal contains multiple articles on the continuing sluggishness and/or decline of some of Europe's major economies, and the "remedies" proposed by their incompetent government-aggrandizing politicians.  The unquestioning acceptance of the usual fallacies is literally beyond belief -- and not just among the politicians, but also by the WSJ writers.  Help!

​Since the articles are behind pay walls, I will include quotes of the key parts.

The front page headline is about Spain:  "Still Sputtering, Spain Turns Away From Cuts."  Seems that the latest figures from Spain show that the unemployment rate has gone up to an astounding 27.2%  What's the proposed solution?  Better go easy on the "austerity"!  There's that deceptive word again, invoking the usual confused melange of tax increases and spending cuts to keep anyone from trying to shrink the government.   ​

On Friday, the government is expected to announce new, less-stringent deficit targets, which means it won't have to take significant new austerity measures.

​How did Spain get in this mess?  You won't find any information on that in these articles or in the quotes from various government officials.  But perhaps try the Heritage Foundation page on Spain here.  Deficits averaging near 10% of gdp since 2009.  Top income tax rate of 56%, higher than even California and New York City.  Uncompetitive corporate income tax rate of 30%.  Wild spending on ridiculous renewable energy boondoggles.  Government spending as a percent of gdp not as out of line as many others in Europe at 44%, but still way too high.   Do they really expect anyone to keep investing in their bonds if they keep running deficits of 10% of gdp indefinitely?  So they force the banks to buy the debt, and the banks are then insolvent, cutting off business lending in the private economy.   Since taxes are already uncompetitively high, Spain has only one way out of its mess, which is big shrinkage of the government.  They invoke the deceptive "austerity" bugaboo to ward that off.  You'd think at least the Wall Street Journal would be alert enough to call them out.

In another article on page A-16 ("Europe's Unemployment Problems Worsen") we branch out into other European economies like France and Portugal.​  "In France, the number of registered job seekers who are fully unemployed rose to more than 3.2 million, topping a previous record set in 1997."  What does the economic genius Francois Hollande have to say about that?

In, France, President Francois Hollande has championed the charge for greater emphasis on growth, arguing that more austerity at this point is a risk, not a remedy to Europe's crisis. . . .  With no economic growth expected this year, Mr. Hollande is pinning his hopes on state-sponsored incentives for employers to make good on his pledge to start bringing unemployment down by the end of the year. 

This would be the France where government spending already is an astounding 56% of gdp, the corporate income tax rate is 34.4%, and they're trying to implement a top personal income tax rate of 75%.​  The private sector has become a small and shrinking part of the economy, shoved off into some little corner.  Of course the economy is dying, and of course Hollande is recommending "growth" through yet more government spending.  If government spending at 56% of gdp brings sluggishness and decline, does anyone really believe that 60% will bring growth?  How about 80%?  Anybody with a brain knows that this is the route to North Korea.  But there is barely a single politician in Europe with a brain.  (That would be Vaclav Klaus.  Try to name another one!)  

Perhaps you think the Germans are a little smarter?​

But Jorg Asmussen, German Chancellor Angela Merkel's appointee to the European Central Bank's executive board, spoke out in defense of austerity, calling it the only way for countries to secure long-term stability.​

The Germans then are equally incapable of distinguishing spending cuts (government shrinkage) from tax increases (government growth) as elements of economic policy.  Pathetic.​

As to Portugal and Spain:​

Portugal this week presented an ambitious stimulus program aimed at growth, and the Spanish government is expected to outline a similar shift on Friday.​

Japan has had well over 20 years of "stimulus" and stagnation.  The U.S. blew through almost a trillion dollars on "stimulus," raised government spending by about 4% of gdp and has had a stagnation ever since.  France has government spending at 56% of gdp and stagnation.  What's the solution?  More government spending!​

We can confidently predict that the sequence of debt crises in Europe and the economic stagnation are not going to end any time soon.​